Legal Systems as a Determinant of Foreign Direct Investment

Amanda Perry poses a formidable challenge to the current consensus on the best way to reform legal systems in order to attract and support foreign direct investment (FDI) in developing countries. Using detailed examples from Sri Lanka, she shows that the "ideal paradigm" approach to legal reform espoused by multilateral development organisations and bilateral aid donors is not only fundamentally flawed, but misconceived for reasons that we may not fully understand. She recommends a shift in emphasis from the "global" legal reform agenda to a country-specific approach, based on a rigorous formulation of the common ground where the expectations of investors and the countries in question meet.

The crux of this "ideal paradigm" approach resides in the generally accepted belief that a Western- style market-oriented, rule-bound legal system is the sine qua non successfully attracting and supporting FDI. However, through a wide-ranging survey of Sri Lanka and foreign business people, lawyers, non-legal advisors, NGO workers, diplomats, development workers, and government officials, Perry shows that this is far from the case. Investors are generally insensitive to the nature of the host state legal system when making the decision to invest, and their perceptions and expectations of the host state legal system may be significantly affected by such factors as their nationality, export orientation and size. Perry suggests that the conclusions drawn from this detailed analysis from Sri Lanka, applied on a global scale, have the potential to greatly improve the quality of many developing countries' participation in the world economy.

The positive and forward-looking thesis of this book will be of great value to policymakers in international organisations and donor government agencies, to law firms handling international business transactions, and to academics in development and other areas of international finance, as well as to investors everywhere.