Methodological Problems in Assessing Developing Country Policy Toward Foreign Manufacturing Investment.

The subject of government policy toward foreign investment has become increasingly important, as developing countries have turned more and more to the private sector as a means of promoting industrialization. A government's policy in this context is a combination of the incentives and concessions it offers to attract investors, the requirements and conditions it imposes in order to influence and control the investments, and the mechanisms it uses to enforce the conditions and requirements. In order to achieve an optimum balance among these tools, governments would like to be able to evaluate the effects of the policy mix they choose. This paper discusses some of the weaknesses and potential pitfalls that exist at almost every link in the process of assessing the relationship between an LDC government's policies and the inflow of foreign investment. More generally, there are similar weaknesses and pitfalls in most methodologies available for research on policy events and their putative effects. In order to overcome these hazards, the analyst has to employ both careful thinking and ingenuity. He or she must also demonstrate integrity in acknowledging the limitations of the data and in framing conclusions that do not overreach that data.