THE TEMASEK REVIEW

By Martha Lagace from Harvard Business School

Foreign Direct Investment (FDI) is often lauded for bringing economic growth and know-how to developing countries. The conventional wisdom is not necessarily wrong, but the real story is much more nuanced than is commonly believed, says HBS professor Yasheng Huang.

As he is discovering in new research, the relationship that exists between FDI and local entrepreneurship in Asia may be one important reason why certain Asian countries developed differently from others, despite surface similarities.

This angle on FDI may offer a window into why Singapore and Malaysia, for instance, seem to be worried about the ascendance of China, while firms in Taiwan and Hong Kong have reaped enormous benefits from Chinese economic expansion, according to Huang. He presented his new research proposal to an audience of faculty and doctoral students at an HBS International Seminar on May 17.

According to Barron’s Business Terms, FDI is “investment in a country by foreign citizens, often involving majority stock ownership of an enterprise.”

Huang is looking deeper into how and why FDI played quite different roles in these four economies in Asia. While cautioning that this research is just getting underway and is not conclusive, Huang believes that the study of FDI in the context of local entrepreneurship in Asia deserves a closer look.

“I’m not claiming local entrepreneurship is the only determinant of FDI,” he said, “but it could be an important determinant that is often ignored.”

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