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Foreign direct investment in post-conflict reconstruction policy : Cambodian case study

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Foreign direct investment in post-conflict reconstruction policy : Cambodian case study
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Kuhre, Brayden A.
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Denver, Colo.
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University of Colorado Denver
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Master's ( Master of Arts)
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University of Colorado Denver
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Department of Political Science, CU Denver
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Political science

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FOREIGN DIRECT INVESTMENT IN POST-CONFLICT RECONSTRUCTION POLICY:
CAMBODIAN CASE STUDY by
BRAYDEN A. KUHRE B.A., University of Colorado Denver, 2011
A thesis submitted to the Faculty of the Graduate School of the University of Colorado in partial fulfillment Of the requirements for the degree of Master of Arts Political Science Program
2016


Kuhre, Brayden Anthony, (M. A. Political Science)
Foreign Direct Investment in Post-Conflict Peacebuilding and Reconstruction Policy Thesis directed by Associate Professor Sasha Breger-Bush
ABSTRACT
When the Cold War ended, the international community witnessed a deluge of civil conflicts throughout the developing world. To stem the flow of violence, Western organizations implemented post-conflict reconstruction initiatives centered around structural reforms that would both aim to create a state that mirrors the West, as well as a state that would resist a return to conflict. Since most of these conflicts took place in the poorest parts of the world, the standard prescription was economic overhaul. This typically took the form of creating an open free-market which could attract foreign direct investments (FDI) into the post-conflict economy, which should create a windfall of positive spillovers for the host-state. Cambodia, a state left without any formal institutions following years of violent conflict is a perfect example of this model. When the international community arrived, and doled out measures of reform, Cambodia responded well and quickly captured the regions largest share of inward FDI. Today, while Cambodia is still a strong economic performer, it is one of the most corrupt countries in the world and finds the bulk of FDI coming from a single source: China. Through this arrangement, Cambodia is in the precarious position of being dependent on Chinese FDI and positive spillovers have failed to materialize. With stark regional disparities and little domestic investment to expand human capital, the benefits of Cambodias windfall of FDI have been extremely limited. This reality can prove challenging for lasting peace in the country.
The form and content of this abstract are approved. I recommend its publication.
Approved: Sasha Breger-Bush
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TABLE OF CONTENTS
CHAPTER
I. INTRODUCTION.......................................................1
II. FOREIGN DIRECT INVESTMENT IN POST-CONFLICT POLICY..................7
Definitions.......................................................7
The Post-Conflict State: An International Problem.................8
Literature Review................................................12
Development for Peace......................................12
FDI as a Complement to Post-Conflict Intervention................18
FDI and Development: Can MNCs Deliver?...........................21
Human Capital and Domestic Market Growth: Is FDI a Funnel?.......26
Potential Drawbacks of FDI: Strong Policy First, Benefits Second.33
III. SUMMARY OF LITERATURE, METHODOLOGY AND DATA.......................40
Summary of the Literature........................................40
Methodology......................................................42
Data.............................................................43
IV. CAMBODIAN CASE STUDY..............................................46
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Colonial Indochina: Origins of Extraction
46
The Face of Post-Conflict Cambodia.......................................47
Post-conflict Capacity Building: 1989-1993.........................49
Development Hurdles and Aid Dependency: 1993-2003..........53
Summary of Cambodias Post-Conflict Challenges............................56
Overview of Cambodias Investment Regime..................................60
FDI in Post-Conflict Cambodia.............................................62
Chinese FDI: A Recipe for Dependency?.....................................63
Hydroelectric Industry: Water, Power and Conflict.........................66
The Garment Industry: Made in Cambodia (Under Chinese Supervision).......70
Tourism: A Holiday in Cambodia............................................74
Conclusion................................................................78
REFERENCES
81


CHAPTER I
INTRODUCTION
The refugee crisis that is crippling parts of Europe and the Middle East at the moment is a vivid reminder of the fact that the effects of conflict in any part of the world do not exist in a vacuum. While the physical aspects of conflict may be isolated, the economic effects of conflict can be far-reaching, as formal economic functions are immobilized when violent conflict ensues forcing families, workers and businesses to flee from the embattled state. The economic symptoms of conflict can pose significant challenges for post-conflict reconstruction initiatives. Development and peacebuilding experts alike agree that the most potent peace dividend that can arise in the post-conflict state, in addition to the cessation of physical violence, is economic integration for citizens (Collier, Hoeffler & Soderbom, 2008; IDA, 2014; Philpot & Powers, 2010). Attaining a rigid peace dividend in post-conflict policy via the resumption of robust and open economic activity, as the literature will attest, can prove to be one of the most effective ways to curb violence, normalize relations with regional actors and enhance the post-conflict states ability to integrate and capitalize on the global economy.
Being that over half of the worlds poorest citizens, or roughly 2 billion people, live in states where development has been hampered by conflict and the fact that states that have endured conflict have a 40 percent chance of relapsing into conflict, there seems to be a pernicious relationship between poverty and violent conflict (Collier et al., 2008; IDA, 2014).
A recent World Bank policy report suggests that, conflict is development in reverse and states that are doomed to fall into the conflict trap, those in the 40 percentile of states relapsing into conflict within a ten-year span of a civil conflict, do so because post-conflict development efforts have failed to deliver broadly shared economic benefits for those who are affected most
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by conflict: poor citizens (Collier et al., 2016; IMF, 2003; UNDP, 2016). While reconstruction needs are immense and varied for states in a post-conflict setting and many of a states physical, institutional and economic systems have been fractured by conflict (more below), one policy initiative that institutions like, The World Bank, International Monetary Fund (IMF) and the UNDP, commonly implement is to open the economy and facilitate the arrival of foreign direct investment (FDI) into the state (Collier et al., 2016; IMF, 2003; UNDP, 2016).
By adopting free-market economic policiesfor example, deregulation, privatization, fiscal austerity, and free trade, the literature argues, the host country will reach a threshold of economic stability that will attract FDI from global firms who have the expertise, resources, and global mobility that will aid in lifting emerging economies onto the main stage (Liu, 2008; UNDP, 2016). Through this arrangement, global lenders argue, states emerging from conflict can utilize international aid to implement structural reforms that will attract foreign investors into the country, building long-term relationships with global firms that can contribute to a more sustainable path to development than aid alone can provide.
In addition to accessing capital through foreign investments, the literature adds (more below), FDI will both directly and indirectly create a surge of positive spillovers, from raising human capital, building regional commercial ties, to disciplining host governments economic policies (Collier et al., 2016; Kumar, 2007; Liu, 2008; UNDP, 2008). If the spillovers from FDI can then be harnessed and broadly dispersed among sectors of society by host governments, the literature suggests, the countrys developmental trajectory will have a more auspicious chance of resisting a return to the conflict trap (Kumar, 2007; Liu, 2008; UNDP, 2008). In this view, the onus of success in post-conflict policy lies with a host-states ability to utilize the tools of donors and global organizations to implement lasting policies that will deliver broadly shared benefits.
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This state-centric approach to post-conflict reconstruction is a visible departure from policies that were guided more by political and economic reform, from lenders like the IMF and World Bank, throughout peacebuilding activities bom from the onslaught of civil conflicts that erupted in the immediate post-Cold War years (IMF, 2016). While international institutions like the UN and its various branches had long been present, post-conflict interventions were rarely mobilized until the Soviet Union fell and its many dependents ruptured into self-determinant conflicts (UNDP, 2008). This means that post-conflict intervention as a practice is still relatively novel and the subsequent lack of data and scholarly attention to mechanisms that have succeeded or failed pose both difficulties for policy-making, as well as opportunities to broaden the knowledge-base.
While conflicts continue to rage on throughout the world, questions of how to promote peace in regions susceptible to violence continue to challenge scholars and practitioners who strive to understand how sustainable elements of development can be introduced and conflict recidivism avoided. While the circumstances surrounding civil-conflict are as diverse as the countries that host conflict, generalizing effective policies that will work across all post-conflict situations is impossible. What will seemingly benefit the gap in literature most of all is more comparative context. This study seeks to contribute to this crucial, yet underserved, knowledge base by presenting an in-depth case study that will seek to offer some nuance to the discussion of post-conflict economic development, while focusing exclusively on the primacy of promoting FDI.
For this task, no country seems better suited to challenge prevailing development norms than Cambodia. Cambodia has overcome some tremendous obstacles throughout the past four decades. The country was sucked into the Vietnam war through a secret bombing campaign led
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by the US, which helped galvanize an embattled and impoverished countryside to support radicals led by Pol Pot who strove to reset Cambodias calendars to year zero; to the lost decade, where the invading and internationally-scorned Vietnamese Army stemmed the murderous Khmer Rouge, though at an extremely high cost for the beleaguered Khmer citizens (Than, 1992). Add the decades of extractive colonialism that preceded these events and one can quickly see that Cambodia has faced some profound developmental challenges.
From this deeply troubled past Cambodia has made some incredible transformations, at least on the surface. The World Banks Senior Country Economist states, Cambodia has joined the Olympians of growth. With an annual growth average of 7.7 percent for two decades now, it is the sixth-fastest [growing economy] in the world from 1993 to 2013 (World Bank, 2014, para. 16). This growth, the Minister of Finance notes, has been hinged on the ability of Cambodia to attract foreign direct investment (FDI) (Chanthol, 2014). The Minister highlights a variety of traits that have allowed Cambodia to attract FDI: proximity to the former and emerging tiger markets in Asia, a prominent, albeit fledgling, port city on the Gulf of Thailand (one of the busiest trade-routes in Southeast Asia); a relatively young labor force; and natural resources spread throughout the country (Than, 1992). All else equal, Cambodia is really poised to succeed within the framework of globalization. Its assets have proved compelling for foreign investors and with these investments, in conjunction with immense flows of aid, Cambodia should have the necessary tools to steer a sturdy course. Unfortunately, all else has not been equal.
