Innovations in Foreign Direct Investment Attraction

3.2.4  North East England/Czech Invest – Aftercare and Supply Chain Development 

The importance of supply chain development aftercare programs 

Research shows that a $1 increase in FDI leads on average to at least an additional $1 

in domestic investment, and 1 direct FDI job leads to 1-2 additional domestic jobs 

through production linkages between FDI and local sectors.

19

 Recent research in the 

US has also shown that 1 direct FDI job creates 1 additional job.

20

 IFC research shows 

that the multiplier impact for manufacturing investment is $3 for $1 of FDI, but that 

18  For an example see: 

http://tradecommissioner.gc.ca/funding-financement/icci-icic/how-document.aspx?lang=eng.

19  Kurtishi-Kastrati, Selma (2013) “The Effects of Foreign Direct Investments for Host Country’s Economy” 

http://www.ejist.ro/files/pdf/369.pdf. 

20  Julian Richards and Elizabeth Schaefer (February 2016) “Jobs Attributable to Foreign Direct Investment in the United States” Office of Trade and Economic Analysis. 

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the impact varies considerably across different countries and is project specific. The 

multiplier impact can be even higher in other sectors.

21

The economic development impact of FDI can therefore be much bigger than the di-

rect impact on jobs, investment, taxes, exports and foreign exchange earnings. The 

contribution that foreign investors make to the economy is strongly influenced by gov-

ernment policy. Supply chain linkage and development programs are key to maximiz-

ing the spill over and multiplier benefits of FDI.

Policies to encourage local linkages are aimed at increasing local content and other 

indirect benefits and to “embed” foreign investors into the local economy, so that they 

have more to lose from relocating their operations at a future date. As Thomas Jeffer-

son noted over 200 years ago, in 1806, ‘Merchants have no country. The mere spot they 

stand on does not constitute so strong an attachment as that from which they draw their 

gain’. Multinational enterprises are footloose and more mobile than ever in a globalized 

economy. Embedding MNEs into the local economy should be a key policy objective of 

IPAs to increase their “attachment” to the host country.

Investment promotion agencies cannot expect MNEs to automatically embed them-

selves into the local economy and generate multiplier impacts for the domestic econ-

omy. As Peter Dicken, one of the definitive authorities on globalization and develop-

ment, explains: “Local embeddedness is a double-sided coin: it reflects both the choices 

of the transnational corporations and the existence of appropriate firms with which they 

can interact.”’

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 Through supply chain linkage and development policies, IPAs focus on 

increasing the availability of “appropriate firms” and supporting and facilitating MNEs 

to “interact” with the local firms.

Supply chain linkage and development programs are critical to maximizing the indi-

rect, multiplier impact of FDI on economic development and to embedding MNEs 

into the local economy. 

Provided below are two case studies of supply linkages and development programs. 

The first is the North East of England, which pioneered the development of investor de-

velopment and supply chain programs at the regional level. The second is CzechInvest, 

which has developed a best practice program at the national level.