| A6) INDUSTRIAL UPGRADING |
| BD3) Investment motivation: Efficiency-seeking |
| C) No associated measures |
| BD6) Investment destination: Less developed economies |
| C1) Institutions |
| C2) Regulations |
| C4) Financial support |
| BD6) Investment destination: More advanced economies |
| C) No associated measures |
| BD7) Absorptive capacity |
| C1) Institutions |
| C9) Maximising benefits |
| BD8) Transmission channels: Competition effects |
| C9) Maximising benefits |
Efficiency-seeking investments into low-end industrial activities in less developed economies have the potential to induce shifts from low- to high-end industrial activities in the home country as low-end activities are moved offshore. This can then result in domestic industrial upgrading. Investments in less developed economies could be promoted through institutions with mandates that require them to focus on OFDI in developing host countries, as well as financial support measures. Regulations could be eased for investments in developing countries, which could, at the same time, be monitored for appropriate corporate conduct in these countries. Efficiency-seeking investments could also be directly targeted, though in practice such investments are not regularly supported by HCMs.
In addition, competition effects from OFDI in more advanced economies could induce industrial upgrading as firms are forced to improve their capabilities in the face of international competition. Investments in more advanced economies could thus also be directly targeted, though in practice such investments are not regularly supported by HCMs.
Moreover, efforts should be made to promote the absorptive capacity of the home economy and its firms to facilitate industrial upgrading. Absorptive capacity can be strengthened by establishing institutions whose objective would be to build up and enhance domestic competitiveness and skills. Such prerequisites can then help maximise the know-how and technological gains from OFDI. Similar measures could help assure that the positive outcomes from competition effects are transmitted back to the home country.
Key insights
- The enhancement of home-country industrial upgrading could be promoted especially by targeting financial support measures at suitable investments in less developed economies and establishing institutions that focus on investment in these economies.
- To benefit more effectively from the industrial upgrading effects, efforts should be made to strengthen the absorptive capacity of the home economy and its firms, which can be achieved especially through efforts at maximising the benefits from OFDI and the establishment of institutions aimed at supporting the build-up of domestic competitiveness, skills, etc.