1 Multinational Firms, Economic Development, and the Emergence of “Trade in Tasks”

Monty Graham’s views on the contributions of foreign direct investment (FDI) to economic development reflect his world view, which was shaped by economic theory. They are nicely summarized in the concluding chapter of Does Foreign Direct Investment Promote Development? edited jointly with Moran and Blomström (Moran et al. 2005). Under reasonably competitive conditions, FDI (and more generally, multinational corporations) can change the development trajectory by bringing “cutting edge ” technology and management expertise to the host country. A major factor here is the possibility of vertical and horizontal “spillovers ” of technological and managerial knowledge to local firms. While he certainly was cognizant of both the possible negative effects of FDI and the fact that the benefits were dependent on conditions in the host country, Graham saw FDI as a positive force in economic development. In Fighting the Wrong Enemy, for example, he notes that once one goes beyond the immediate financial benefit of FDI, one of its most important contributions is technology transfer. As the local subsidiaries of technologically sophisticated multinationals produce “…goods that embody the latest and best technologies, in a facility that uses state-of-the art production methods, ” multinational corporations (MNCs) can supply higher quality goods and services for host country consumers, pay higher wages to their workers, and inspire domestic rivals to improve their own products and processes (Graham 2000, 5)