Privatizing Public Enterprises and Foreign Investment in Developing Countries, 1988-93

Privatizations in developing countries were an important element underlying the rapid increase in foreign direct investment to these countries in recent years. In particular Latin America, East Asia, and countries in Eastern Europe managed to attract substantial amounts of foreign investment through the sale of state-owned enterprises to foreign buyers. However, countries with strong privatization programs also witnessed a growth in foreign direct investment inflows that went beyond the direct impact of foreign participation in these sales. The privatization of infrastructure services, in particular, seems to have had a strong effect on the decision making process by foreign investors, advertizing a country as a more attractive investment location.