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A Micro Tale of a Trade-off: Structural Change Versus Balance of Payments Equilibrium in an Egyptian Foreign Investment Project in Algeria

  • Complutense University of Madrid & Elcano Royal Institute

Abstract and Figures

Resource-rich economies can find themselves trapped in a dilemma over whether to prioritize processes of structural change or to preserve their balance of payments equilibrium. The objective of national development strategies to diversify the productive structure might reflect on the attraction of foreign direct investment projects, with a negative impact on net exports-therefore leading to current account deficits and increased needs of external financing. This article analyses this macroeconomic trade-off, through the particular case of one Egyptian direct investment in Algeria by way of a cable manufacturing company. The case study is conducted following a previously elaborated methodological framework for the study of the development effects of foreign direct investment (FDI).
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Revista de economía mundial 45, 2017, 161-188
ISSN: 1576-0162
a micro talE oF a tradE-oFF:
Structural chanGE vErSuS BalancE oF PaymEntS EquiliBrium in
an EGyPtian ForEiGn invEStmEnt ProjEct in alGEria
MicRo Relato de un tRade-off:
caMbio estRuctuRal veRsus equilibRio de balanza de pagos en un
pRoyecto de inveRsión egipcia en aRgelia
Iliana Olivié
Profesora de la Universidad Complutense de Madrid
e Investigadora principal del Real Instituto Elcano
Aitor Pérez
Investigador asociado del Real Instituto Elcano
Recibido: septiembre de 2016; aceptado: febrero de 2017.
Resource-rich economies can find themselves trapped in a dilemma over
whether to prioritize processes of structural change or to preserve their balan-
ce of payments equilibrium. The objective of national development strategies
to diversify the productive structure might reflect on the attraction of foreign
direct investment projects, with a negative impact on net exports – therefore
leading to current account deficits and increased needs of external financing.
This article analyses this macroeconomic trade-off, through the particular case
of one Egyptian direct investment in Algeria by way of a cable manufactu-
ring company. The case study is conducted following a previously elaborated
methodological framework for the study of the development effects of foreign
direct investment (FDI).
Keywords: Foreign Direct Investment; Development; Algeria; Balance of
Payments; Structural Change.
Las economías ricas en recursos naturales pueden verse atrapadas en un
dilema: dar prioridad a los procesos de cambio estructural o preservar el equi-
librio de la balanza de pagos. El objetivo, presente en diversas estrategias de
desarrollo nacionales, de diversificar la estructura productiva puede pasar por
la atracción de proyectos de inversión extranjera directa con un impacto ne-
gativo en las exportaciones netas –llevando por lo tanto a déficits por cuenta
corriente y a una necesidad creciente de financiación exterior. Este artículo
analiza este trade-off macroeconómico mediante el caso particular de una in-
versión directa egipcia en Argelia, en una empresa de manufactura de cablea-
do. El estudio de caso sigue una metodología, previamente elaborada, para
el análisis de los efectos en desarrollo de la inversión directa extranjera (IDE).
Palabras clave: Inversión directa extranjera; Desarrollo; Argelia; Balanza de
pagos; Cambio estructural.
Revista de economía mundial 45, 2017, 161-188
The aim of this paper is to analyze the development effects of foreign di-
rect investment (FDI) at a micro level, by means of the study of an Egyptian
cable company settled in Algeria. More specifically, we will highlight a trade-off
between two development objectives (structural change and balance of pay-
ments equilibrium). This will be done by means of a methodology, previously
elaborated, for the analysis of development effects at the micro level (Olivié
and Pérez, 2014). Therefore, a secondary objective of this paper is to illustrate
this methodology.
We understand structural change to be a new growth pattern leading to a
different combination of productive factors, that in turn results in increased
productivity and competitiveness and, above all, triggers a diversification of
supply and (possibly) exports. Balance of payments equilibrium could be de-
fined as a situation where the current account is not recording acute deficits
–mainly as a result of increased imports– that would inevitably lead to in-
creased needs for external financing and, eventually, higher levels of external
debt and the draining of reserves.
We are approaching this debate the through analysis of the role played by
foreign direct investment (FDI) in these two variables (structural change and
balance of payments equilibrium) in a specific economy with an abundance of
natural resources: Algeria. More specifically, we have selected one investment
project by an Egyptian company whose core business is cable manufacturing.
On the basis of a previously defined methodological framework for the analy-
sis of the effects of FDI on development, we track the effects of this invest-
ment project on a series of development outcomes, with particular emphasis
on structural change and balance of payments equilibrium. Our aim is to build
a ‘narrative’ on the effects of a given FDI project on balance of payments and
structural change in Algeria, rather than attempting to assess the net macro
impact of FDI at the national scale. In other words, we explore the details of a
particular FDI-development nexus at the micro level: these results could not be
extrapolated at the macro level.
Moreover, this debate on eventual trade-offs between different develop-
ment objectives in the context of FDI attraction in Algeria connects with a
wider debate in development theories and policies. On the one hand, it could
1 Authors are grateful to the anonymous referee for useful comments.
IlIana OlIvIé, aItOr Pérez
be argued that countries should stick to Ricardian theories on trade and spe-
cialization. For the case of extractive economies such as Algeria’s, this would
mean taking advantage of the spectacular endowment in natural resources,
with huge reserves of oil and gas that have determined the nation’s economic
growth and export and fiscal revenues for decades. On the other hand, a more
interventionist approach (Keynesian, Structuralist or even Marxian) makes the
case for the creation of ‘new’ comparative advantages. This would make sense
to the extent that more diversified economies are less affected by the volatility
of commodity prices and less prone to international instability, and that extrac-
tive industries have a limited capacity for job creation; these and other effects
of abundant natural resources could be summed up in the concepts of natural
resource curse and Dutch disease2.
Actually, this tension between laissez-faire policies leading to over-special-
izations in natural resource-based economic activities and intervening govern-
ments driving processes of structural change to more diversified, productive,
and job-creating industries plots the contemporary economic history of most
developing and emerging countries (including Algeria, as will be seen in next
This article is organized as follows. The first section following this introduc-
tion resumes academic literature on the link between FDI and development,
making the case for a micro approach to this phenomenon. The second section
summarizes the role of FDI in Algeria’s development trends and strategies. Sec-
tion 2 sets out the methodology for our case study on the development effects
of a cable manufacture, the results of which are analyzed in section 3. The final
section presents our conclusions.
