Making Foreign Direct Investment Work: Weaknesses and Prospects in Nepal
Author: Shankar Nepal
Kathmandu
Introduction
Over past two decades, in search of capital and technology, many developing countries, have been striving to attract more and more foreign direct investment (FDI). As neoliberal idea is dominating the contemporary world, many developing societies have also sought to achieve comparative advantages through policies and legislations rooted in neoliberal ideology, rather than escalating the growth rate by absorbing technological knowhow. Many of them, in this course, liberalized their economy. However, very few of them have been able to attract FDI significantly. Countries which have less liberalized policy in neo-classical terms, namely, China, India and Brazil have received 50 per cent of FDI flows to the developing world as a whole.” (Murshed, 2003: 40). Although the neoclassical assumption is that FDI flows to developing world to seek comparative advantage due to cheap labour, a International Labour Organization (ILO) study shows that 55.5% of FDI occurred within developed countries and only 38% went to the developing ones (Ghose, 2000: 41). And, China alone took 33% of FDI shares flowing towards developing countries. To add this trend, Palley has aptly remarked that firms intentionally redirected their investments to take advantage of undemocratic conditions
(Palley, 2004: 25). Against this trend, it would be appropriate and interesting to review
Nepali ventures with FDI. This article is a modest attempt to analyze the idea and experience of Nepal on FDI front so as to explore some policy feedback.
Mostly, the developing countries have problems on adopting an ideal while attracting
FDI strategically. The new circumstances created by the World Trade Organization
(WTO) with Trade Related Investment Measures (TRIMS), Trade Related