CID Working Paper No. 64

Expanding Foreign Direct Investment in the Andean Countries*

Howard J. Shatz

March 2001

Abstract

Developing country officials increasingly have come to see attracting foreign direct investment as an essential part of their development strategies. The Andean countries of Bolivia, Colombia, Ecuador, Peru, and Venezuela have joined other countries around the world in pursuing multinational investment. This paper presents an overview of their suitability for investment compared to other investment locations. It also describes policy areas where national governments of the five Andean countries can take action to attract the type of foreign direct investment that will increase living standards and help alleviate poverty. Export-oriented investment is identified as the key type of investment on which these countries should focus. Possible policy interventions include improving access to developed country markets, lowering trade costs, improving export processing zones, and investigating the further use of efficient investment incentives.

Keywords: Andean countries, competitiveness, economic geography, economic reform, foreign direct investment

JEL codes: F1, F2, O1, O2, L5

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*This paper was written as part of the Andean Competitiveness Project of the Corporación Andina de Fomento and the Center for International Development at Harvard University. I thank ACP Project Director Joaquin Vial for extensive comments, participants at a Lima, Peru, workshop for helpful discussions, and Magdalena Frei for research assistance. All errors and omissions remain my responsibility.

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