• Poland and Malaysia have both achieved impressive economic growth in recent decades, despite relying heavily on foreign direct investment.
• Both countries have built up world-class manufacturing sectors, with electronics and automotive goods forming the backbone of their exports.
• Malaysia has done this by creating special economic zones and offering incentives to foreign companies to invest there, while Poland has benefited from its proximity to Europe and its accession to the EU.
• Both countries have yet to move into higher-value-added activities, and are struggling to upgrade their productivity levels.
• Ha-Joon Chang and other industrial policy fans are suspicious of FDI due to potential crowding out of domestic companies, stunting of local growth, and potential for property value bubbles and crashes.
• Poland and Malaysia may now be running into this problem, with McKinsey citing Poland’s need to develop or acquire strong brands and Malaysia’s failure to build domestic champions.
• Poor countries may benefit from an FDI-centric strategy as it is simple and straightforward, and could potentially lead to escaping poverty.
• Poland and Malaysia may have found the secret to getting upper-middle-class quick, rather than getting rich quick.
Published January 9, 2023. Visit Noahpinion to read Noah Smith’s original post.