While Cambodias post-conflict growth has indeed been impressive, especially considering the zero-starting-point in which Cambodia began to rebuild when UN forces arrived in 1992, the optimism that is placed in overall growth distracts from the shortcomings that exist
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under the surface. Land and food security is a continuing problem for the countrys 80 percent rural, and predominantly impoverished, citizens (Than, 1992). Education falls far behind its Asian neighbors and corruption in Cambodia has consistently remained in the bottom 8 percent in the world, or 164th of 182 jurisdictions in Transparency International's Corruption Perception Index (Hill & Menon, 2014; Transparency.org, 2016). Additionally, Cambodias windfall of FDI, since the 1991 signing of the Paris Peace Accords, has come primarily from a single source, China (ONeill 2014; Than, 1992). While much of the pro-FDI literature focuses on benefits derived from developed, typically Western, societies, the question of positive spillovers from an Asian-centric investment base is not as clear and current literature is lacking in addressing this. These characteristics of Cambodias post-conflict development, I will argue, have run counter to the promises of FDI and may not bode well for continued peace in the future.
With exclusive focus on the post-conflict state of Cambodia, this study seeks to broaden our understanding of how FDI operates in theory and how FDI operates on the ground. In recognizing that no two post-conflict situations will be the same and that conflict itself can affect states in a multitude of ways, there will be no attempt to generalize findings across all postconflict locales. Rather, the attempt is to flesh out how a country like Cambodia, one that was decimated by civil war and foreign occupation, has fared in establishing a Western-friendly economic identity and in harnessing the concomitant downpour of FDI. Is FDI providing the beneficial spillovers as the literature professes it will? Or, are we simply witnessing the Guilded Age of post-conflict reconstruction, where, in the absence of effective governance and sound judicial oversight, the economically mobile prosper while the bulk of impoverished toil? Can reliance on a single source of FDI from China, as will be demonstrated below, create the kind of post-conflict dependency that leaves a country more vulnerable than self-sufficient? What does
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this tell us about the role of FDI in a post-conflict setting and what does this portend for future peace?
This paper will proceed as follows: 1) The first chapter will outline the existing literature on FDI in theory and in practice, specifically in relation to development and economic stability. 2) The following chapter will outline the data and methodological approach that will be used in uncovering how FDI has shaped Cambodias post-conflict economic reform since the signing of the Paris Accords in 1991 to present. 3) The final chapter will present the findings in Cambodia and will conclude with possible directions for further research.
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CHAPTER II
FOREIGN DIRECT INVESTMENT IN POST-CONFLICT POLICY
Definitions
As terms within the economic/globalization lexicon can be easily blurred in technicalities, I will employ the following definitions in my research. Foreign direct investment (FDI), will be understood as a flow of capital from any firm that establishes long-term relationships through investments with enterprises in foreign markets and holds a minimum equity stake of ten percent (Kumar, 2007). FDI differs from other types investments, such as portfolio equity investment, which is when a foreign firm buys company shares, typically via the stock market, and does not necessarily gain any effective control of the company (Kumar, 2007). This distinction will be important moving forward, as the element of control garnered through FDI denotes a heavier influence and a more direct interaction between parent/affiliate companies, theoretically allowing for a more fluid movement of ideas, technologies and managerial know-how from parent to affiliate enterprises (Kumar, 2008).
Firms that invest across national borders will henceforth be referred to as multinational corporations (MNCs). These companies are typically based in developed countries and seek strategic investment in firms often located in lesser developed countries (LDCs) (Kumar, 2008).
While this study does not seek to tie post-conflict economic policy to the attainment of peace directly, global institution like the UN often frame post-conflict interventions as practices in peacebuilding. Thus, peacebuilding, as the UN describes it, denotes a strong lean toward establishing structures of peace that would sustainably reject a return to conflict. Put into the post-conflict context, these processes typically include: Strengthening the institutional base; making a constitution, or a new one, and establishing the rule of law; strengthening security;
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economic reconstruction; as well as national reconciliation (Yilmaz, 2009, 240). While all of these steps are critical in the post-conflict state-building process, the literature suggests that peacebuilding initiatives often devolve back into conflict, which suggests that there are crucial elements missing, or are being misused, in their implementation (Call & Cousens, 2008; Del Castillo, 2008; Gersen, 2001; Venugopal, 2011; Yilmaz, 2009). States emerging from conflict throughout the past several decades, as well as states that revert to conflict, all seem to have entrenched poverty as a common denominator and thus peacebuilding as it relates to economic reconstruction and FDI will be of central focus moving forward.
The Post-Conflict State: An International Problem
Before delving into the development literature, it will first be important to illustrate just why the post-conflict state, differentiated from lesser developed countries (LDCs) in general, is such a unique subject that deserves explicit attention. While economies within most LDCs already struggle to compete in global markets as it is, conflict can exacerbate already difficult situations to disastrous levels, by crippling formal economies and stripping citizens of the capacity to earn a living (Venugopal, 2011).
The economic and political consequences of violent conflict, as highlighted in the 2008 United Nations Development Program (UNDP) (2008) report, includes substantial loss of livelihoods, employment and incomes, debilitated infrastructure, collapse of state institutions and rule of law, continuing insecurity and fractured social networks (p. 17). The report then presents Afghanistan, a country that has endured more than a quarter century of violent conflict, as an example of the detrimental relationship between development and conflict: Afghanistan stands as one of the most impoverished, conflict-prone states in the world, and ranks near the bottom of
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all human development indicators and has furthermore been ranked by the Fund for Peace as the seventh weakest state in the world (UNDP, 2008, 17).
Conflict reshapes whatever political and economic institutions were in place prior to the outbreak of violence, as the breakdown of the formal economy will force people into other avenues of survival (Venugopal, 2011.). The loss of a traditional means of employment pushes citizens to operate in the informal, or shadow economy, where subsistence agriculture becomes the only means to eat and informal, or black market, transactions become the only means to trade (Call & Cousins, 2008). Illicit activitiesbolstered by the states diminished capacity to regulatesuch as drug and arms trading become viable avenues for those stranded in what is essentially economic purgatory (Call & Cousins, 2008; UNDP, 2008; Yilmaz, 2009). While conflict pushes people to the fringes of economic activity, the state governments goal to normalize the situation becomes that much harder and its limited resources become squeezed that much more as a potential tax base cannot be fully realized (Call & Cousins, 2008). Furthermore, human capital is depleted as many of the educated and trained are either directly pulled into conflict or leave the country in search or opportunity elsewhere, resulting in a brain drain, that will further challenge reconstructive efforts in the post-conflict setting (Call & Cousins, 2008).
The post-conflict state is thus void of systems and infrastructure that might otherwise direct citizens activities toward a cohesive productive capacity and at this point the struggling state is in dire need of external assistance (Berman, 2000; Dicken, 2007). At this point, the postconflict state often looks toward Western organizations.
In addition to the welfare of the state embroiled in conflict, regional ramifications can be felt by neighboring states in several ways. Of foremost concern is the mass movement of people mobilized by conflict and their subsequent drain on the resources of neighboring states, who
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themselves are often struggling LDCs (UNDP, 2008). This strain in itself can be a source of conflict for neighboring states and speaks to the necessity of governments and international actors to comprehensively address the sources of conflict at the state-level, lest it devolve into regional chaos, i.e. D.R.C., C.A.R., and now the Levant. These previous examples also speak to the dangers of leaving entire societies devoid of formal and open economic processes in the post-conflict setting, as without jobs, young men and women might find whatever offers local militias are providing as quite attractive.
Clearly a state emerging from conflict is disproportionally vulnerable and the new government is often weak and aid-dependent (LeBillon, 2008). Whatever economic systems were in place prior to conflict have typically been destroyed or severely stunted and the most crucial peace dividend, economic reintegration, often takes second place to political reforms, which is a significant contributor to the fact that, as Call and Cousins (2008) note: A significant number of armed conflicts relapse into war, and many new wars occur in countries that have failed to consolidate peace. When peacebuilding fails, Call and Cousins (2008) continue, parties to conflict often unleash greater violence than in the prior war (p. 1). Rwanda surely stands as a vivid example of these dangers and clearly illustrates the necessity of effective and sustainable post-conflict intervention operations (Call and Cousins, 2008).
Considering that there are now more than 35 countries that have entered the postconflict phase since the end of the Cold War in 89 and that the return to conflict rate is as high as 40 percent among these often poor countries, it is clear that traditional means of peacebuilding need to adapt and find ways to promote and facilitate alternatives to conflict more rigorously (Collier et al., 2008; Del Castillo, 2008).
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Intervention, however, is a costly and difficult process. Scholars and UN publications themselves often cite the complexities involved with mobilizing the tremendous amount of resources, personnel and capital required in any post-conflict situation (much of which is absorbed by the mission itself) (Del Castillo, 2008; Gersen, 2001; UNDP, 2008). It is thus not surprising that in recent years the UN has been seeking partnerships with actors from the private sector (UNDP, 2008).
Additionally, the post-conflict state is complicated in and of itself, as each countrys capacity-level in the aftermath of conflict differs substantially (Del Castillo, 2008, Gohou & Soumare, 2010). These capacity differences include the level of human and structural damage sustained throughout the conflict, a states history of domestic economic processes, its possession of marketable resource endowments and, among many other attributes, its relationship and placement in the regional economy (Del Castillo, 2008, Gohou & Soumare, 2010; UNDP, 2008).
These differing contexts have proved challenging for peacebuilding actors, namely the UN, World Bank and IMF, as they have been widely criticized by scholars and practitioners alike for rubberstamping peacebuilding operations by implementing values of the West and of the developed onto cultures with significantly different value systems and different ways of doing things (Call & Cousins, 2008, Gersen, 2001; Gohou & Soumare, 2010; Philpott & Powers, 2010). In light of the tremendous obstacles being faced by international peacebuilding bodies, post-conflict protocol has been forced to recalibrate its approach, looking toward non-traditional actors in the private sector to complement peacebuilding processes (UN.org. 2015). The following section will examine the reasoning behind these shifting attitudes from external aid-
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driven reform to a more endogenous approach, which is centered around mobilizing a states unique capabilities.