1. litEraturE rEviEw
As soon as Development Economics appeared as a specific field of research,
and more specifically with the advent in the 1970s of international industrial
relocation as a global phenomenon, economists began to focus on the effects
of FDI inflows to developing countries (Reuber et al., 1973; Lall and Streeten,
1977). There are few methodological and/or theoretical approaches to this
link (Dunning, 1981 and 1988; Narula and Dunning, 2000 and 2010; Moran,
2011). In the early 1980s, Dunning proposed a first step towards a theoretical
framework for exploring the way in which FDI (first inward, later outward) might
have an impact on development. This IDP (Investment Development Path) lit-
erature developed by Dunning (1981, 1988) and Narula and Dunning (2000,
2010) analyses the phenomenon holistically, and with a temporal dimension.
2 On natural resources curse see, for instance, Sachs and Warner (2001), Auty (2001), and Ross
(2004). Seminal works on Dutch disease include those by Corden and Neary (1982) and Krugman
3 On this debate, see for instance Amsden (1989), Chang (2002), or Cypher and Dietz (2009).
Revista de economía mundial 45, 2017, 161-188
a micRo tale of a tRade-off
According to the IDP, countries can progress towards economic development
by going through five stages, each of them characterized by distinctive features
of FDI, such as (1) the net flow, (2) the characteristics of inflows and outflows,
(3) the O advantages –features of the firm, (4) the L advantages –features of
the host country, and (5) the economic structure of the host economy. Accord-
ing to the IDP, different combinations of these features (for instance, how O
advantages interact with L advantages) will end in different impacts on devel-
opment, and these combinations will vary over time. However, the strong focus
on the technological aspects of investment as the main drivers to development
might be ignoring the impact of FDI on other variables linked to development,
such as employment, balance of payments, the role of civil society organiza-
tions, or the provision of basic goods.
In parallel to this theoretical attempt, a great deal of empirical analyses on
FDI and development appeared. Unlike earlier, more vague, approaches to the
FDI-development nexus, these tend to test the effects of foreign investment
via one or two macro variables in a given sector, in a certain country, and for
a specific period of time. The effects most frequently explored by this type
of literature include economic growth, innovation and technological spillover,
and productivity. Other research explores the link between FDI and local in-
vestment, trade, labor, institutional quality, the environment, poverty, human
development, and/or inequality4.
Most of these works tend to test whether and under what condition(s) a
statistical link is found between the two phenomena (FDI on the one hand, eco-
nomic outputs on the other). The research question in these cases is whether
and why FDI is good or bad for development. So, FDI inflows may have a posi-
tive impact on a particular variable (say, technological spillovers) in a particular
country (China, for instance) for a particular sector (such as the manufacturing
sector) for a certain period of time (the last 20 years, for example), all accord-
ing to a particular econometric methodology and a concrete source and set of
data, if some certain previous condition is met (say, absorptive capacity on the
part of the host economy).
Therefore, this body of literature faces a challenge –shared with other so-
cial sciences research areas– in that the methodological features of the em-
pirical, quantitative econometric literature on the conditions that determine
the sign and intensity of the impact of FDI on development fails to completely
explain how FDI impacts on development (Crabtree and Miller, 1999; Silver-
man, 2000). For instance, at the macro level, FDI can record a positive impact
on balance of payments equilibrium but this aggregate result could be hiding
a negative impact on that same variable of some FDI projects in a specific sec-
tor. Moreover, in the case that FDI could be broken down by sectors or even
specific projects and exports and imports could be disaggregated accordingly
4 A few recent examples are the following: Ndikumana and Verick (2008); Dragin et al. (2010); Ali et
al. (2011); Agbola (2014); Belloumi (2014); Cuadros and Alguacil (2014); Kumar (2014); Lessmann
(2013); Seyoum et al. (2014); Wang and Chen (2014); Zhang et al. (2014).
IlIana OlIvIé, aItOr Pérez
(something that is generally missing in databases), this type of methodology
(that is very efficient in picturing net effects), would lack the narrative on how
such effects are triggered. Why are those FDI projects import-intensive? Is it
because they are not competitive enough? Or are they outsourcing some ac-
tivities? On the contrary, is it because they cannot find the inputs they need
Academic literature has tried to respond to these challenges with studies
combining econometric and qualitative research techniques (such as Blalock
and Gertler, 2005) and also by more qualitative case studies on the impact
of FDI on development (for instance, Schrank (2004 and 2008) or Rugraff et
al. (2009a))5. Rugraff et al. (2009b) make a strong case for the case-study
approach in the exploration of the developmental effects of TNCs, as they
permit the use of disaggregated data and are flexible and rich in detail. In
more general terms, case studies can capture the multi-causal social, political,
environmental, and economic nature of different phenomena (Schrank, 2006).
However, like econometric analysis, qualitative approaches to FDI and de-
velopment approach the problematic with a ‘high degree of freedom’. Firstly,
there is not usually a methodological approach that can serve as a guide for
case studies on FDI-D: the unit of analysis varies, from the country to the sec-
tor of economic activity, or among different regions within the same country
and activity sector. Moreover, different variables and casual links are explored
from one case study to another. In this sense, case studies are so context-
specific that they might only be providing anecdotal evidence, adding too little
to the academic or scientific knowledge on a given phenomenon (Rugraff et
al., 2009b). Secondly, how do we know that the case chosen for the study is
relevant in any way?
As for the more specific body of literature on the FDI effects on Algerian de-
velopment, this deals, mostly, with push and pull factors of FDI in the country.
Martín (2001), Idir et al. (2005), Collado (2011), and Abid and Bahloul (2011)
focus on the (real or potential) determinants of FDI flows to North Africa and/
or to Algeria in particular.
Nonetheless, as pointed out by Salim (2008) and Bouzidi (2012), for the
case of Algeria, where domestic savings are abundant, the relevance of FDI
has mostly to do with its development effects –for instance, on the economic
structure and on local companies– and not so much on its potential as a fi-
nancing source.
According to Bouzidi (2012) several pre-conditions are necessary in order
to trigger those positive development effects – education and qualification
for knowledge transfer, and a strong business network for taking advantage
of incoming know-how; that is, a certain level of absorbing capacity on the
5 Actually, Rugraff et al. (2009a) compile several works with a wide geographical coverage, including
case-studies on Costa Rica, India, Africa, Central Europe, South Africa and Mali, Vietnam, or Ghana.
