"Principled Embeddedness": How foreign direct Investment may contribute to inclusive and sustainable growth in developing economies?

Abstract

Foreign direct investment (FDI) plays a crucial role in enabling developing economies to embark on a path of inclusive growth. This applies in particular if local subsidiaries of multinational enterprises (MNEs) are committed to ‘principled embeddedness’ meaning that they are prepared to integrate parts of the local economy into global value chains by enabling them to comply with the required quality norms and standards. It also results in capacity development and technology transfer that is likely to benefit local entrepreneurs who contribute to the diversity of markets in the domestic economy. The empirically validated contribution of embedded subsidiaries of MNEs to inclusive growth challenge the normative view that FDI in developing economies would merely pose a threat to existing embedded economic systems.