Fiscal incentives and direct foreign investment in less developed countries

This study found no support for the belief by the governments of most less developed countries (LDCs) that the provision of fiscal incentives is necessary to attract direct foreign investment and that the greater the generosity of these incentive programmes the greater would be the level of such investment. What mattered were the presence of natural resources and a proven record of economic performance. The provision of incentives could not compensate for the absence of either of these two factors. The study is a cross‐sectional one of 27 LDCs for the period 1965–73.     

List of Referees & End Matter

The Editors of The Journal of Development Studies wish to acknowledge the assistance of the following persons who have served as referees between August 1999 and July 2000.     

Investment demand in early stages of growth: The case of Philippine manufacturing

Theories of economic growth have traditionally minimized the problem of effective demand by assuming that the only limit to investment is the volume of savings from all sources. We explore this assumption by investigating the nature of the investment demand function for a cross‐section of 160 manufacturing companies in the Philippines. We regressed investment on a number of variables suggested by theory, such as the rate of profits, lagged sales, etc. The major conclusions are as follows: (1) For small firms, investment is mainly dependent on the rate of retained earnings. (2) The dominant importance of internal fund sources for small firms is due to their view that maintenance of complete control is a primary constraint on investment policy. (3) Large firms’ investment, in contrast, depends mainly on accelerator affects, and and their investment behaviour is generally similar to firms in developed countries as described by Eisner and others. (4) Foreign firms generally exhibit behaviour similar in many respects to small firms, partly because of their reticence to share control with local residents. (5) Depreciation is not nearly as important an explanatory variable for gross investment as in developed countries, partly because of the difference in the relative sizes of capital stock and investment. (6) In numerous industry regressions we investigated the impact of tax exemption on investment, and conclude that tax exemption is not an effective policy tool for achieving significantly different investment rates. (7) A plausible general inference from our findings is that as development proceeds and the size composition of firms changes in favour of larger, possibly publicly owned enterprises, the economy‐wide investment demand function is likely to become more accelerator‐oriented in its behaviour.     

Wage determination in Brazil: The growth of union bargaining power and informal employment

This article examines wage determination in Brazilian manufacturing during the 1980s and early 1990s. It presents evidence to show that the reduction in state regulation of collective bargaining has led to the development of a system of wage determination which is increasingly characterised by rent sharing and insider trade union bargaining power. Real wages appear increasingly inflexible with respect to movements in open unemployment, with a large informal sector disciplining formal sector wage bargaining and cushioning the impact of broader labour market conditions. An important consequence of this is that the employment costs of a successful counter‐inflationary strategy may be very severe.     

Modern dependency: A “crucial case” study of Brazilian government policy in the minicomputer industry

Conclusion Brazil’s minicomputer industry has become dependent on government import policy, government financing and domestic private business. The growth in the domestic component of this industry between 1974 and 1981 suggests that incremental government policies (short of a transformation to socialism) can alter Brazil’s level of dependency on MNCs, concerning at least one industry–the minicomputer industry. Therefore, the Brazilian minicomputer model advances the dependency question from “what is dependency and why does it exist?” to “how can one improve its position in a dependency situation?” Relative success in the minicomputer industry cannot be construed as victory over Brazil’s dependency on MNCs, which may alter its economic and political relationship with other countries. Instead, it illustrates a viable model for improving a developing country’s dependency situation. This infant industry strategy is given more credence due to the rekindling of protectionism by all nations. A definitive evaluation of Brazil’s minicomputer policies cannot be rendered until this industry has progressed in its growth cycle. As indicated earlier, signs of both success and failure are evident. In addition, several events may restrict growth in Brazilian minicomputer firms: (1) restriction of funds due to the enormous foreign debt, (2) corrupt or inappropriate management, (3) unsuccessful transfer of technology, or (4) intrusion of smaller and less expensive microcomputers into uses now served by minicomputers. Thus, how effectively Brazil can get out of its overall dependency trap will depend not only on how well it can apply the minicomputer industry model to other industries, of course, given that the model does succeed in the long–run. But it will also depend on how well Brazil can deal with the problems listed above. 0259 0255 V 2     

The structure of employment and structural adjustment in the Philippines

Growth in the 1970s seemed, at that time, to have brought the Philippines to a rather high equilibrium growth path. But the foreign debt and political crisis in the early and mid‐1980s had brought the economy down to a lower equilibrium path. The recovery years (1987 to 1990) did not prove to be sustainable, given the extreme debt overhang, so that the economy retreated once again to the lower equilibrium path in the early 1990s. Significant debt reduction schemes and the new inflows (remittances of overseas workers and rising foreign investments) allowed a new growth trend. Whether sufficient growth can be maintained in the medium and long term will depend to a large part on uncontrollable external conditions. Significant improvements in trade and industrial policies are needed so that external deficits and imports will finance those sectors that allow for creation of high quality employment. Policy will have to shift resources away from the trade, real estate and other service sectors to strong tradeable manufactures. If the Philippines cannot get out of the boom—bust cycle, labour productivity in the medium and long term will stagnate and the share of those employed in the total labour force will remain stable, leading to stagnating employment opportunities and worsening income distribution.     

The decline of an export industry,or the growth of Peruvian sugar consumption in the long run

Growth of domestic consumption of agricultural exportables is a neglected aspect of LDCs’ long‐run primary export performance. Price and income elasticities of local demand for specific exportables vary with economic development, so the Peruvian sugar industry was chosen to illustrate how and why such changes occur. Elasticity estimates for different types of sugar are presented for several time periods between 1913 and 1978. A comparison of these results with those of other researchers suggests that aggregating raw, refined and plantation white sugar consumption may bias income elasticity estimates for refined sugar upwards, and price elasticity estimates downwards.