This book also takes into account the sector differentiation, with case-studies on the electronics,
mining or the pharmaceutical industry.
Revista de economía mundial 45, 2017, 161-188
a micRo tale of a tRade-off
part of the Algerian economy. Cecchini and Lai-Tong (2008) come to a similar
conclusion. FDI will have a positive impact on Algeria if primary and secondary
school enrolment rates surpass 55 per cent. In that same vein, Salim (2008)
underlines the potential of FDI in terms of technological transfer and balance
of payments equilibrium, as well as the limited effects on employment and
productive diversification. Martín (2001) warns on the risks of concentration
and polarization of the economic activity, which lead to increased domestic
2. ForEiGn dirEct invEStmEnt and dEvEloPmEnt in alGEria
Algeria is not –and has never been– a major destination for FDI. Previous
analyses on FDI inflows in the region point out two main reasons. On the one
hand, the economic structure is not FDI-attractive. Given that the economy is
highly concentrated in the hydrocarbon sector, the FDI potential is not diversi-
fied into a high number of sectors. On the other hand, national strategies on
FDI attraction might not be appealing, either. Like in other oil and gas econo-
mies, public control over property or natural resources (and the big investment
projects needed for exploitation) multiplies the capacity for influence of pub-
lic policies over foreign investment flows (in both quantitative and qualitative
The history of FDI in this North African country cannot be understood with-
out recognizing the role of the State in Algeria’s development model. A French
colony from 1830, the country gained independence in 1962, with the incom-
ing government adopting what was called the ‘revolution model’ – betting on
an industrialization process capable of changing the country’s post-colonial
productive role. This era saw the development of Algeria’s steel industry, the
creation of hydrocarbon poles, and the emergence of a textile industry (Che-
bira, 2008). This development model was financed by the revenues from abun-
dant natural resources, avoiding foreign investment at a political moment of
recovery of national identity. Through the 1970s and 80s, the weight of FDI
continued to decrease. According to UNCTAD data, FDI inflows to Algeria in
1970 represented 18 per cent of total inflows in the North African region, and
1.78 per cent of Algeria’s GDP. By 1990, these figures had decreased to 3.46
per cent and 0.06 per cent, respectively (figure 1).
At the same time, industrial and agricultural outcomes stagnated while de-
mographic growth exploded, leading to an increase of food imports. Shrinking
oil prices during the 1986 crisis frustrated the main driver of Algeria’s de-
velopment model and the financing capacity of the country (Chebira, 2008).
Increased political and social instability resulted in nullification of the elec-
toral process in 1991 – elections which had been won by the Islamic Salvation
Front. This marked the beginning of a Civil War that lasted until the end of the
The country recovered political stability in 1999, with the celebration of
new elections and the signing of an amnesty, accompanied by a new phase of
IlIana OlIvIé, aItOr Pérez
high oil prices. The possibility for external financing emerged anew. This pe-
riod heralded a timid opening to foreign capital and, in more general terms, a
process of reform and (perhaps timid) liberalization. In this new phase, FDI was
seen as part of the development process, given its technological transfer com-
ponent. Investment inflows took off and accumulated capital stock increased
by over four times in a decade. More precisely, during the 2002-2009 period,
FDI inward stock and inflows increased at an average annual rate of more than
18 per cent and 17 per cent, respectively (Figure 1).
FiGurE 1. Stock and FlowS oF Fdi to alGEria and north aFrica (millionS oF currEnt uS dollarS)
Source: UNCTAD.Stat
More recently, in 2009, a new turning point came regarding foreign investment
and the role of the State in the development process, with the introduction of a
new regulatory framework for TNC activities. According to representatives of the
Agence Nationale de Développement de l’Investissement (ANDI), this regulatory
change resulted from the evaluation of FDI-attraction measures adopted three
years before. This evaluation found mixed results on FDI in Algeria. It identified
an excessive rate of benefits returned to home countries, and high imports that
weakened the balance of payments in a context of the international financial cri-
sis. Nevertheless, this turn in FDI strategy can also be explained as a result of the
struggle between the most extreme pro- and anti-reform sectors within the Ad-
ministration. Those most reluctant to liberalize the entry of foreign capital (those
that propelled regulatory and other changes in 2009) could be motivated in part
by the control of revenues, on top of the sense of independence that comes with
national ownership of resources.
In any case, the new legislation on investment established requisites in four
fields: (1) transnational companies (TNCs) need to have a positive impact on bal-
ance of payments; (2) implementation of a national taxation on profits; (3) newly
established companies must have a national partner (either public or private) hold-
ing 51 per cent of stock – on the basis that joint-ventures can facilitate external
technological transfers; and (4) the investment project must be financed with Al-
gerian banking capital – meaning that the international financing of projects is
forbidden, with the aim of limiting external financial dependency and energizing
Revista de economía mundial 45, 2017, 161-188
a micRo tale of a tRade-off
the local financial system (Chebira, 2008; Bouzidi, 2012). According to ANDI rep-
resentatives during a meeting held under the framework of this research, this regu-
latory change also meant the identification of key sectors and targeted develop-
ment impacts such as technological transfer, local development, job creation, and
productive diversification. The implicit assumption is that the Algerian economy
will be in a situation of vulnerability so long as it depends on hydrocarbons to the
extent it does currently. On top of the inherent weaknesses of a mono-productive
mono-exporter subject to swings in oil prices, Algeria’s production capacities are
limited and could be seriously drained within 20 years. According to that same
source, these are the reasons why the local Administration needs to be much more
selective with regard to FDI projects.
Currently, and since 2004, strategic sectors (as defined by the Comission Na-
tionale des Investissements (CNI)) where projects managed by the ANDI need to
focus include agriculture, fisheries, tourism, industry, health, transport, ICT, and
renewable energies6.
In short, the Algerian authorities have been targeting three main objectives
with this new regulatory framework: structural change (productive diversification,
technological transfer via joint-ventures), balance of payments equilibrium (hinder-
ing profit repatriation, forcing local financing), and the contribution to local public
goods (via taxation of companies). As will be shown in section 3, there may in fact
be a ‘natural’ trade-off between these objectives, particularly when trying to foster
structural change while guaranteeing balance of payments equilibrium.