Literature Review
Development for Peace
Peace cannot be maintained in a breadline for long. This was made explicitly clear in the days after WWII, when much of the developed world was left crawling after decades of violence and destruction. In order to avoid further conflict, it was clear that a sustainable political model must be coupled with a sustainable economic model. Historically speaking, notes Del Castillo (2008), the emergence of a development-for-peace approach to post-conflict reconstruction is best exemplified through the Marshall Plan, the champion of post-conflict policy (p. 23). What made the Marshall Plan so successful, Del Castillo (2008), Gohou & Soumare (2010), among others, argue, was the heavy emphasis placed on the states receiving aid and resources to guide their own path for development and take domestic ownership of the reconstruction process.
Comparing a war-tom Europe of the 1940s with modern post-conflict states necessitates proper contextualization, as, even then, the European states had a history and collective understanding of industry and what a functioning economy looks like (Del Castillo, 2008). Countries that are racked with conflict today and are primarily located in the global South, on the other hand, have experienced little more than the extractive end of globalization, typically playing host to firms who invest in resource extraction and low-skilled labor, and thus have little exposure in shaping and sustaining higher-value added production capabilities that would aid in developing a more diverse and rigorous domestic economy (Del Castillo, 2008; Gohou & Soumare, 2010). Despite these differences, situating the host state as the primary director of its post-conflict institutional identity is widely seen as a success in the Martial Plans format (Gohou
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& Soumare, 2010). This centralization of host-state prerogative, which made the Marshall Plan so successful, will be an important attribute to keep in mind as we move toward uncovering Cambodias role in its post-conflict reconstruction.
Debates and inclusive decision-making practices of the Martial Plans nature have changed significantly in peacebuilding protocol and have been replaced with a consistent call among global lenders for strict structural adjustment programs (SAPs), which typically involve adopting the hallmarks of a free-market economy, such as: rapid de-centralization, de-regulation and open access to international firms (Del Castillo, 2008; Kumar, 2008). The reconstruction projects of late, Del Castillo (2008) notes, have had to rely on throwing money at a system that may not have the capacity to adjust. Underdevelopment needs time to develop (p. 21). The framers of the Marshall Plan seemed to have had an understanding of the fact that development is indeed a slow and gradual process and spent a great deal of energy in tailor-fitting processes that would maximize benefits for each country by first providing the platform of economic recovery and sustainability (Del Castillo, 2008; Gohou & Soumare, 2010). Though there has been a visible shift in publications from global lenders of late, it wasnt until 2001 that the World Banks International Development Association (IDA) adopted more flexible post-conflict procedures, which included: a period of observation before engagement, a clear transitional support approach and country assistance strategy, as well as a call for more cooperation with competing agencies, NGOs and civil society (IDA, 2014, 9).
Though, before structural reforms can begin, the primary condition to be met is the cessation of violence, which is typically effected through internationally mediated power-sharing arrangements among competing factions of governance in the initial stages of peace accords (USAID 2009; UNDP, 2008). While this is clearly a necessary step toward building peace in a
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conflict ridden state, the extent to which power sharing reflects a true dividend of peace among rival citizens, or is simply a placation of international bodies to ensure the continuation of aid, is a highly contentious subject in the peacebuilding literature (Hopp & Kloke-Lesch, 2004; Philpott & Powers, 2010; Venugopal, 2011). To this end, the literature situates the attainment of peace into two main categories: positive peace and negative peace (Call & Cousens, 2008). Negative peace can simply be the absence of violence alone, where a positive peace is more focused on Resolving the numerous social, economic, and political fissures that exist in a post-conflict setting (Call & Cousens, 2008, 3). Clearly a negative peace is a temporary solution to overt violence, while the processes involved with building a positive peace require an intimate understanding of the post and pre-conflict context in order to implement lasting structures that will foster that peace. These structures, as demonstrated through the Marshall Plan, manifest in part through sound economic development built on country-specific policies (Del Castillo, 2008; Call & Cousens, 2008).
While many of the conditions placed on post-conflict aid may indeed help in preparing the country for a place in the global market, in an attempt to hasten its economic development, the literature warns that conditions of aid do not always acknowledge the interests of the host country (Manning & Marlbrough, 2010). First of all, as the post-conflict state is quite foreign to (often) Western actors, they innately lack an intimate knowledge of the country which would be required to create durable conditions (Manning & Marlbrough, 2010). This can lead to a particularly volatile situation if certain domestic actors, regions, or ethnic groups are ignored or favored by the resulting policy (Manning & Marlbrough, 2010). Moreover, the literature warns that conflicts arising today must not be treated as new wars, but should be understood as a long historical process with a host of preceding variables to address in peacebuilding, a point that
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seems often ignored by donors and practitioners as per their insistence on implementing standardized, one-size-fits-all reforms (Putzel, 2005). This top-down element of determining whats right for the post-conflict state can complicate post-conflict policy as many citizens or regions can be left out of the fold.
Additionally, peacebuilding often ignores the economic processes that were in place prior to conflict. In this vein, the UNDP (2008) stresses the importance of nurturing indigenous drivers, or tapping into the historical productive capacity of a society (p. 20). Citizens in conflict affected states, the UNDP (2008) report adds, will not simply wait passively for external agents to bring them the good life. Rather, the report continues, they will get to work in whatever capacity they know best (UNDP, 2008, 20.) The study concludes by urging practitioners to mind these indigenous drivers when designing a reconstruction program and complement, rather than completely overhaul, systems of the economy (UNDP, 2008). This is an area, the literature suggests, that could better be navigated by members of the private sector who, through business dealings and a working knowledge of domestic or regional processes, can more naturally implement themselves into the post-conflict context, transferring capital and benefits along the way (Gariga & Phillips, 2014; Manning & Marlbrough, 2010; Suhrke & Buckmaster, 2005).
The fact that the face of donors and peacebuilding institutions are often associated with Western ways and values places another restraint on their effectiveness toward promoting a viable peace. Writing in the context of developmental neocolonialism, some scholars within the development literature seem to recognize the tension that is created when conditions are placed on aid that require the host state to more closely resemble donors (Venugopal, 2011). Much like colonial practices, donors can favor certain groups, political parties or regions within
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the post-conflict state that are more closely aligned with their own interests (Venugopal, 2011). As this suggests that some groups would be placed on unequal economic footing, practices like these can run counter to peacebuilding goals of fostering a positive peace, allowing resentment and contempt to fill the void of broadly shared benefits.
The post-conflict state is also sensitive to the patterns and manner in which aid is dispersed. Surhke and Buckmaster (2005) note a distinct correlation with donors and their response to conflict by the newsworthiness, or as they call it, the CNN effect and the amount of money they disperse (p. 737). The more prolific the news surrounding a conflict is, Surhke and Buckmaster (2005) argue, the more donors will frontload, or pour large amounts of financial aid and other physical resources into the state (p. 737). This type of donor behavior clearly suggests a self-serving post-conflict aid strategy and raises several questions about the interests and the effectiveness of organizations that are involved in peacebuilding and post-conflict reconstruction.
Furthermore, pouring large amounts of financial aid into post-conflict states, the literature suggests, can have long-term negative impacts on economic development (Suhrke &
Buckmaster, 2005; Venugopal, 2011). Highlighting a recent World Bank publication, Suhrke & Buckmaster (2005) suggest that while conditions are attached to initial agreements of aid, there is little oversight when it comes to funds actually being dispersed. The often new and fragile post-conflict governments, rather than reinvesting funds to promote immediate and broadly shared economic growth, tend to disappear funds, whether through corruption or poor investments (Suhrke & Buckmaster, 2005, 739). It is because of blowback like this, a 2012 United Nations Development Program (UNDP) publication illustrates, that Developing countries [and the development community at large] increasingly see foreign aid as a short-term
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solution and a catalytic for trade and development driven by the private sector (p. 3). With the domestic private sector being significantly set-back as a result of conflict, FDI, the UNDP (2012) suggests, can be a crucial driver of economic recovery.
The newsworthiness aspect of donor choice also suggests a level of subjectivity on behalf of donors as to what and when is a conflict. This has been demonstrated in tracking aid flows over time throughout peacebuilding operations. In the cases of Bosnia and Cambodia as an example, Bosnia received about three times as much post-conflict aid than Cambodia, a country with the twice the population of Bosnia (Surhke & Buckmaster, 2005, 739). As conflict involves the destruction of life, the implications that some conflicts would not be in the limelight enough to warrant aid is a frightening proposition.
The approach to peacebuilding and reconstruction illustrated by the Marshall Plan seemingly changed along with the polarizing political atmosphere of the Cold War years, where development was used more as a proxy to create states that resembled Western models (Gersen, 2001). What changed too was the manner in which wars were fought, or at least with whom they were fought. Inter-state wars, where aggressors and victims are much easier to discern, were rapidly becoming exceptions, as intra-state conflicts, where hostilities are deeply woven in complex relationships and histories, became the new norm (Gersen, 2001). Translated to the peacebuilding community, this shift means that Marshall Plan-era approaches of relying on salvaging pre-existing structures and simply funding the initiatives of able state leaders were quite incapable of addressing the causes of modern-day conflict in states that have few financial resources, stark social/ethnic cleavages and weak institutions (Del Castillo, 2008).
Finally, the changed nature of conflict has also had profound implications for the legal and normative aspects of conflict intervention. The fact that intra-national conflicts occur within
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the borders of states, Yilmaz (2009) notes, made most international actors reluctant to intervene, either for legal concerns or for concern to avoid probable losses (p. 238). Thus faced with an explosion of post-Cold War conflicts, public international institutions charged with the task of promoting development and avoiding conflict, namely the UN, IMF and World Bank, were in a constant race to implement top-down peacebuilding structures in situations that were anything but transparent and in locales that were anything but familiar to peacebuilding practitioners (Gerson, 2001). This approach clearly did little to douse the flames of contempt, as peacebuilders, trying to operate through a singular policy approach of political and economic reform, failed to recognize the intricacies of each site of conflict as vastly different and unique to one another. By structuring policy around the inherent traits and indigenous drivers of the host state, the literature argues, policy can build upon already existing processes, rather than implementing a clean-sweep of reform (UNDP, 2008; Yilmaz, 2009).
