Introduction

Direct private foreign investment, the total of which reached $1.3 trillion in 2000, has been fairly concentrated on the middle-income developing countries. Under thirty middle-income countries account for over 90 percent of total direct private foreign investment to the developing countries, and within this group Brazil and Mexico, joined more recently by Singapore, Malaysia, and especially China, dominate the figures. In 2002 China has become the leading recipient of direct foreign investment, exceeding that of the USA, previously the largest recipient. But 2001 and 2002 have seen a reduction for most other recipients, though not as large a reduction as that to developed countries. But the small flow of investment (of the order of 5 percent of total OECD flows) to the poorest countries does not necessarily reflect its importance. First, even these small flows may be quantitatively important in relation to the economy of a particular poor country. Second, even quite a small amount can be more important than the quantity indicates if it contributes a missing component, breaks a bottleneck, or has spread effects on the rest of the economy in technology generation, employment creation, or foreign exchange earnings. Since it cannot be expected that the total quantity of investment to the lowest-income countries will increase by much very quickly, or that host governments can do much to influence it, it is all the more important to concentrate on measures that get the maximum multiplier effects from whatever small investment there is.