operations are im]portant; globalizing FDI requires flexibility to alter its mode of production, process, and sources of procurement, without having to get time-consuming or risky government permission.

- High-quality transportation and telecommunication links with the rest of the world.

- Some kind of minimaLl quality-of-life; e.g. absence of significant crime/corruption.

Both of the older kinds of FDI still operate and can be quite valuable for a country to attract. But the globalizing F:DI is the main kind that serves dynamic markets, and is automatically high-productivity. It is therefore the most valuable kind to try to attract. World B3ank (FIAS) research and experience suggest that only about a dozen developing and transition countries are attracting significant amounts of globalizirng FDI.

**The Case of Mexico.** Throughout the 1950s, '60s and '70s the Mexican economy grew steadily, with exceptional macroeconomic stability and an import-substitution strategy. Its large market limited the inefficiencies inherent in this strategy, as did its long border with the United States, which kept protection levels below the extremes of some South American countries that also erected high barriers to import competition.

FDI came to Mexico mainly to serve the domestic market. High production costs, the result of both natural factors such as deficient infrastructure and poorly educated workers and also policy-imposed factors such as domestic procurement requirements, were Fassed on to Mexican consumers, and most foreign-invested companies did not export - indeed, they could not be competitive in export markets. The exception was the _maquiladora_ industry, which began as simple labor-intensive assembly of garments and electrical assemblies; parts were imported from the LUS and products re-exported to the US, under a provision of UTS law that limited duties to the value added in Mexico.

P'etroleunn, petrochemicals, all infrastructure services, banking and finance, and many other sectors were closed to foreign investors. Except for the _mnaquiradoras_ and the automotive industry, foreign investors were restricted to less than 50 percent ownership? of a company (in some sectors, less than 400%), and this severely limited FDI in contrast to countries such as Brazil where no such limitations were imposed. I'he ownership restrictions were especially important impediments to high-tech, cutting edge technology, and globalizing FDI that needs to export, because multinationals do not want to share their best technology withl foreign partners that are forced upon thLem, and cannot plan to supply export markets competitjively if they cannot assure production at world standards of quality and price.

LIcreasing inflation in the 1970s, the first devaluatio.n in 25 years in 1976, and the exhaustion of import substitution possibilities ended this era of stable growth. Explosive growth in hydrocarbon exports, which began in the 1970s, turned out to be more a curse than a blessing as Mexico's fiscal and exchange rate policies were allowed to deteriorate in a wave of excessive overconfidence. With the debt crisis of 1 982, the, need for a new approach became acute and obvious to all.

Mexico implemented macroeconomic reforms beginning in August 1982 in order to reduce inflation, service its restructured debt, and stabilize the economy. The balance of payments problem was solved, in a static sense, very quickly although with much pain. But it soon became clear that to resume growth Mexico would need to complemen **t** hese reforms by a more liberal trade and investment regime - - consistent with the global operations of multinational firms, and indeed to provide the appropriate framework for M:exican-owned firms to attain international competitiveness as well. As the economy recovered in the mid-1980s, trade barriers were eliminated, both imports and exports rose, and FDI 15