FDI as a Complement to Post-Conflict Intervention
When domestic processes are widely hampered from conflict, the literature argues, post-conflict aid and policies directed toward encouraging investments made by MNCs can provide a country with access to capital, jobs, skills, technology, and international business networks that are unavailable domestically (See Table 1) (Griffin & Whyte, 2014, 1). In attracting these external inputs, the literature highlights, in addition to providing an immediate peace dividend in the form of economic activity, FDI can significantly contribute to the long-term growth prospects of the domestic economy by creating linkages with upstream/downstream domestic industries (Griffin & Whyte, 2014; Surhke & Buckmaster, 2005; UNDP, 2012).
In the tense political environment of the early nineties, UN Secretary-General Boutros Ghali, witnessing that a significant number of armed conflicts relapse into war, and many new
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wars occur in countries that have failed to consolidate peace, institutionalized the term peacebuilding in his 1992 Agenda for Peace and expanded its post-conflict prerogative, as: action to identify and support structures which will tend to strengthen and solidify peace in order to avoid a relapse into conflict (Call & Cousens, 2008, 3; Secretary-General of the United Nations, 1992). This definition, with its call for structural reinforcements of peace, is a clear departure from 90s-era post-conflict interventions that made aid contingent on complete political-economic reform, regardless of whether or not those conditions would continue to be upheld once aid arrived and experts left (Manning & Marlbrough, 2010).
Furthermore, being that Peace negotiations and post-conflict economic recovery, Wennmann and Berdal (2010) elaborate, are often perceived as two distinct operations that are conducted in different contexts and by different institutions, we need to shift our framing of peacebuilding as a two-stage process, towards an ongoing process in which the resolution of a conflict and the preparation of future political or economic orders go hand in hand (p 22). To this end, a 1999 initiative led by then Secretary General of the UN, Kofi Annan, launched the Global Compact, a voluntary partnership between the UN, the private sector, and NGOs which seeks to bridge the interests of global development actors as well as firms which embrace good international corporate practice[s] that can align and support private sector reform supported by the UN, World Bank, IMF and other actors typically engaged in post-conflict reconstruction (Oliver, 2014, 9).
The concerted approach to post-conflict expressed in the Global Compact, is very reminiscent to Marshall Plan-era policies which rested heavily on planning and tailor-fitting reforms to best match the host states capabilities and is best captured through the endogenous growth model (GuechHeang & Moolio, 2013). In contrast to the neoclassical model, which
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places emphasis on economic growth through transfers of FDI, the endogenous framework emphasizes a number of channels through which FDI can permanently affect the growth rate and those include research and development (R&D), human capital accumulation, and externalities, or spillover effects, which all will promote growth in the long run (GuechHeang & Moolio, 2013, 89). FDI literature situates its spillover potential into two channels. De Mello (1999), Dunning (1993), Blomstrom et al. (1996) and Borensztein et al. (1998) posit that the first channel consists of capital accumulation via the arrival of new economic inputs and technology that foreign firms bring to the table which boosts the productive capacity of the recipient state (GuechHeang & Moolio, 2013). The second channel, highlighted by De Mello (1996, 1997, 1999), is more concerned with the intangible accumulation of human capital, wherein FDI augments the host countrys existing stock of knowledge via labor training, skill acquisition, and the introduction of alternative management practices (as cited in GuechHeang & Moolio, 2013, 89). Furthermore, the more productive a society is, that is, the more a host state can harness and expand these spillovers, the more FDI will serve as a self-fulfilling prophecy, further garnering the attention of international firms who see the newly stable and vivacious state as a solid investment (Dunning, 1993; GuechHeang & Moolio, 2013; De Mello, 1997).
Much has been covered so far about the dangers and inefficiencies of an externally-driven approach to post-conflict reconstruction and much stock has been placed in the building a sustainable development through the arrival and proper harnessing of FDI. While FDI is painted in the literature as something as a panacea to invalid economies throughout the developing world, these benefits are placed squarely on the recipient countrys ability to harness and distribute these benefits. This relationship, expressed through the endogenous growth literature, places a states possession and investments of human capital at the forefront of economic
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growth (Azam & Ahmed, 2015, 100). In this sense, Azam & Ahmed (2015) discuss the tremendous growth potential in states with an already healthy level of human capital stock, that is citizens whom have had the opportunities to develop marketable skill sets through higher education, on-the-job training, and access to preventative and curative healthcare (p 100).
In this model, states that have the ability to invest significant resources into the skills and health of the local populace can augment significant returns from both a diverse domestic economy, as well as in attracting foreign firms drawn to the prospect of a healthy and skilled labor base (Borensztein et al., 1998; Azam & Ahmed, 2015).
While this model has had success in describing rapid growth throughout the developed world in the age of globalization, it offers little in explaining the potential growth in a post-conflict situation, as most of the domestic stock of human capital has been obliterated throughout conflict (more below). Nonetheless, this conception of creating a threshold of domestic investments in things like health and education before FDI can be adequately attracted will be important to keep in mind when considering the decimated post-conflict context of Cambodia. The following section will take a closer look at the emergence of FDI in the development landscape as well as some of the professed benefits of FDI.
FDI and Development: Can MNCs Deliver?
The evolution of FDI, like that of post-conflict development, has its roots in the post-WWII years. First, from the end of WWII to the end of the Cold War in the 1990s, FDI flows and stocks increased around the world, especially in developing countries (Gohou & Soumare, 2010, 76). During this period, the author continues, FDI flows were mainly driven by political rather than by economic motives, Second, since the 1990s, FDIs have been concentrated in countries that offer fiscal benefits, subsidies, and other incentives (Gohou & Soumare, 2010,
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76). As previously mentioned, in order to be included in FDI data, a firm must hold at least 10 per cent ownership equity in the foreign affiliate (Kumar, 2007). While an investment threshold of 10 percent may seem slightly arbitrary, it does imply a substantial mobilization of financial and human assets to the affiliate company in the process of expanding, enhancing, or building productive elements anew in the host country (Bwalya, 2006). This movement of resources is what is generating fanfare for FDI in the peacebuilding literature, in that, through the transfer of foreign physical assets, there is an indirect benefit for the host entityin addition to the direct benefit of attaining foreign capital and resourcesin what are commonly referred to as spillovers (Bardy et al., 2012; Bwalya, 2006; Kumar, 2007; Liu, 2008).
Beyond FDI, capital flows come in two other primary forms: Portfolio equity investing is when a foreign firms buys company shares, usually through stock markets, without gaining any effective control and Portfolio debt investments are investments that typically cover bonds and short/long-term borrowing from banks and multilateral institutions (Kumar, 2007, 3). While all three modes denote the movement of capital from one MNC to a foreign enterprise, only FDI denotes an element of ownership. This level of ownership implies that the investing MNC will have a much more hands-on relationship with the affiliate, transpiring in the transplantation of methods, knowledge and technology to the affiliate in order to maximize investment yields (Bardy et al., 2012). Most importantly, while all three modes of investment will bring much needed capital to the host state, only FDI, through its entrenched relationship with local enterprises, connotes a sense of productive sustainability to the host state (Kumar, 2007).
The sustainability and the longer time horizon of FDI versus portfolio debt investments and even foreign aid, is an aspect of FDI that has great potential for development. Whereas aid is predicated on the commitment of lenders, which can be capricious (as discussed above), and
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portfolio investments can, and typically do, flee the country at the first sign of increasing risk, FDI, with its threshold of 10 percent ownership, is typically undertaken with the long game in mind for investors (Azam & Ahmed, 2015).
This threshold of investment also denotes a substantial mobilization of resources and capital and thus it is worth highlighting what compels MNCs to invest abroad. The literature highlights several reasons that drive FDI, but for the relevance of this paper, the three main drivers are: market-seeking, efficiency-seeking and resource-seeking investments (Kavita & Sudhakara, 2011). For those firms that are market-seeking, they are usually drawn to the spending capacity of local citizens as a way to broaden their consumer base and as such, host countries tend to be more developed and the resources the firms move abroad tend to be higher-tech and require high-skilled employees (Kavita & Sudhakara, 2011). Conversely, efficiency seeking behavior tends to be driven by lower productive costs, typically owed to cheaper labor relative to source-state labor. These firms are typically low-skilled and low-tech manufacturing firms, like the garment industry, for example (Kavita & Sudhakara, 2011). Finally, resourceseeking behavior is driven by the presence of raw materials in the host state. Firms engaged in resource extraction tend to mobilize high-tech processes, though typically bring the necessary skilled labor with them (Urban, Nordensvard, Siciliano & Li, 2015). Resource-seeking also lends itself to controversy, as host states are typically located in LDCs and subsequently have lesser developed regulatory capacities which firms can exploit, through environmental or social degradation, for example (Urban et al., 2015). Additionally, with lower levels of human capital in economies that attract efficiency-seeking investments, there is less absorptive capacity of workers to reap the benefits of spillovers and thus these firms typically exploit lower labor costs while reserving higher management positions for source-state employees (Kubny & Voss, 2010).
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Aside from the access to needed inputs, MNCs seek investments with the fewest risks. FDI requires host state approval and is usually secured through contracts with the firm and the appropriate ministries in the country. As such, countries with opaque or unstable political and legal institutions pose tremendous risks for foreign firms, as if policy were to change, a firm could risk losing investments through nationalization, contract reneging or lost profits through bribes and payouts (ONeill, 2014). This will be an important consideration when discussing the FDI environment in the Cambodia case study section.
The focus on FDI, as being as much or more pertinent in the post-conflict setting as international aid, is gaining more prominence in development circles as it is, above all, a nondebt source of finance in which the government can utilize for economic investment projects as well as a tool to enhance the host countrys technical capacity (Bwalya, 2006). To cite Kumar (2007) again, A key aspect of economic advancement lies in poorer nations capacity to acquire more capital and scale the technological ladder (p. 1). Furthermore, Kotrajaras, Tubtimtong and Wiboonchutikula (2011) note that Many studies have concluded that FDI is a long-term capital inflow and has the smallest fluctuation compared to other types of capital flows (183). This constancy in capital flows is crucial to development as with other avenues, such as aid and loans, the financial spigot is turned on and off as per the whims of the lender.
