From Pursuing Quantity to Pursuing Quality: A Practical Handbook for Designing National FDI Strategies

Introduction

Over the past few decades, investment strategies in many countries have made attracting more foreign direct investment (FDI) a core objective. Success has often been defined as growth in investment inflows and an increase in the number of projects. This "quantity-centric" model is based on a simple assumption: the more FDI, the greater the economic benefits. However, as the global economic landscape evolves, this assumption is being challenged.

Today, sustainable development requirements are becoming increasingly stringent, supply chains are being reorganized on a global scale, and labor market constraints are intensifying. Governments are increasingly recognizing that the quality of FDI matters more than its quantity. High-quality investment can bring productivity gains, technological innovation, quality employment, local supply chain integration, and environmental benefits. In this context, international institutions such as the World Bank have pointed out that FDI strategies are shifting from "promotional documents" to "practical tools for economic transformation."

For policymakers, investment promotion agency (IPA) staff, and researchers, understanding this shift and mastering the methods for designing quality-oriented FDI strategies holds significant practical importance. Based on publicly available international research frameworks, this handbook provides a systematic set of analytical tools to help readers diagnose bottlenecks in their country's FDI strategy and develop investment attraction plans that promote long-term development.

Section 1: Understanding the Fundamentals

Definition and Types of FDI

Foreign Direct Investment (FDI) refers to investment made by residents or enterprises of one country in enterprises of another country, aimed at obtaining lasting interests and management control. FDI is generally divided into greenfield investment and mergers and acquisitions (M&A). Greenfield investment involves establishing new enterprises or facilities, often directly increasing production capacity; M&A, on the other hand, involves entering a market by acquiring equity in existing enterprises.

Limitations of Traditional FDI Strategies

Traditional investment promotion practices emphasize investment facilitation, fiscal incentives, and low production cost advantages. The measurement indicators focus mainly on investment amounts and project counts. Such strategies may be effective in the early stages of development, but they have notable limitations during the phase of economic transformation. First, investment amounts do not reflect technological content or economic spillovers; second, large volumes of low-quality investment can bring environmental pressure and social costs; and finally, relying solely on incentive competition can undermine a country's fiscal sustainability.

The Meaning of "Better" FDI

International development institutions are increasingly inclined to assess FDI in terms of "quality." High-quality FDI typically possesses the following characteristics: high capital intensity, advanced technology, high-skilled employment, strong local linkages, environmental friendliness, and a long-term willingness to reinvest. A quality-oriented FDI strategy is one that designs policy tools and institutional arrangements around these characteristics.

Section 2: Key Framework

The Five-Module Framework for a Quality-Oriented FDI StrategyBased on the practical experience of institutions such as the World Bank, UNCTAD, and OECD, an effective quality-oriented FDI strategy can be summarized into five interrelated modules:

1. Goal Alignment: The FDI strategy must be aligned with national development plans and sustainable development goals. For example, if a country prioritizes the development of a green economy, the strategy should explicitly attract investment in clean technology and renewable energy.

2. Sector Prioritization: Through sector diagnostics and investment scans, identify sectors with comparative advantages that can generate spillover effects. This process requires data support, such as analyzing export structures, labor productivity, technology gaps, and value chain positions.

3. Investor Targeting: Not all multinational enterprises can bring equal development contributions. The strategy needs to define criteria for "high-quality investors," including technology ownership, R&D intensity, supply chain management capability, environmental records, etc., and screen them through firm-level databases.

4. Policy & Institutional Alignment: Investment policy cannot exist in isolation. It needs to be coordinated with trade, industrial, labor, and environmental policies. Investment promotion agencies need to take on a stronger analytical function, rather than being only marketing windows.

5. Monitoring & Evaluation: Establish an indicator system to track the development impact of FDI, such as changes in factor productivity, local procurement rates, employment quality, and carbon emission intensity, and periodically evaluate the effectiveness of strategy implementation to form a feedback loop.

The Application Logic of the Framework

The starting point of the framework is "what kind of economy the country wants," and the endpoint is "how to achieve this goal through institutional capacity." Each module depends on the next; missing any link may lead to strategy failure. For example, even if priority sectors are identified, the strategy will still be difficult to implement if the investment promotion agency lacks investor screening capabilities.