Four years after these regulatory changes, the objective of balancing current
and financial accounts had been achieved. The so-called ‘49/51 law’ (and possibly
other elements, such as the Arab Spring throughout the region) has definitively
had an impact on the external financing of Algeria. During the 2009-2013 period,
according to UNCTAD.Stat, FDI inflows had decreased by more than 8 per cent
annually. However, from a wider financial point of view, in that specific juncture,
this was not posing a major problem to the Algerian economy. According to World
Bank data, previous to the implementation of the regulatory change, Algeria had
been recording enormous current account surpluses in parallel to skyrocketing
international crude and gas prices. In 2008, the current account balance was as
high as 19.85 per cent of GDP. This was concurrent with increasing reserves and
fiscal surplus (amounting to 9.3 per cent of GDP in 2008, according to the World
Bank) as well as decreasing need for external financing (figure 2). In that same vein,
the recent evolution of Algeria’s balance of payments still follows that of interna-
tional prices of oil and gas. In the post-crisis period, the North African country did
manage to recover a current account surplus (nearly 9 per cent of GDP in 2011),
but shrinking commodity prices are having an impact on Algeria’s balance of pay-
ments –as in other countries with similar production and export profiles– and this
has led to a current account deficit in 2014.
6 For more information, see
IlIana OlIvIé, aItOr Pérez
FiGurE 2. alGEriaS BalancE oF PaymEntS (in millionS oF currEnt uS dollarS)
Source: World Bank, World Development Indicators online.
Algeria now places itself in a sort of time trap. In the short run, oil and gas re-
serves guarantee much needed external and fiscal revenues (although decreasingly
–due to lower commodity prices), while in the longer term, they impact on the fi-
nancial stability of the country; apart from the fact that they will eventually deplete.
Getting back to the 2009 regulatory changes, these lead to a ‘macroeconomic
trade-off’ for Algeria. Such a demanding –as far as FDI is concerned– regulatory
change was meant to diversify the productive structure of the Algerian economy
and, therefore, reduce its dependency on imports. Specifically, imports of medica-
tions, cement, heavy industry, metals, and mechanical, textile, and chemical prod-
ucts were meant to decrease. However, such a process of structural change requires
a long transition time. In fact, while recent data may reveal a slightly lower depend-
ency of the Algerian economy on imported pharmaceutical products, imports of
chemicals as well as textiles and equipment have risen in relation to GDP since 2009
(figure 3). Moreover, all these imports have increased in absolute terms.
FiGurE 3. SElEctEd imPortS to alGEria (aS a PErcEntaGE oF GdP)
Source: UNCTAD.Stat
Note: Machinery and transport equipment are recorded in the secondary axis.
Revista de economía mundial 45, 2017, 161-188
a micRo tale of a tRade-off
3. mEthodoloGy
Our aim is to identify a ‘development narrative’ that would let us under-
stand what happens from the moment of arrival of an investment inflow to
its development effect, by means of a specific case study; even if the results
of such micro approach cannot be up-scaled at the national level (therefore,
an econometric approach is discarded). In order to avoid the risk of providing
mere anecdotal evidence (Rugraff et al., 2009b), this case study should follow
a theory or a methodological pattern for explaining the development effects of
incoming FDI. As mentioned previously, such theoretical and methodological
literature is scarce and limited to the technological derivatives of incoming FDI.
Therefore, in order catch a wider range of development effects, for the analy-
sis of the effects of an FDI project in Algeria, we rely on a methodological frame-
work that breaks down this ‘development narrative’ into three steps –factors,
mechanisms, development processes. Factors refer to the features of the coun-
try (the economic structure and the institutional framework) and to those of the
investment project itself. In this sense, this methodological framework somehow
builds on the IDP theory. Different combinations of these factors will trigger dif-
ferent mechanisms (in the areas of balance of payments, economic activity, tech-
nology, employment, and/or socio-political mechanisms) that will, in the end, re-
sult in different development effects (in the fields of balance of payments, labor
structure, provision of goods and services, contribution to local or global public
goods, and/or structural change) (Olivié and Pérez, 2014, and figure 4).
FiGurE 4. a mEthodoloGical FramEwork For trackinG thE dEvEloPmEnt EFFEctS oF Fdi
Source: Authors (2014).
 
  
 
 
  
IlIana OlIvIé, aItOr Pérez
The use of this methodology requires approaching the phenomenon on a
case-by-case basis where the unit of analysis is not the country –not even the
sector or sub-sector– but rather a specific FDI project.
This study focuses on a cable manufacturing company, which differs from
the typical FDI project in Algeria –those being concentrated in the extractive
sector–. This may increase understanding of how diversification within the Al-
gerian economy, as pursued by Algerian policies on foreign investment since
2009, may contribute to the main goals of such policies: structural change and
balance of payments equilibrium. This will be analyzed following a methodo-
logical framework for the analysis of FDI and development (Olivié and Pérez,
This case belongs to one of the key sectors identified by the CNI, and we
consider it a paradigmatic case in the context of the 2009 Algerian strategy
to overcome economic vulnerability and hydrocarbon dependency through
productive diversification. Paradigmatic cases –also described by Flyvbjerg
(2006) as metaphorical or prototypical cases– match the defining features of
a certain category of cases; and by analyzing such cases in depth, researchers
may explain not only an individual case, but also help to understand a category
of cases. This type of case study can be seen as an input for further quantita-
tive research, if data are available, or for theoretical thinking.
Official data on the precise breakdown by sectors of FDI inflows or stock
are not available. According to UNCTAD (2004), over ten years ago, foreign
investors in Algeria were present in the hydrocarbon, finance and business,
food industry, heavy industry, and tourism sectors, with a special focus in the
extractive sector. Information provided by ANDI indicates a concentration of
foreign capital in the industry sector (74 per cent in currency units, 56 per cent
in number of projects)7. A high share of these projects are likely concentrated
in the extractive sub-sector.
Quantitative and qualitative information was collected on the ba-
sis of a questionnaire (annex A) and a guide for providing information (an-
nex B), respectively. This way, all necessary data for building the over 50
variables included in the framework was obtained. The general process
for this data collection was the following: (1) an initial meeting with an ex-
ecutive from the company in the field, in order to gather general informa-
tion on the TNC (activity sector, history of the company in the country, etc.);
(2) submission to the contact person of both the questionnaire and the guide
to qualitative information; (3) a second (phone) interview in order to resolve
doubts and questions on the provision of data. Fieldwork for this particular
case study was conducted between January and March 2013. This was part of
a larger research project on the effects of FDI on development in North Africa
implemented between 2011 and 2013.