Where actors involved in providing aid to post-conflict countries might have core interests they are seeking to achieve, as much of the funding from these organizations is provided by those who support the organizations specific cause, businesses, by their very nature are politically neutral (Jamali & Mirshak, 2009). In a study that interviewed leaders of MNCs throughout the world who have conducted business in fragile and conflict-affected areas, many respondents clarified their neutral stance, with one manager saying: please make note of it, we
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are neutral, nonpolitical whatever you want to call it; we dont support any political faction nor wish to be dragged into political squabbles or discussions (Jamali & Mirshak, 2009, 458). Conversely, Schouten (2007) noted that, companies cannot operate neutral. The very fact that that a company conducts activities within a political environment makes it a political actor (as noted in Jamali & Mirshak, 2009, 460). The argument behind this is that a firm has the capacity to legitimize any state or ruling government simply by their presence. Regardless of their perceived position, many of the respondents in the authors survey indicated that they exercise their policies of corporate social responsibility (CSR) through continuing business in fragile states and providing for customers within states, actions, the authors note, may have an indirect capacity to aid in peacebuilding initiatives (Jamali & Mirshak, 2009).
As bleak as the post-conflict states productive capabilities are, scaling any ladder is going to require support and resources. To this end, things are looking up for the developing world, as FDI is now the largest source of external finance for developing countries. In 2006, for instance, inward stock of FDI to developing countries amounted to about a third of their GDP, compared to just 10% in 1980 (Mihalache-OKeef & Vashchilko, 2010, 137). Capital flows during this same period have skyrocketed from $104 billion in 1980 to $472 [billion] in 2005 (Kumar, 2007, 1). Current estimates place annual flows from FDI at $700 billion, figures that have for the past decade exceeded that of global trade (Gorg & Greenaway, 2004, 171). Indeed, FDI rose steadily throughout the 1990s, though as Figure 1 represents, FDI has been anything but impervious to global market shocks and downturns. FDI flows took a noticeable dive upon the global slowdown of 2001 and another, more drastic dive at the onset of the global recession of 2008 to 2009 (OECD, 2014, 3). While it is impossible to deny the substantial flows of capital that FDI has spurred throughout the global economy, over-reliance on
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capital derived from FDI for the purpose of development, due to the inherent risks involved with potential global economic slowdowns, should caution policymakers to implement FDI as a tool, not a cure-all.
Source: OECD International Investment Statistics database https://www.oecd.org/investment/FDI-in-Figures-Dec-2014.pdf.
While the statistics and data (above) both affirm the growing presence of FDI as a crucial actor in development, they also express that firms are drawn to countries for a variety of reasons and the fact that an LDC has experienced conflict does not mean that it is necessarily less attractive for the business community. Clearly attracting capital is crucial in the post-conflict context, but the physical transfer of assets is only half of the expected benefits that can be derived through FDI.
Human Capital and Domestic Market Growth: Is FDI a Funnel?
While the arrival of foreign capital is often the most visible manifestation of FDI, it is not capital itself that will provide the most benefits to the developing recipient country (Mihalache-OKeef & Vashchilko, 2010; Wennmanm 2010). Capital is in short supply in a post-conflict state and while governments should seek to attract it the best they can, there are other, perhaps
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more sustainable methods, to promote broad-based development in a post-conflict setting. In response to the praises that FDI can help reduce the savings gap of the recipient country, by supplanting domestic government revenues aimed toward reconstruction, Liu (2008) reminds us that, According to neoclassical growth theory, economic growth based on capital accumulation is not sustainable because of diminishing marginal returns to capital. Therefore, Liu (2008) continues, for FDI to promote long-term economic growth, it must lead the recipient country to adopt policies that are conducive to economic growth or policies that facilitate technology transfer (p. 191).
One of the most sought-after spillovers of FDI that is cited in the literature is its promotion of human capital in the host country (Bwalya, 2006; Gohou & Soumare, 2010;
Kumar, 2007; Liu, 2008; UNDP, 2008). As previously mentioned, human capital can be expressed in many forms, but it is ultimately a relative figure gauging the productive capacity, as well as health vigor, of a labor force in a potential host state to that of the labor pool available throughout the developed world. As discussed in respect to endogenous growth, high levels of human capital are what typically attract FDI (Azam & Ahmed, 2015; Noorbakhsh, Paloni & Youssef, 2014). While it seems striking that FDI alone can generate any amount of substantial change within the host country, it is important to remember just how depleted the resource-base is for a post-conflict country. As mentioned above, a state that has endured conflict has both tremendous physical damage to restore in order resume market activity, as well as substantial losses to the skilled workforce, who often become entangled or lost in conflict (Call & Cousins, 2008; Yilmaz, 2009). Furthermore, conflict forces a life-style change among the poorestoften the most numerous segment of societyforcing many into modes of subsistence, whereby the formal economy is abandoned, further reducing potential revenue streams for both citizen and
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state (Call & Cousins, 2008). While the post-conflict state faces many pressing challenges in times of transition, it can be easy for the needs of those extremely impoverished citizens to be diluted by more macro-level policies in the immediate post-conflict years. Though, as the poor often represent the largest segment of a post-conflict society and in turn the most viable labor and tax base, policy should be quickly aimed at reaching the poor and rebounding levels of human capital, as, On the economic side, recent literature on endogenous growth suggests that human capital may be the principle contributor to self-sustained growth in GDP per capita (Gohou & Soumare, 2010, 76).
The underlying premise of FDI and its effects on the host country rests in the fact that MNCs possess various intangible assets, including technology, managerial know-how, export contacts and reputation (Bwalya, 2006). While MNCs are not the only actors to engage in FDI, others might include state owned enterprises (SOEs), they are often the most prolific and flexible when it comes to moving operations abroad, as many firms already have some level of supply chain in neighboring countries or regions (Griffin & Whyte, 2014). While there is no attempt to color all MNCs as amiable actors, the very fact that firms are large enough to engage in FDI denotes a certain mastery of the global economy and of whatever sector they are involved in.
This firm-level mastery is direly needed in the post-conflict context. From the firms perspective, this means that systems and processes have been honed to an optimal level and can be replicated and transplanted to a variety of environments with relatively little investment (Liu, 2008). With proven processes, combined with the intangible assets they possess, firms, as the literature suggests, can initiate human capital and technological spillovers via at least three channels:
1) Through the movement of highly trained and skilled staff from foreign firms to domestic firms.
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2) Through a demonstration effect, arising from arms-length relationships between foreign and domestic firms, which enables the latter to learn and adopt superior production technologies and managerial and organizational skills.
3) Through competition effects from foreign firms, which may force rival domestic firms to upgrade production techniques in order to remain competitive and productive. (Bwalya,
2006, 515).
Just the very presence of a MNC in a post-conflict setting, as Bwalya (2006) suggests, will have an indirect effect on the behavior of local industries, either by demonstrating new methods and technology for production or by enhancing sector-level competition, both of which can be attributed to the fact that MNCs possess the skills and expertise that domestic enterprises, stunted by either violence or poor economic policy, are starving for. The bottom line, Kusago (2005) implies, is that Skill levels influence the competitiveness of products (p. 509). With a broader base of skilled workers, the logic implies, foreign firms will have to invest less in training and can mobilize more technical industries to these locales. An influx of skills will also naturally support entrepreneurialism, which is extremely important to all economies (Bwalya, 2006; Kumar, 2007).
As FDI arrives and skill sets are augmented by the host state, signals are sent to international investors and a cascade effect can result, whereby spillovers from one sector or firm can be built uponmaturing, diversifying and broadening the host countrys market that much faster (Bwalya, 2006; Liu, 2008). Additionally, as Liu (2008) points out, An increase in human capital induces more investments in human capital, which enhances the catch-up potential of the recipient country, (p. 177). This suggests, that when FDI begins to stimulate growth of human
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capital, the recipient state will be more incentivized to broaden their own investments in human capital, further readying the population and domestic market for more growth.
Concerning FDIs influence on domestic markets, as MNCs are often sprawled across several locales, investment in a post-conflict market might very well mean a concomitant stimulation in domestic industries, which might supplant distant sourcing, productive or logistic activities for the MNC (Dicken, 2007). One positive correlation, is that FDI benefits local firms by lowering the cost of imitation, bringing production capabilities right to the country (Liu, 2008, 177). Domestic industries can also benefit from FDI through downstream (intra-sectoral) and upstream (inter-sectoral) linkages, in which foreign firms can utilize local inputs or services to complement one of many stages of product development (Bwalya, 2006, 520). FDI as a promoter of domestic growth, Gohou and Soumare (2010) add, can also be seen as a contributor to regional integration, trust-building, and bilateral engagement with regional markets. To back this up, Gohou and Soumare (2010) suggest that smaller and less accessible markets, like those in Sub-Saharan Africa, are beginning to band together regionally as a way of expanding market shares and attracting FDI. In the same capacity that FDI can build inter/intra-sectoral relationships, Gohou and Soumare (2010) argue, the arrival of FDI can also spur low-level exchanges among regional enterprises in a way that leads to both greater market access for foreign firms as well as creating a more robust peace dividend for the region.
Compounding the positive relationship between foreign and domestic markets further, early post-conflict investment in FDI, Appel and Loyle (2012) argue, Can inform other investors and potential trading partners that the post-conflict state has positive economic prospects (p. 685).
In addition to the correlative benefits of FDI being present in the host country on domestic markets, political efficacy of new governments can benefit as well, as New leaders can use FDI
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as a domestic indicator of their ability to govern and secure their own legitimate tenure in office (Appel & Loyle, 2012, 685). Furthermore, as some economists have argued, large Capital flows can discipline governments macroeconomic policies, aiding in policy transparency by creating a level of accountability to policy (Kumar, 2007, 3). These effects of FDI all send positive signals to the pool of potential MNCs to invest, which in turn may urge a windfall of FDI and the arrival of more of the benefits already discussed. Kwok and Tadesse (2006) expand on the relationship between MNC and host government by situating the effects into three channels: 1) Regulatory pressure effect- wherein standard practices of the MNC can might rebuke corruption practices of the host government and encourage transparent investment policies. 2) Demonstration effect in line with indirect spillovers previously discussed, a foreign firm can demonstrate the effectiveness of investment in human capital and technology research, creating somewhat of a model for state governments. 3) Professionalism effect the presence of an MNC can be very attractive to potential workers, especially younger generations. In order to make oneself more marketable to these firms, citizens will strive for applicable training and courses that are most relevant to the firms processescreating a more professional employee base (Kwok and Tadesse, 2006, 769-771).
