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>A theoretical model to optimize foreign direct investment inflows: World class manufacturing best practices and spillover effects in value added activities.
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A theoretical model to optimize foreign direct investment inflows: World class manufacturing best practices and spillover effects in value added activities.
Multinational enterprises (MNEs) are known for the use and application of world class manufacturing (WCM) strategies in their processes across the board, and have played a vital role in the development of emerging economies. Multinationals perform R&D intensive activities, and are leaders in high technology export-oriented competitive products, as well as marketing activities as they operate internationally. Thus developing countries seek to attract multinational firms to build modern manufacturing industries, and especially to get access to knowledge and technologies than those available within the host country. Despite the important role that foreign direct investment (FDI) plays in the globalization of markets process, FDI inflows into sub-Saharan Africa (SSA) in general, and in Eastern African Community countries (EAC) in particularly, has been smaller than FDI flows into the rest of the world (UNCTAD, 2000). FDI is viewed as an engine and a powerful force for the integration of developing countries into the global economy (IMF, 1997; UNCTAD, 2000) and can influence host country's macroeconomic performance, improve host country's absorptive capacity, and can be the source of spillovers. Therefore, we undertook this study to investigate the environmental factors that influence the flow of FDI into the EAC countries (Kenya, Tanzania, and Uganda). We used country data to conduct regressions analysis and to explore whether host country market characteristics, social factors and country risk factors have any significant impact on FDI inflows in EAC countries. Our empirical analysis found out that host country market and social factors, and overall country risk factors, affect the size and the nature of FDI. Moreover, to understand the relative importance of MNEs as sources of knowledge and technology spillovers for the EAC countries, we conducted the ordinary least square (OLS) regression analysis to determine if FDI has emerged as the source of economic growth and value adding activities such as: industry value added (IVA) and manufacturing value added (MVA) growths, as well as manufacturing of high technology export-oriented products. Our objective was accomplished by building of a theoretical optimization process model that takes into account country risk factors to maximize FDI inflows, and enhance productivity spillover benefits.
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