7 See
Revista de economía mundial 45, 2017, 161-188
a micRo tale of a tRade-off
As mentioned above, the factors of the investment project represent only
one of three groups of features that might prove to be intervening in the mech-
anisms and processes triggered by a TNC’s activity in the host country. There-
fore, it was necessary to gather information on both the economic structure
and the institutional framework of the country. For this compilation, several
official national sources were explored: Office National del Statistiques (ONS),
ANDI, Centre National du Régistre du Commerce (CNRC), the Ministry of In-
dustry, the Ministry of Trade, the Ministry of Finance, and the Central Bank
of Algeria. We also explored international databases such as the Statistical,
Economic and Social Research and Training Centre for Islamic Studies (SESRIC),
ANIMA Investment Network, the World Bank, the International Monetary Fund
(IMF), the United Nations Conference for Trade and Development (UNCTAD),
the United Nations Programme for Development (UNDP), the World Trade Or-
ganization (WTO), and the International Labor Organization (ILO).
In short, the monitoring of the development results of this particular invest-
ment project in Algeria was conducted on the basis of both quantitative and
qualitative micro primary data collected directly from the company, from semi-
structured interviews with elites, and from international databases.
4. rESultS
4.1. joB crEation
This cable manufacturing company shows distinctive features with respect
to the typical foreign investment project in Algeria. One important feature to
be pointed out first is that this Egyptian company was already settled in Alge-
ria before the implementation of the current regulation requiring 51 per cent
participation by a local partner in any new investment project. This is a green-
field project (F19), 100 per cent owned by Egyptian capital.
It could be said that this company has managed to immerse itself in the
local economy. Its sales are domestically oriented, and it seeks local suppli-
ers and, definitively, local employees (M1). According to the information col-
lected, the qualitative effects on employment are dubious, but there is without
a doubt net job creation (P4).
Since the arrival of the company, in 2007, employment has been steadily
created (up to 560 jobs by 2013, the year in which information was collected).
Therefore, this is a labor-intensive activity (F23) when compared to other FDI
in other sectors such as fertilizers or desalination (Olivié, Pérez and Gracia,
2013). As a matter of fact, this activity responds to one major challenge of the
Algerian economy, its high unemployment rate. Over half these employees are
so-called exécution workers – a low-qualification job (two years at a training
center and no requirement of previous experience). This enterprise therefore
facilitates access to the labor market by an active population of workers with
low qualification, particularly very young workers without previous labor expe-
IlIana OlIvIé, aItOr Pérez
rience – a group for whom the incidence of unemployment is particularly high.
Another category (maîtrise workers) constitutes 30 per cent of the company’s
workforce, the requisites for this category being at least three years of post-
secondary education (Bac + 3) and between three and four years of prior
labor experience. A third category, engineers, represents 5 per cent of the
workforce, while executives make up the remaining 8 per cent of workers. Can-
didates for these categories are expected to have completed graduate studies
(Bac + 5) and at least five years of work experience.
The impact on local job creation would not be especially intensive –de-
spite the labor intensity of that particular economic activity– if an effort was
not being made by the company to employ local human resources. Accord-
ing to information provided by the company, when the firm was established
in Algeria, half the staff was expatriated from headquarters. When data were
collected in 2013, this group amounted to less than 5 per cent of total person-
nel. It must be taken into account that this change was made over a period of
only six years. Algeria’s labor regulations have included incentives for hiring
local employees, limiting the possibility of hiring foreign workers if there is an
equivalent –in terms of profile and qualification– among the local labor supply
(F10). However, the labor policy of the company itself is the main factor trig-
gering the recruitment of Algerian personnel; according to company sources, a
norm established by the TNC has limited foreign workers to 5 per cent of staff.
This decision was made, according to the person in charge of human resources,
out of a sense of social responsibility –in order to facilitate technology transfer
and create local employment, but also as a way of avoiding excessive costs
(such as housing, frequent travel, and other expenses) to the TNC.
It is more difficult to determine the effects on the features of the employ-
ment created by the company. As for wages, data provided by the company
suggest that these are above the national average for the same level of qualifi-
cation, and according to figures provided by KPMG (2012) they are well above
the average for the activity sector (F16). Also according to KMPG, the average
net salary is at 19,500 Algerian dinars per month.
taBlE 1. waGE ranGE (monthly nEt waGE in currEnt alGErian dinarS)
Cable manufacturer National average
Executives (category 1) 80,000 – 120,000 32,000
Engineers (category 2) 35,000 – 50,000
Maîtrise (category 3) 28,000 – 34,000 21,500
Exécution (category 4) 24,000 – 28,000 17,000
Source: KPMG (2012) for national salaries and cable manufacturer for own salaries.
According to information provided by the TNC, labor regulation in Algeria
establishes that companies must reinvest 2 per cent of compensation to em-
ployees for formation activities (F10). Should this investment not occur, these
Revista de economía mundial 45, 2017, 161-188
a micRo tale of a tRade-off
resources must be transferred to the State. This cable manufacturer has opted
for the first alternative, which may be contributing positively to the formation
and qualification of its workforce (F15). However, we observed no increased
dynamism in the labor market of this particular sector; something that would
be manifest, for instance, in the rotation of employees between companies
Lastly, it should be noted that in the case of a crowding-in effect in the
supply chain –to be analyzed in a later section– indirect jobs (M2) could be
created; an additional development effect (figure 5).
FiGurE 5. EFFEctS on EmPloymEnt
Source: Own elaboration.
Notes: Participates in a positive effect on development; the variable is not triggered, but might
participate in a development dynamic in the medium term.
4.2. thE tnc haS a nEGativE imPact on thE EquiliBrium oF thE BalancE oF PaymEntS
This cabling manufacturer contributes negatively to the equilibrium of Alge-
ria’s balance of payments (P5) via net imports (M18). As for its sales, these are
100 per cent inward-oriented (F22) –therefore contributing to the provision
of goods and services– and the company does not record any exports (M18).