In relation to the promotion of peace, Bardy et al. (2012), illustrate the spillover effect of FDI as follows: FDI=>Spillovers=>Increase in human capital threshold=>improved living standards (p. 186).
This simple illustration reflects the tremendous potential impact that scholars see as a consequence of FDI in shaping post-conflict development and peace. It has been demonstrated that FDI can have profound effects on the post-conflict country, from elevating (or rebounding) human capital, to promoting a vibrant investment atmosphere, to conferring legitimacy on new
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post-conflict governments. What is most important of these spillovers, in the post-conflict context, are the implications that FDI, in its job creating and training capacities, can significantly reduce the risk of a return to violence by increasing human capital and offering an escape route from cycles of violence and poverty (Call & Cousins, 2008). In this context, FDI can certainly contribute to the peace process by helping to stem poverty and offering alternatives to the industry of conflict. The benefits of FDI that have been covered will be illustrated below (Table 1). Though, like all things even remotely political, there are those who praise the role of FDI and there are the detractors. The following section will look at some of the most glaring arguments of FDI with an eye toward suggesting policy in the post-conflict state that can reduce these negative impacts.
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FDI Spillovers Potential for Peacebuilding Source
1. Spur regional trade Opens channels of regional channels of communication and economic ties. Bilateral engagement Gohou & Soumare, 2010
2. Influx of capital Increased exports and economic inputs into the host state can r Bardy et al., 2012; Bwalya, 2006; Kumar, 2007; Liu, 2008
3. FDI signals FDI Initial investments signal further investments, stimulating economy and creating more jobs Dicken, 2007; Appel & Loyle, 2012
4. Technology/knowledge transfer Increased human capital, expanding skilled labor force, expanding economic mobility for citizens Bwalya, 2006; Dicken, 2007; Liu, 2008
5. Domestic industry linkages Expansion of upstream/downstream productive engagement in domestic firms Kusago, 2005
6. Discipline local governments Capital flows from firms with a stake in returns can help discipline gov'ts macroeconomic policy-aiding in policy transparency Kumar, 2007
7. Supports government legitimacy The more inflows of capital fledgling gov'ts can attract, the more legitimate they appear to the population Appel & Loyle, 2012
8. Contingencies on investment for supporting infrastructure Can assist in focused reconstruction projects that can lead to further investments Bardy et al., 2012; Gohou & Soumare, 2010
9. Job creation Aside from intra-sectoral job linkages with MNCs and the host state, FDI investments can create new jobs in post-conflict states Bwalya, 2006; Kumar, 2007; Liu, 2008;
10. Human capital growth With new jobs and technologies being infused into the state, portions of the labor pool will gain exposure and training for new production processes Bwalya, 2006; Gohou & Soumare, 2010; Kumar, 2007; Liu, 2008; UNDP, 2008
Table 1: Global FDI flows from 1999 to 2013 (USD billion)
Potential Drawbacks of FDI: Strong Policy First, Benefits Second
FDI has certainly been gaining more and more prominence in the development and peacebuilding literature of late, though FDI does indeed have its drawbacks. While FDIs correlation with the advancement of human capital and its indirect, but substantial, relationship
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with domestic firms has been demonstrated, there are issues of contingency that must be discussed. One major issue, as was highlighted in the literature, is that technology transfers, as beneficial as they may be, are very expensive and initially require vast mobilization of resources via the MNC (Gohou & Soumare, 2010; Liu, 2007; Robertson & Tietelbaum, 2011). While the expense of technology transfer is true in most situations of FDI, it is especially true in the post-conflict context, as aspects of physical damage to the state challenge normal productive abilities (Berman, 2000; Dicken, 2007; Liu, 2007). These are challenges, Bardy et al. (2012) suggests, that can be minimized if MNC and state ambitions can coalesce as a two-way street (p. 192). With the onus on the state and supporting institutions to build policies that will be synergistic with FDI, allowing spillovers to be realized and widely dispersed, the literature urges post-conflict policy to mold FDI and supporting frameworks into the peacebuilding architecture (Bardy et al., 2012; Gouhou & Soumare, 2011).
While much has been said about the positive spillovers associated with FDI, it is important to note that, while many of these spillovers are praised for their long-term benefits toward post-conflict reconstruction, there are short-term sacrifices that must be made. To this end, Aitken and Harrisons 1999 study of Venezuelan firms, found that [foreign] firms gain market shares at the expense of domestic firms and force the latter to produce smaller outputs at higher average costs (Liu, 2007, 177). While this is certainly true in the initial stages of FDI, Liu (2007) argues, the long term effect is positive, perhaps from exposing domestic firms to rigorous competition and making them more efficient in the process, or by simply benefiting and eventually adapting from the spillovers of FDI. Essentially, domestic firms may suffer throughout the initial stages of FDI, but, as the literature suggests, those that do survive the diminishing effects of FDI will be more lean and competitive as a result, further contributing to
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the long road of economic development (Liu, 2007). Situated in the post-conflict context, these findings offer little argument against FDI, as domestic markets, by most accounts, will be decimated by the effects of conflict and will thus have very little to lose.
FDI is a both a product and a driver of globalization. As such, the effects of FDI on a host state can have global implications. Making this argument, Robertson and Tietelbaum (2011) offer a unique study that correlates FDI with a global rise in labor unrest, leading to an increase in industrial strikes and protests. One possible explanation for this phenomenon, the authors argue, is the Social dislocation associated with rapid inflows of FDI in low and middle income countries, as foreign dominated sectors are often located in specific regions, cities or economic zones and thus create waves of rural-urban migration of those seeking employment (Robertson and Tietelbaum, 2011, 667). The result of this phenomenon, Robertson and Tietelbaum (2011) continue, is that workers are isolated from traditional social networks, are more vulnerable, and thus have more propensity to engage in strikes (p. 667). The global exposure of MNCs and their visible reputation, means both that workers of a MNC can view and share information about worker-related issues and grievances across sectors and boundaries, and, that MNCs, due to their international exposure, are less willing to put down strikes (Robertson and Tietelbaum, 2011). While this study suggests a slight vulnerability in the global operations of a MNC, it also suggests that peace can be sacrificed if careful attention is not paid to the regional dispersion of benefits resulting from FDI. Thus, in order to stave off a regional imbalance of development, post-conflict policy might benefit significantly from careful attention being paid to rural, as well as urban, development.
Corruption is another vital element that can be both combatted and enabled by the behaviors of FDI. Kwok and Tadesse (2006) note that, as FDI is typically derived from more
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developed countries with more rigorous anti-corruption practices, i.e. OECD regulations and US Foreign Corrupt Practices Act (1977), firms are more constrained in engaging with corrupt practices with host governments. On the other side of the coin, FDI that is sourced from countries like China, ONeill (2014) highlights, and are less immune to corruption at home, can actually target countries with pervasive corruption as they will see a potential trade-off: greasing the wheels of host state corruption while escaping the regulatory prowess found in more transparent governments. Of course this behavior can contribute to and intensify corrupt practices in the host state. To this end, all FDI is not equal.
A final distinction in the FDI literature worth mentioning is a study done by Kotrajaras et al. (2011) that looked at FDI throughout several East Asian countries. The authors found that while domestic policy does indeed influence the capacity of a state to benefit from the spillovers of FDI, levels of development also seem to matter. Focused squarely on economic growth in the region, the study found that high-income and middle-income countries, which typically have higher education and financial development, benefitted most from FDI while low-income had little to show for equal levels of FDI. This study reveals that FDI can be unequal in its distribution of benefits, depending on how high up the development ladder a country is.
Another interesting caveat worth mentioning is how firms from highly developed countries behave in LDCs. A study done by Zeng and Easton (2007) found that rich-country- sourced FDI is viewed favorably because it can convey to host countries policies and practices developed to accommodate stringent home-country regulations (2221). In this study, the authors note, MNCs that engage in FDI from developed states often have more developed policies of corporate social responsibility (CSR), issues like environmental protection and fair labor practices (Zeng & Easton, 2007, 2221). Of course this isnt true across all cases of FDI from
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developed countries to LDCs, though it does suggest a level of hierarchy in the levels of FDI founded in CSR and FDI from middle and low-income countries, which the authors note tend be geared more toward extractive industries (Zeng & Easton, 2007). While global FDI flows have traditionally been sourced in developed/global north economies, recent trends have showed a spike in south-south investment (Zeng & Easton, 2007). While this bodes well for economic engagement among the South, if FDI is sourced from states with relatively weak regulatory bodies and whom have weak environmental stewardship policies, however, then chances are, the authors argue, that similar behaviors will be demonstrated in host states (Zeng & Easton, 2007). These characteristics may have dire consequences in attempting to construct a positive peace in post-conflict situations.
An important factor in attracting FDI to LDCs and post-conflict countries lies within the host states ability to create incentives for MNCs whom could easily choose another locale. One such incentive that has become a popular way to attract MNCs into LDCs since the early 1980s is the creation of export processing zones (EPZs) (Hooshang & Weiping, 1995). EPZs are special zones designated by host state governments which provide, among other country-specific incentives, tax breaks for MNCs, duty-free or low-tariff imports of raw materials for firms and access to low-wage labor (Sargent & Matthews, 2009). Essentially, an EPZ is an enclave of manufacturing where favorable treatment is given to investing MNCs. While there are significant benefits for MNCs within these zones, the host state can expect to reap significant profits, either from increasing exports (at near duty-free costs), creating jobs, generating foreign exchange, and achieving other development goals (Sargent & Matthews, 2009, 1069).
While there is much hope placed in the performance of EPZs by host governments, their success has been limited, especially in Asian developing countries (Hooshang & Weiping, 1995).
