ABSTRACT
This chapter sets out the underlying assumptions and principles for each policy approach. The approach that policy makers adopt towards foreign investment tends toward either an interventionist or a more market oriented stance. Foreign investment policy in the form of either incentive or restrictive measures is criticised by neoclassical theorists. Restrictive foreign investment policy measures which, for example, seek to confine it to certain industries or set limits on levels of foreign ownership in any project are criticised on a number of grounds. A market oriented approach to foreign investment policy is bases on assumptions made by neoclassical theorists concerning the role of the state in economic development. The assumption concerning comparative advantage that is made by those favouring a free market approach is also challenged by those believing in a more interventionist role for the state.