More specifically, 70 per cent of products are sold directly or indirectly to Son-
algas (the local public company devoted to the extraction and commercializa-
tion of gas) while the remaining 30 per cent goes to the rest of the construction
sector (hotels and resorts, malls, etc.). On the other side, imports amount to
nearly 100 per cent of inputs necessary for production (figure 6).
Almost all purchases are of copper, aluminum, polyethylene, and PVC.
These products are imported from Egypt (chiefly copper and PVC), France (alu-
minum), Spain (copper and other products such as containers), Bahrain (alu-
minum), and Belgium and Sweden (polyethylene). During data gathering, one
executive of the company insisted that the motive for importing inputs is the
impossibility of acquiring such products in the Algerian market. In fact, even
when there no norms regulating and limiting imports (F5), legal and bureau-
cratic obstacles to buying outside the country are so huge that the company
would benefit immensely from local provisioning of these inputs, which would
lead in turn to lower fabrication costs and increased competitiveness. For these
reasons, the company has initiated a process of supporting the creation of
local suppliers that could substitute, at least partially, the company’s imports
INST. FRAMEWORK F10. Labour legislation
M1. Direct employment
F15. Training policy M2. Indirect employment P4. Changes in labour structure
INVESTMENT PROJECT F16. Wage policy M3. Labour conditions improvement
F19. Greenfield project
F23. Labour intensity
IlIana OlIvIé, aItOr Pérez
(F3). That is the case, for instance, with the TNC’s support for creating a local
manufacturer of the wooden spools necessary for reeling electrical cables. So
the company is facilitating technological transfer through the introduction into
the local market of new machinery, and by the creation of new business man-
agement teams.
FiGurE 6. EFFEctS on thE BalancE oF PaymEntS
Source: Own elaboration.
Notes: Participates in a positive effect on development; the variable is not triggered, but might
participate in a development dynamic in the medium term; participates in a negative effect on
However, it should be pointed out that the potential for import substitution is
limited to between 30 and 40 per cent of local purchases –polyethylene and PVC–
and that this would require a 10 to 15 year timeline. The remaining 60 to 70 per
cent, concentrated in copper and aluminum, cannot be found in the local market.
Therefore, the possibility in the short or medium run of local provisioning
(F3), triggered by the limited opening of trade (on the imports side) (F5), would
allow a partial decrease in foreign dependency, which would reduce net im-
ports (M18) as well as the negative effect on balance of payments (P5).
As concerns the financial account, this TNC is subject to Algerian regulation
that forbids the external financing of local activities, forcing them to rely on the
national banking system. Therefore, this cable manufacturer is contributing neither
to the entry of foreign capital nor to the external indebtedness of Algeria (M19).
Moreover, given the capital intensity of the company (F23), and the fact
that this is a young greenfield investment (F19), profits to date have been
reinvested in productive activity. There had not been –at the time that inter-
views were conducted– a repatriation of profits which could have contributed
negatively to the current account. However, one executive from the company
mentioned that he expected to see a share of profits returned to Egyptian
headquarters by 2013.
4.3. Structural chanGE
The product being manufactured is relatively basic (F20), so this entrepre-
neurial activity is not contributing to change the technological frontier (F25) of
the Algerian aggregate supply. According to data and information provided by
the company, its market share is significant (43 per cent); and this indicates the
Revista de economía mundial 45, 2017, 161-188
a micRo tale of a tRade-off
lack of a crowding-in effect (M8) within the sector – regardless of the upstream
productive linkages mentioned in the previous section (M11).
But this is a green-field investment (F19) in a non-traditional sector being
targeted by national authorities (F13). It is adding to the Algerian invest-
ment stock (M10) and therefore having an impact on structural change (P1).
Indeed, profit reinvestment led to an important accumulation of capital (F23)
by the company that has more recently begun to slow (table 2).
taBlE 2. caPital intEnSity (millionS oF currEnt alGErian dinarS)
Investment Production K / Y
2007 0 0 -
2008 1,500 0 -
2009 2,000 3,500 0.5714
2010 3,000 5,500 0.5454
2011 3,000 9,500 0.3158
Source: Own elaboration on the basis of data provided by the company.
Moreover, the company might be having an incipient, indirect impact on
structural change. There may be changes in the levels of competitiveness (M9):
the interviewees observed a certain dynamism among the sector’s competitors
that may result in higher competitiveness. The TNC’s main competitors –estab-
lished for decades in the Algerian economy– have recently started to update
their machinery and employee training and to hire new managers.
Lastly, the above-mentioned combination of the drive for local provision-
ing (F3) on the part of the company, public limitations for acquiring inputs
outside the country (F5), and intense inward-orientation (F22) can, poten-
tially, end by generating an effect on productive linkages (M11) that could
result in a process of structural change (P1) (figure 7).
FiGurE 7. EFFEctS on Structural chanGE
Source: Own elaboration.
Notes: Participates in a positive effect on development; the variable is not triggered, but might
participate in a development dynamic in the medium term.
F3. Local provisioning
F5. Trade openess
M9. Change in competitiveness
F13. Productive sector support M10. Investment stock P1. Structural change
M11. Productive linkages
F19. Greenfield project
F22. Inward orientation
F23. Capital intensity
IlIana OlIvIé, aItOr Pérez
5. concluSionS
This article shows the complexity of development processes, elucidating
the difficulty inherent in gauging the development effects that FDI might incur.
This complexity may have not arose with a different methodology: an econo-
metric approach would not have been feasible due to statistical limitations
and, if feasible, would have hidden the steps linking FDI and its effects on, on
the one hand, the balance of payments and, on the other, structural change.
This case study, based on a standardized methodology, not only allows for
digging in the micro-tale of this FDI-development nexus. It also provides with a
general framework that makes similar case studies (conducted with that same
framework) comparable.
This very specific case of an Egyptian cable manufacturer situated in Al-
geria simultaneously records a positive effect on job creation and structural
change and a negative impact on the balance of payments equilibrium.
This investment project responds partially to the expectations of the na-
tional FDI and development strategy, in the sense that it is contributing to pro-
ductive diversification. It also tackles domestic development needs by creating
jobs. However, this activity is not only not enhancing the balance of payments
equilibrium but is actually worsening it (at the micro scale). This is likely to
occur when introducing into an economy new activities which may in turn in-
troduce new supply needs that can be met only through new imports. In other
words, this case study provides a narrative at the micro scale of what can be
termed a balance of payments equilibrium / structural change trap. This could
be considered the very macroeconomic trade-off in which a majority of devel-
oping and emerging countries have traditionally been embroiled, as, actually,
the Structuralist and Neo-structuralist approaches have pointed out.