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Implementation problems, such as poor location choices, insufficient infrastructure investment, and bureaucratic administrative procedures, to name just a few are common problems plaguing the success of EPZs in developing Asian economies (Hooshang & Weiping, 1995, 843). While Hooshang and Weipings (1995) study mainly focused on middle income and emerging markets in Asia, such as Malaysia and India, one can only expect these problems to be magnified in post-conflict, low income countries like Cambodia.
The enclave nature of EPZs can also be problematic for a host states ability to realize potential positive spillovers of FDI within the zones. This is in part because the host state, especially in a post-conflict context, typically lacks the ability to create upstream or downstream inputs that are of the quality required by firms located in EPZs which handicaps the benefits derived from linkages (Hooshang & Weiping, 1995). Thus, firms heavily rely on importing higher quality materials from their global networks (Hooshang & Weiping, 1995). Aside from not generating linkages with domestic firms, the over-reliance on imported goods also cuts in to the stock of foreign currency, which would be significantly more if products were sourced locally (Hooshang & Weiping, 1995).
Finally, operations drawn to EPZs are typically low-skilled and labor-intensive and as such, there is little incentive for firms to invest in professional training for its workers (Hooshang & Weiping, 1995). This severely limits the impact of MNCs to spur human capital development. While the promotion of EPZs in developing economies may be beneficial in various ways, the purpose of highlighting their mixed successes here is because EPZs have become a popular approach in attracting FDI, though as Hooshang & Weiping (1995) have highlighted, the success stories come from countries with established markets and at least moderate levels of human capital. In cases of post-conflict policy, implementing EPZs should not be seen as a singular tool
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to attract foreign investments, but should be an integral part of a broad economic policy that seeks to bolster domestic productive capabilities across several sectors and geographic regions (Hooshang & Weiping, 1995). Furthermore, while in many cases host governments implement conditions on investing MNCs that would guarantee more lucrative returns, i.e. required levels of reinvested capital, partnerships with local industries and minimal threshold of hiring from the local labor force, for example, the post-conflict state is often devoid of adequate resources to bargain (Hooshang & Weiping, 1995). Thus, it seems more creative policy approaches are needed to reap the potential rewards from EPZs.
While FDI can both seemingly complement and complicate peacebuilding initiatives, it seems that to promote broad dispersion of economic benefits, while curbing deleterious elements, the effects of FDI boil down to the host states ability to attract and direct the spillovers of FDI in a coherent and regionally cohesive manner. The problem is, as the literature suggests, there is simply not enough concrete data to predict the effects of FDI on a post-conflict state and thus policy directives are inconsistent at best (Liu, 2008; Robertson and Tietelbaum, 2011). In order to contribute to the void of literature on this issue, the remainder of this paper will explore the case of Cambodia and how the emergence of FDI following decades of conflict and isolation has shaped the Cambodia of today. The next section will outline the methodology and data that will be used to explore this relationship. Will the promised spillovers of FDI be apparent, or will Cambodia reveal a caveat to the discussion of FDI in post-conflict development?
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CHAPTER III
SUMMARY OF THE LITERATURE, METHODOLOGY AND DATA Summary of the Literature
The literature has highlighted that recidivism rates of a retum-to-conflict are as high as 40 percent (USAID, 2009). The fact that nearly half of conflicts suspended in peace talks or through international intervention will devolve back into conflict is ominously high. The literature has also pointed out some of the enduring economic hardships that conflict can pose for states while also highlighting the fact that conflict is predominantly hosted in the poorest regions of the world (Call & Cousins, 2008). In this light, conflict can have the capacity to transform countries and entire regions into self-perpetuating cycles of violence (Bwalya, 2006; Call & Cousins, 2008; Gersen, 2001; Yilmaz, 2009). When societies come to depend on industries of conflict and subsist squarely through the informal economy, the developmental capacity of a state diminishes (Bwalya, 2006). In this respect, conflict-prone locales are isolated from the technologies, investments, and expertise that drive modern free-market economies, undermining the economic changes necessary to achieve a more positive peace.
In a development-for-peace approach to post-conflict reconciliation, the literature exemplifies the success of the Marshall Plan (Del Castillo, 2008; Gohou & Soumare 2010). The success of this policy was in its ability to build on pre-existing features of the host state economy and in its ability to shape reconstruction policy around the unique interests and capabilities of the host state. While global institutions seem to be moving back toward this approach, many peacebuilding operations of late have relied on the expertise of Western organizations to reshape the conflict-affected state to resemble Western political and economic characteristics (Surhke &
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Buckmaster, 2005; Venugopal, 2011). The mixed success of these operations have revived scholarly and institutional interest in endogenous growth models, where the onus of absorbing positive spillovers is guided by the states ability to structure development around its specific needs (GuechHeang & Moolio, 2013). To this end, conflict intervention and subsequent domestic policy must be carefully tailored to boats the states indigenous drivers in order to reap spillovers from FDI.
While there is abundant scholarly attention paid to the role of FDI in LDCs, there is very little work that focuses on FDI in the post-conflict period as both an agent of development as well having potential to assist or detract from peacebuilding initiatives. While there are numerous factors that would make a post-conflict state especially prone to return to conflict, there are very few factors that scholars have identified as being pro-peace and thus compelling a state away from conflict. As the breadth of these factors are too immense to be tackled here, the purpose of this research is to focus on one factor that seems to be gaining prominence in reconstruction agendas: the attraction and facilitation of FDI.
It has been demonstrated that the post-conflict state is extremely vulnerable to conflict relapses and such cases do not only hurt the prospects of development for that country, but can turn entire regions into conflict zones (UNDP, 2008; Venugopal, 2011). While there may be many unique drivers of conflict within a state which require careful attention throughout peacebuilding initiatives, one of the most broadly recognized peace dividends that can be realized in the post-conflict setting is economic mobility (Collier et al., 2008; IDA, 2016; Philpot & Powers, 2010).
The literature has detailed the many positive ways in which FDI can boost the development agenda of the host state. The literature has also expressed that there may be a
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minimal threshold of development in the host state that is required in order to reap these benefits (Kotrajaras et al., 2011). Thus, while the attainment and broadening of human capital might be one of the most promising spillovers of FDI, the post-conflict state, with its depleted physical resources might not meet the threshold to gamer these benefits. Rather, as the literature illustrates a spike in south-south FDI, lower-skilled and extractive industries might be filling the gaps of higher-tech industries that are drawn to states that possess the minimal threshold of development (Zeng & Easton, 20017). In this regard, the literature warns, it is important to consider the characteristics of the state sourcing the investments (Zeng & Easton, 2007).
Methodology
With the World Bank describing Cambodia as an Olympian of growth and as the sixth fastest growing economy in the world, it is clear that Cambodia has made tremendous progress in achieving postconflict economic growth (World Bank, 2014, para. 16). Cambodia has resisted a return to the kind of conflict that destroyed the nation in the 70s, it has achieved membership status to prestigious regional organizations (more below) and has garnered some of the largest FDI flows in the region (Nakamura, 2006). Yet the country continues to be plagued by intense poverty, stark regional disparities in the context of development and holds the ominous title of the 8th most corrupt country in world (Hill & Menon, 2014; Transparency.org, 2016). Furthermore, Cambodia has had little luck in diversifying its FDI allocation, as China, a country not known for its promotion of CSR, remains the largest investor into the country (ONeill 2014; Than, 1992). For all of these reasons Cambodia presents itself as an interesting subject when trying to understand the long-term effects of FDI into a post-conflict country.
An ideal approach to measuring Cambodias capacity in harnessing the spillovers of FDI might be to track the changing levels of human capital over time, as that has been described as
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the most potent effect of FDI. Accessing accurate data regarding Cambodias social makeup, however, is quite difficult as any base-line government records were largely destroyed throughout the Khmer Rouge occupation and efforts to gather country-wide data are still lacking (Than, 1992). Therefore, the content of this study, will be more broad and exploratory. While a large n study might seem ideal for such a pervasive subject as FDI, the unique characteristics of post-conflict countries, having suffered vastly different levels of destruction and having vastly different reconstruction needs, will leave any findings insufficient in capturing accurate data. Thus, this study will utilize the case study approach. In focusing in-depth on a singular event, the hope is to extract specific behaviors and consequences of FDI that can potentially be projected in states with similar levels post-conflict reconstruction needs.
By following FDI trends in Cambodia throughout the 1990s to present, and focusing more on regional distribution of FDI flows, as well as practices of firms sourcing FDI into Cambodia, I hope to present how FDI, especially investments sourced from non-western countries, have shaped, if at all, Cambodias current position as a popular FDI host state with high levels of corruption and inequality (more below).
Data
As previously mentioned, the Khmer Rouge effectively wiped the historical slate clean and thus economic data preceding the 1975 civil conflict is sparse. Additionally, as much of Cambodias economic precedence is that of a relatively isolated, centrally-planned economy, figures concerning the role of private, foreign enterprises are equally sparse. Therefore, this study will rely on figures that have been published following the United Nations intervention in 1993 as primary indicators of Cambodias evolving economic situation.
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The International Monetary Fund (IMF) was heavily involved in Cambodias fiscal and institutional overhaul and thus were also heavily invested in collecting data which would follow the large amount of monetary relief that was pouring into the country (USAID, 2009; IMF,
2006). IMF data was succinctly organized in a 2006 publication detailing the changed economic conditions since intervention as well as the economic trajectory for Cambodia. Figures concerning investments from foreign firms as well as political and economic conditions, from that of economic isolation to that of its current status as an apparent destination for international investors, in Cambodia will be derived from this publication.
In order to not be overly reliant on institutional data, this study will also draw, as much as possible, from domestic government publications that have been published through the Council for the Development of Cambodia (CDC). The CDC serves as the liaison for foreign investors and the state and is thus responsible for tracking and publishing all relevant sector-specific data, labor characteristics and the legal framework involving FDI. Though, as becomes immediately clear when pouring through official records, many statistics in Cambodia are only partially represented or are altogether absent and as such this study will also draw on other scholarly work that has been done in the region, primarily from sources who have conducted in-country research.