Section 3: Step-by-Step Process

Step 1: Define Investment Objectives

First, policymakers need to answer a key question: What specific objectives do we hope to achieve through FDI? Objectives may include enhancing export competitiveness, obtaining technology transfer, creating high-quality employment, promoting balanced regional development, or facilitating green transition. Objectives should be expressed in measurable indicators for subsequent evaluation.

Step 2: Analyze the Economic Base and Sector Gaps

The second step is to conduct a comprehensive national economic diagnosis. This includes examining the competitiveness of the existing industrial structure, labor skill levels, infrastructure quality, and the institutional environment. By comparing with international benchmarks, identify sectors that are underperforming but have upgrading potential. Investment scanning tools can help identify growth points in emerging industries.

Step 3: Assess the Investment EnvironmentInvestment environment covers political stability, legal transparency, tax system, property rights protection, labor market rules, infrastructure (transportation, energy, digital), and administrative efficiency. Investment environment assessments published by institutions such as the World Bank and OECD can serve as a reference. Based on the assessment results, formulate a reform checklist and identify priority hard and soft infrastructure projects.

Step 4: Identify Target Investors

Based on priority sectors and the investment environment, establish an ideal investor profile. For example, if developing an electric vehicle industry chain, potential target investors may include battery manufacturers, charging infrastructure operators, technology suppliers, etc. Use corporate financial data, patent application information, ESG indicators, etc. for screening. Investment promotion agencies can regularly update the target list.

Step 5: Design Policies and Incentive Instruments

Design customized policy packages to meet the needs of target investors. In addition to traditional tax reductions and land incentives, they should also include efficient approval processes (such as one-stop services), supporting infrastructure, talent training subsidies, R&D collaboration support, etc. The key is to link incentive policies with investors' performance commitments (such as employment numbers and local procurement ratios).

Step 6: Build Institutional Coordination Mechanisms

Clarify the responsibilities of investment promotion agencies and grant them the authority for cross-departmental coordination. Establish a regular dialogue mechanism between the government and the private sector to resolve specific obstacles in investment implementation. Investment promotion agencies need to be equipped with economists, sector specialists, and data processing personnel to support analytical work.

Step 7: Implementation, Monitoring, and Iteration

Finally, the strategy must enter the implementation phase. Establish an FDI project database to track the entire lifecycle of projects from negotiation to operation. Regularly publish monitoring reports, measure development impact, and adjust strategic direction based on data. This process requires political leadership and sustained resource input.

Section 4: Evaluation Criteria

Key Evaluation Indicators

To assess the quality of FDI, policymakers can adopt the following criteria:

• Capital intensity and technology content: High capital intensity usually implies higher productivity and more complex operational capabilities. Technology content can be measured by R&D expenditure ratio, number of patents, industry technology level, etc.

• Employment quality: This includes wage levels, skill requirements, job stability, and vocational training opportunities. Jobs created by high-quality FDI should enhance local human capital.

• Local economic linkages: Measures whether the investment drives local suppliers and downstream industries. This includes the proportion of local procurement to total procurement, whether R&D centers are established, and whether technology spillover cases exist.

• Innovation and skills transfer: Observe whether investors bring new products, new processes, or new management methods. The increase in training activities and the proportion of engineering and technical personnel are also positive signals.- Environmental Sustainability: Assess the project's impact on the environment, whether clean production standards are adopted, and whether it supports the host country's carbon reduction goals.

• Long-Term Commitment: Does the project have a long-term strategy? Is there a reinvestment plan, and has cooperation been established with local educational institutions?

These indicators should be integrated into investment approval and ongoing and ex-post supervision, and linked to incentive policies.

Section 5: Common Challenges and Risks

Policy Uncertainty

A quality-oriented strategy requires continuity across government terms. If a change of government leads to policy shifts, investors will lose confidence. Mitigation methods include incorporating the strategy into legal frameworks or national development plans, forming cross-party consensus.

Market and Institutional Differences

Cross-border investors may come from different institutional backgrounds and have varying abilities to adapt to the local environment. Investors from developed countries may place more emphasis on intellectual property protection, while emerging market investors value market access and flexibility more. Investment promotion agencies need to understand the preferences of different investors.