It is important to underline that these results cannot be up-scaled at the na-
tional level. It would take all FDI projects in all sectors of the Algerian economy
to behave exactly the same way in order to conclude that FDI at a national
scale leads to job creation and structural change while dis-equilibrating the
balance of payments. However, in exchange, this very specific case study pro-
vides (comparatively to other macro approaches) richness in details: a narra-
tive on the FDI-development link.
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IlIana OlIvIé, aItOr Pérez
annEx a
ProjEt dE rEchErchE: “invEStiSSEmEnt étranGEr Et dévEloPPEmEnt- oPPortunitéS
Pour lES PayS daFriquE du nord
EnquêtE aux EntrEPriSES
1 (A4). Quel est votre chiffre d’affaires du dernier exercice fiscal?
2 (A5). Quel est votre share dans le marché?
3 (A6). Quelle est la ratio investissement / chiffre d’affaires et son évolution
pendant les 5 dernières années?
4 (B1). Quel pourcentage représentent-ils les approvisionnement sur votre
chiffre d’affaires ?
(B2) Quels sont vos approvisionnements principaux :
Produit 1
Produit 2
Produit 3
Produit 4
Produit 5
5 (B3). Sont-ils locaux?
Produit 1 Oui Non
Produit 2 Oui Non
Produit 3 Oui Non
Produit 4 Oui Non
Produit 5 Oui Non
6 (B4). Parce que vous n’avez pas le choix?
Produit 1 Oui Non
Produit 2 Oui Non
Revista de economía mundial 45, 2017, 161-188
a micRo tale of a tRade-off
Produit 3 Oui Non
Produit 4 Oui Non
Produit 5 Oui Non
7 (C1). Importez-vous des produits de l’extérieur?
Oui Non
8 (C2). Quel pourcentage représentent les importations en relation avec
vous achats totaux?
9 (C3). Dans votre cas, quels sont les pays d’importation?
Pays 1
Pays 2
Pays 3
Pays 4
Pays 5
10 (C4). Comment distribuez-vous vos ventes à l’intérieur et à l’extérieur
du pays?
Pourcentage des ventes….
…á l’intérieur du pays %
…à l’extérieur du pays %
11 (C5). Dans votre cas, quels son les pays d’exportation?
12 (C6). De vos lignes de financement, existe-t-il une partie d’endettement
extérieur? Quelle pourcentage représente-t-elle du financement total?
Oui Non
Part (%)
IlIana OlIvIé, aItOr Pérez
13 (C7). Rapatriez-vous vos bénéfices au pays d’origine de l’investissement
ou dans un autre pays ?
Oui Non
Part (%)
14 (D1). Faites une évaluation de la compétitivité du secteur avant
l’initiation de vos activités
0 (nulle) - 5 (très élevée)
15 (G1). Combien de travailleurs a votre entreprise / projet
16 (G2). Catégories professionnelles?
Titre catégorie 1
Titre catégorie 2
Titre catégorie 3
Titre catégorie 4
Titre catégorie 5
17 (G3). Salaire moyen?
Catégorie 1
Catégorie 2
Catégorie 3
Catégorie 4
Catégorie 5
18 (G4). Évaluation de la législation: favorise-t-elle l’emploi et la formation
de personnel local?
0 (mauvaise) - 5 (excellente)
19 (G5). Évaluation de la qualification du capital humain pour votre activité
0 (mauvaise) - 5 (excellente)
Revista de economía mundial 45, 2017, 161-188
a micRo tale of a tRade-off
20 (G7). Existent-il d’autres demandes d’emploi sur vos ressources hu-
maines? Évaluez la pression de la demande sur vos employés.
0 (base) - 5 (très haute)
21 (H6). Quelle évaluation faites vous du différentiel en technologies pro-
pres par rapport à vos concurrents? (procès de production, biens d’équipes,
0 (nul) - 5 (élevé)
22 (H8). Quels impôts, taux publiques ou d’autres prélèvements doit
payer votre entreprise? Quel pourcentage représente-t-ils de votre chiffre
Part des ventes totales (%)
23 (H9). Selon votre expérience personnelle, avez-vous détecté des prob-
lèmes de corruption?
0 (aucun) - 5 (beaucoup)
24 (H11). Quelle évaluation faites vous des infrastructures locales pour la
réalisation de votre activité productive?
0 (mauvaise) - 5 (excellente)
IlIana OlIvIé, aItOr Pérez
annEx B
ProjEt dE rEchErchE: “invEStiSSEmEnt étranGEr Et dévEloPPEmEnt- oPPortunitéS
Pour lES PayS daFriquE du nord
Plan dE lEntrEtiEn
A Activité et création de l’entreprise
A1 Quel est l’objet de votre activité productive?
A2 Dans quel secteur et sous-secteur productif se trouve votre activité économique?
A3 Existait-il des produits / services similaires aux vôtres avant votre début d’activité?
A7 L’entreprise est-elle de nouvelle création ou le résultat d’une fusion ou d’une acquisition?
A8 Qui sont vos clients?
A9 Avez vous observé dans vos marchés de vente de nouvelles entrées ou investissements?
B Fournisseurs
B5 Il y a t’il une législation ou obligation d’achats locaux?
B6 Avez-vous observé de nouvelles entrées ou de nouveaux investissements dans votre
chaine de fournisseurs?
B7 Avez-vous observé la création de nouveaux emplois dans votre chaine de fournisseurs?
C Insertion extérieure
C8 De quelle manière facilite ou difficulté la législation vos exportations et vos importa-
D Concurrence du marché
D2 Quelle est votre principale concurrence (numéro de compagnies, taille, noms…)?
D3 Quelle a été la réaction de votre concurrence à votre entrée / croissance dans le secteur
/ marché? Par exemple, observez-vous un effet imitation ?
D4 Avez-vous observé de nouvelles entrées/ investissements entre vos concurrents?
E Intensité / transfert technologique
E1 Quelle est votre évaluation du différentiel technologique para rapport à vos concurrents
(procès productif, biens d’équipes, etc.)?
