Services Imports, and Foreign Direct Investment Flows, 1990–2017

for exporting and job creation has been shown to be true for both advanced and developing economies (Freund 2016). The empirical results in this report confirm the importance of large, high-productivity South Asian firms in making outward investments. While promoting competition, firm entry, job creation, and support to small and medium enterprises, governments at the same time should not constrain the growth of large, high-performing firms. The most positive results emerge when governments and large firms recognize that they are partners in national development.

Policy makers need to be cognizant of the evolving industrial landscape and changes in business dynamics. Policies, capabilities, and incentives should adapt to these changes. The pioneer case studies in the apparel industry, for example, indicate that policy making needs to recognize the importance of more sophisticated logistics infrastructure driven by “fast fashion” and low-inventory stock management strategies (although this may be tempered by the COVID-19 experience). Similarly, in agri-food processing, given the increasing demand for fresh fruits, vegetables, and fish, investments in cold chain infrastructure may be superior to promoting standard value-added activities, such as canning these products.

Some industries are seeing a movement toward asset-light approaches (for example, hotels), which implies that flows of capital may not be of the same order of magnitude as experienced previously. Nevertheless, cross-border relationships that transfer knowledge and skills are still important and need to be facilitated and supported.3 The dramatic growth in international licensing of intellectual property is depicted in figure 5.1. Government policies, digital infrastructure, and financial architecture should be able to support these welfare-enhancing deals that do not necessarily come with large capital flows.

FIGURE 5.1 Trends in World Trade in Goods versus Intellectual Property Payments, Services Imports, and Foreign Direct Investment Flows, 1990–2017

Index: 1990 = 100 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 1990199119921993199419951996199719981999200020012002200320042005200620072008200920102011201220132014201520162017

Intellectual property payments (BoP) FDI inflows Services imports (BoP) Goods imports (BoP)

Source: Adapted from UNCTAD 2019. Note: BoP = balance of payments; FDI = foreign direct investment.