Regulatory Complexity

Complex and opaque regulations can significantly increase investment costs. Repeated approvals in areas such as taxation, work permits, industry licenses, and environmental assessments often deter investors. Inter-agency coordination is key to solving this problem.

Operational Challenges and Implementation Bottlenecks

Even if the investment negotiation phase is successful, projects may encounter problems such as inadequate infrastructure, shortages of skilled workers, and imperfect supply chains after implementation. Investment promotion agencies should provide aftercare services to help enterprises solve operational issues and encourage reinvestment.

Insufficient Data and Evaluation Capacity

Shifting to a quality-oriented strategy requires strong data analysis capabilities, but many investment promotion agencies have staffing and skills focused mainly on marketing. Investment in information technology tools and professional training is needed, and even external research support may be introduced.

Section 6: Case Examples

Western Balkan Countries: Shifting to High-Value Activities Through Sector Diagnostics

According to a 2026 regional observation by the World Bank, investment in several Western Balkan countries is shifting toward more capital-intensive and higher value-added activities. For example, foreign investment in Bosnia and Herzegovina is concentrated in automobile and transportation equipment manufacturing; North Macedonia's high-tech machinery sector has received more investment; and Albania has seen growth in electrical equipment manufacturing. Through sector diagnostics and investment scans, these countries have identified competitive niches and formulated targeted attraction strategies based on them. Compared with the past large-scale low-end manufacturing, the new investment projects are larger, more technology-intensive, and more deeply embedded in regional value chains.

Ukraine: Promoting Post-War Reconstruction with Strategy### 乌克兰：以战略推动战后重建

Ukraine's FDI strategy is a typical case of transforming a strategic document into institutional capacity. At the Vienna seminar in June 2026, the head of UkraineInvest stated that the most important output of a strategy is not the document itself, but the systems, targeting tools, and institutional capabilities established. Through its strategic framework, Ukraine aims to reduce investment risks and improve the business environment, thereby supporting industrial modernization, green transition, and integration with European value chains. This demonstrates how a country can combine short-term reconstruction needs with long-term economic structural upgrading.

投资促进机构角色的转变

In Europe and Central Asia, the role of investment promotion agencies is shifting from traditional marketing and facilitation to driving economic transformation. The head of Poland's "Invest in Pomerania" agency suggested: "Clearly define a strategy aligned with development goals and stay focused. Doing two or three sectors well is far better than spreading efforts across too many sectors." This reflects a regional consensus: quality over quantity, focus over dispersion.

Section 7: Practical Checklist

The following checklist can help policymakers or researchers assess whether a country's FDI strategy is high-quality oriented:

• Are national development priorities clearly defined and is the FDI strategy directly linked to them?

• Are priority sectors identified using systematic sector diagnostic tools rather than historical inertia?

• Has a benchmarking assessment of the domestic investment environment been conducted, and key reform priorities identified?

• Are target investor profiles established based on quality and strategic fit, with an updated database?

• Are differentiated policy instruments designed for different sectors rather than using generic incentives?

• Are incentive policies tied to corporate performance commitments (e.g., technology transfer, local procurement, employment quality)?

• Are formal coordination mechanisms established between the investment promotion agency and finance, trade, environment, and labor departments?

• Has investment been made in ICT systems to track the full life cycle of FDI projects?

• Are the development impacts of FDI (productivity, employment quality, carbon emissions, etc.) regularly assessed, and is the strategy adjusted accordingly?

• Has cross-administration political support been secured to avoid policy discontinuity?

Conclusion

Global FDI competition is entering an era of "quality competition." The old model relying solely on incentives and low-cost advantages is no longer sustainable. A high-quality-oriented national FDI strategy needs to start from national development goals and, through sector prioritization, investor matching, institutional coordination, and continuous evaluation, transform foreign investment into lasting growth momentum.The five-module framework and seven-step process proposed in this handbook provide a practical reference for understanding this process. The core principles are: strategic focus, data-based approaches, institutional capacity, and sustainability. In the long run, countries that successfully achieve this transformation will gain greater resilience in the global investment landscape.