E2 Quelles sont les exigences technologiques de votre entreprise sur les fournisseurs et
comment sont-elles répondus par vos fournisseurs locaux?
E3 Quel est le rôle de votre entreprise avec les améliorations technologiques dans votre
chaine de fournisseurs?
G Travail
G6 Avez-vous une politique de formation officielle ou informelle? Décrivez-la
G8 Avez-vous besoin d’embaucher du personnel étranger? Quelles son les avantages et les
inconvénients par rapport aux employés locaux?
G9 Avec quels critères votre entreprise décide-t-elle les rémunérations? Avez-vous formalisé
ces critères?
Revista de economía mundial 45, 2017, 161-188
a micRo tale of a tRade-off
H Fiscalité, communauté et environnement
H1 Quelles organisations de la société civile ont contacté votre entreprise?
H2 Avez-vous une politique de relations avec la communauté où vous opérez (voisins, autori-
tés locales, universités, etc.)? Décrivez-la
H3 Comment collabore votre entreprise avec l’environnement? Avez-vous adopté un com-
promis formel par écrit en matière environnementale?
H4 Quelles lois environnementales ont eu un impact sur les opérations de votre entreprise?
H5 Quelles investissements ont été réalisés par votre entreprise en technologies propres?
H7 Avez-vous transférés vos technologies propres à des fournisseurs, clients ou concurrents?
Décrivez la situation.
H10 Faites-vous une ou plusieurs contributions volontaires financières a la communauté?
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This paper provides some tentative estimates of the economic impact of cruise tourism in receptive countries and regions along the Pan-European Corridor VII. Examples are provided to illustrate the potential benefit to Vojvodina Region (Case study). The results of the analysis have shown that the Corridor VII cruises have positive impact on Vojvodina Province, primarily the riparian area of the Danube (only Novi Sad - the “Port of Vojvodina for cruisers”). Although the benefits exclude accommodation and food expenditure, they are noticeable within the following segments: tourism promotion (broadening the scopes of Vojvodina Province as a receptive area for the foreign market through its cultural heritage and natural values); increase in foreign tourist turnover, visitor’s expenditures; new job opportunities (adequate infrastructure and superstructure – rendering services to ships, crew and passengers) – harbors, carriers, souvenir shops, etc. / new products, business net, exchange money, invisible export, etc. The results of the research may initiate further studies on the cause and effect connections between this type of travelling and resources of receptive countries, upon which the travels are based, both aiming at adequate design and launching of the tourist offer, i.e. the optimal development of receptive countries through sustainable tourism. Also, the discussion provides potentially useful information to the different stakeholders in the evolving cruise tourism industry, particularly regarding expected (private or social) returns on investment.
Tis textbook discusses development from colonial ism through to the present day in Latin America, Africa, and Asia. The book combines theoretical approaches with practical experiences to offer solutions to the problems of underdevelopment. It begins with a basic introduction to the development problem and to the methods employed to measure economic development and human development. The process of economic development is then placed within a historical context, emphasising the legacy of colonialism. A section is then presented exploring the theories of development and underdevelopment from classical theory through to ideas of the 1970s. The latest theoriees on development, endogenous growth models are then explored and used as the basis for exploring how industrialisation in Southeast Asia came about through plananed structural change. Chapters then explore issues of agriculture and development, problems of developing human skills, the challenges of promoting technological development, and the role of transnational corporations in the developing world. Two more chapters present recommendations for the optimum design of domestic and international macroeconomic policy. Finally, the links between the debt problem and development is explored, and an examination is made of the goals, objectives, and strategies of the IMF and World Bank.
This article proposes an analytical framework for the study of the effects of foreign direct investment (FDI) on development. This case-by-case approach, based primarily on qualitative techniques, is aimed at assessing the final effects of FDI on the different aspects of socioeconomic development, as well as constructing a narrative of what occurs inside the “black box” of FDI and development. As a research tool for analysing specific investment projects, it has been used to guide a series of case studies between 2010 and 2013 (in this case, the tourism sector in Dominican Republic), showing that relevant policy-oriented conclusions can be drawn by analysing FDI using this methodology.
We analyze the roles of inward foreign direct investment (FDI) and imports of capital goods as the main drivers of technology diffusion and productivity improvement in a sample of twenty-eight developing economies for the period 1999–2009. We examine changes in the sectoral composition of FDI as well as those local conditions that may facilitate technology adoption. Our results, obtained by the system generalized method of moments estimation method, suggest that the change of FDI from manufacturing to services is productivity enhancing. We also find that those countries with stronger institutions and better social and human development enjoy larger efficiency gains.
Purpose – The purpose of this paper is to test the determinants of foreign direct investment (FDI) into countries of the Middle East North Africa (MENA) region. Design/methodology/approach – The research is based on an econometric model that includes factors that potentially drive FDI flows into countries in the MENA region. Findings – Energy endowments have a negative impact on FDI flows into a country. GDP per capita, openness to trade and oil prices have a positive impact on FDI inflows, while aggregate measures of environmental risk are not a differentiating factor among countries in the region. Originality/value – This paper demonstrates that the “Dutch disease” concept applies to FDI in resource rich countries in the MENA region. Countries with large amounts of oil and gas have are more likely to have policies and institutions that inhibit FDI. Countries that value the spillover effects from FDI need to reconsider legislative and institutional hurdles that remain.
The relationship between foreign direct investment (FDI), trade openness and economic growth in host countries remains one of the most important issues in the economic literature and met with renewed interest in recent years mainly for countries suffering from unemployment problems and lack of technological progress. This paper examines this issue for Tunisia by applying the bounds testing (ARDL) approach to cointegration for the period from 1970 to 2008. The bounds tests suggest that the variables of interest are bound together in the long run when foreign direct investment is the dependent variable. The associated equilibrium correction is also significant, confirming the existence of a long-run relationship. The results also indicate that there is no significant Granger causality from FDI to economic growth, from economic growth to FDI, from trade to economic growth and from economic growth to trade in the short run. Even though there is a widespread belief that FDI can generate positive spillover externalities for the host country, our empirical results fail to confirm this belief for the case of Tunisia. They go against the generally accepted idea considering the positive impact of FDI on economic growth to be automatic. The results found for Tunisia can be generalized and compared to other developing countries which share a common experience in attracting FDI and trade liberalization.