How to attract FDI and maximize its benefits: part II
How to attract FDI and maximize its benefits: part II

Summary/Abstract: The studies mentioned above focus on FDI inflows into manufacturing sectors. However, FDI inflows into services industries may be beneficial to the host country as well. Foreign investors may improve and expand the set of available producer services and introduce international best practices. By doing so, they may also induce domestic competitors to make similar improvements. Given the limited scope for using cross-border trade to substitute for domestically produced services inputs, the performance of downstream sectors may be tied more directly to the quality and availability of services supplied by providers opera-ting domestically than is the case for physical intermediate inputs. Furthermore, the availability of high quality efficiently supplied services, especially backbone services (transport, telecommunications, ports management) is critical to participation in a new division of labor driven by global production networks based on production fragmentation. This is so, simply because interaction among “production blocs” of border-spanning production networks is particularly vulnerable to delays and disruptions between individual stages of the supply chain due to weaknesses in service links.

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