Much of the historical and inter-war descriptions of Cambodia will be garnered through academic work as well as publications from nongovernmental organizations (NGOs) who operated in Cambodia throughout the reconstruction period. The Swedish organization, SIDA (Bernander et al., 1994/95), was one of the first and longest serving aid-oriented agencies in Cambodia and has consequently published several detailed reports concerning the changing realities of citizens in post-conflict years (Bernander, Charny, Eastmond. Lindahl, & Ojendal,
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1995/94). Data collected through SID A will aid to inform this study of the state of Cambodias inter-war and post-conflict economy, which will be important in understanding both the level of destruction that was wrought throughout conflict as well as Cambodias post-conflict starting point.
Cambodia continues to make important advances in its economic position and identity within the dynamic Southeast Asian market and while this study seeks to explore some of the contributing factors behind Cambodias gradual economic reconstruction, it does not aim to capture all of the phenomena surrounding these important changes. The primary goal of this study is to contribute to a better understanding of how FDI operates and effects a delicate economy in the immediate post-conflict years and findings will therefore be partial and incomplete.
Firms are more mobile than ever before and as places from Afghanistan to Yemen serve as a testament to the continuing presence of conflict, the nexus between economic stimulation and conflict prevention is an area deserving greater emphasis in developmental and peace studies. The next chapter will proceed as follows: the first section will briefly outline the historical context of Cambodia from colonial to post-conflict times. This historical overview will help the reader in understanding the traditional, indigenous drivers that have long shaped Cambodias productive identity, characteristics in which the UNDP (2008) strongly urge policymakers to build-off of when implementing post-conflict policies. Additionally, in presenting the history around the conflict years the reader can better understand the nature of Cambodias post-conflict starting point. The next section will focus exclusively on Cambodias post-conflict economic regime, focusing on the role of FDI in relation to Cambodias evolving economy. The final section will present findings from recent FDI inflows as they relate to
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supporting a positive peace in the country. The study will then conclude with possible policy recommendations for future post-conflict economic policies.
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CHAPTER IV
CAMBODIAN CASE STUDY Colonial Indochina: Origins of Extraction
Once part of the Southeast Asian colonial holdings of France, Cambodia has had an extensive history of foreign investment and resource extraction. The height of pre-conflict foreign investment was the decade leading up to the Wall Street crash of 1929 (Freeman, 2002). During this time the agricultural sector, rubber plantations in particular (along with coffee, tea, rice, sugar cane, teak, and other agricultural commodities) attracted the bulk of foreign investments, with 3,800 million francs (roughly $7.4 billion considering inflation) of new capital issues recorded between 1924 and 1930, of which over 90% were funds raised by private business (Freeman, 2002, 5).
Aside from agricultural investments, Cambodia also attracted vigorous gem mining activity from various private enterprises up until the 1930s (Freeman, 2002, 6). While capital was certainly pouring into Cambodia, the source was quite limited, as, by 1937, 97% of all foreign investment in Indochina was sourced from France (Freeman, 2002, 7). Implementing strict protectionist trading policies, the exclusivity of French investment, while good for France, effectively divorced the Indochina region from commercial relationships with the rest of East Asia (Freeman, 2001, 7). A theme that, as will be presented, might be replicating itself in the current relationship dynamics with China.
This limited investment pool made the Indochina region extremely susceptible to downturns in the French economy. Thus, as the 1930s global recession began to exact its toll on the global economy, the value of exported commodities from Indochina were reduced by almost 60% between 1929 and 1931 (Freeman, 2002, 7). The next decade saw a general stagnation in
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Indochina until the French colony was finally dissolved in 1949 (Than, 1992). This dependency on a limited pol of foreign investors will something to watch closely as we investigate Cambodias current investment pool.
Becoming an independent nation state in 1953, inward FDI continued to flow into the region throughout the 1950s and 1960s stemming from three primary sources: China, France and Japan (Cuyvers et al., 2011; Hill & Menon, 2014). Again, investment was primarily focused on resource extraction and Cambodia proved to be a viable source, attracting 650 investment projects in 1955, increasing to 3,707 projects by 1967 (Cuyvers et al., 2011, 223). This robust period of foreign capital accumulation created an emerging middle/merchant class concentrated in the capital, sparking economic cleavages between rural/urban citizens (Hill & Menon, 2014). This all came to a grinding halt in the early 1970s as Pol Pot and the Khmer Rouge embarked on a malevolent path of complete transformation. Cambodia would not see the likes of foreign firms within her borders for nearly 25 years.
The Face of Post-conflict Cambodia
While the Khmer Rouge were effectively removed from power, they were not altogether removed from Cambodia (Bernander et al., 1994/95). Retreating to the fringes of Cambodias Thai border, the Khmer Rouge withdrew into the remaining enclaves of rural support they had, establishing geographical blocs of political tension and economic isolation from what little activity the rest of the country was involved (Than, 1992). Although blood had ceased to be spilled in the killing fields in Phnom Penh, Cambodia was still a largely divided and broken country. The continued presence of combatants in the Cambodian forests would leave reconstruction efforts to be skewed away from these areas, leaving many unfortunate citizens cut-off from aid and services (Nernander et al., 1994/95).
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Formal economic activity in Cambodia had long been replaced by subsistence living in the informal economy. To this end, the post-Khmer Rouge Cambodian populace was far enough removed from formal economic activity that nearly all vestiges of the economic mobility that existed in the 50s and 60s was gone. Now that NGOs and Western Aid organizations were arriving in droves to stifle the dire humanitarian crisis, Cambodia could officially begin its arduous path toward reconstruction, renormalization and stability from ground zero.
Specific figures concerning the number of citizens who perished or fled the country under the Khmer Rouge vary anywhere from 1-1.5 million people, which is equivalent to roughly 25 percent of the population (Hill & Menon, 2014). The following decade under Vietnamese rule saw only a prolonged retardation of economic progress peppered with intermittent outbreaks of factional war (Hill & Menon, 2014). As such, when Cambodias hidden problem came into international focus in the early 1990s, it was one of the poorest countries in the world (Hill & Menon, 2014, 3).
Reconstruction would be a formidable task, as much of the countrys infrastructure had been destroyed during conflict, most of the educated citizenry and skilled merchants had been killed off or had fled the country, there was no functioning legal system or effective bureaucracy to speak of, and there was little trust in the currency (Riel) (Hill & Menon, 2014, 3). To this end, Cambodias post-conflict population was strikingly young, with 45 percent being under the age of 15 (Curtis, 1993, 8). This is an ominously low possession of a skilled labor pool and, as mentioned in the literature, the combination of these damages would make the task of attracting quality FDI (those higher-skilled industries that have the capacity to create spillovers) difficult.
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Reconstruction efforts would be further obstructed by a tenuous security situation, owed both to the continued presence of ex-combatants who had retreated to the countryside and to the pervasive presence of unexploded land mines littering the eastern countryside (Hill & Menon, 2014). The problem of landmines is such that, as estimated by a local NGO, around 50 persons are injured everyday1800 per yearof which leaves 1 out of 24 persons living in Cambodia without a limb and effectively leaves workable land too dangerous to till (Than, 1996, 276). As previously mentioned, agricultural work had long been Cambodias primary driver of economic and productive activity and the presence of land mines undermined a quick resumption of work for the nine out of ten citizens who reside in rural areas and subsist through agricultural work (Curtis, 1993).
With very little capital to work with and having tremendous humanitarian-relief demands, Cambodia would have to relinquish reconstruction efforts to the willing and financially-able members of the international aid community. Thus, as much of the literature written on post-conflict Cambodia attests, reconstruction would be on Western terms (Curtis, 1993;
Hendrickson, 2001; Than, 1996). This would be a jarring process for the Kingdom, and would prove to be a divisive process for a country traditionally oriented around the royal family and administered through customary law (Bernander et al., 1994/95).
Post-Conflict Capacity Building: 1989-1993
Article I in the 1991 Paris peace Accords dictate that the United Nations Transitional Authority in Cambodia (UNTAC) would lead the transitional period until free and fair elections have been organized and the results approved by the UN (usip.org, 2016). Free and fair elections were held in 1993, though while giving the Khmer citizenry a formal modicum of government, they offered little in the way of a new direction for Cambodia. The UNTAC administered
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peacebuilding initiatives brought all concerned political factions into the fold in a structure of power-sharing that would give all political rivals a seat at the table (Bernander et al., 1994/95). The process of political reconciliation was overseen by formerly-exiled King Sihanouk through the Supreme National Council (SNC), a transitional source of authority legitimized by UNTAC (Mehmet, 1997; Bernander et al., 1994/95). Those incorporated into the new government were members of the royalist-backed FUNCINPEC party, members of the former Khmer Rouge party, and members of the former PRK (Vietnamese-backed) governmentnow the CPP (Mehmet, 1997; Bernander et al., 1994/95).
On paper, the structure of power-sharing would offer the fledgling parliamentary system proportional representation for all concerned bodies. Though, considering the tense history among the parties and the disparate political views arising from communist-oriented Khmer Rouge, the royal/traditionalist orientation of FUNCINPEC, and the liberal economic leanings of the CPP, it is of little surprise that, in this absence of political hegemony, a power struggle was born (Mehmet, 1997). In 1997 the CPP, headed by a 32-year-old Hun Sen, led a coup against the coalition government. Victorious in this power-struggle and suffering little international backlash, Hun Sen, leader of the CPP and member of the former PRK government, ostensible supporter of free-market ideologies and at the time the youngest heads of state in the world had solidified his role as head of Cambodian government (Mehmet, 1997; Than, 1992). Of course this did not send positive signals to global investors from the developed world.
With a few adjustments to the young constitution concerning re-election practices, Hun Sen has secured a fifth Prime Ministerial and has embodied the political status quo in Cambodia ever since reconstruction began in 1993 (Mehmet, 1997). Considering the lack of international condemnation of Hun Sens political strangle-hold, it is clear that the international community
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prefers stability over political viability and the CPP government, while not popularly legitimized by the Cambodian people, seemed to have a firm grip on power and a complete reclamation on the monopoly of violence/force (Venugopal, 2011). This democratically-approved government, according to Polity IV, now scores a 2 on a scale of -10 to 10, placing it in the middle category between fully autocratic and fully democratic states (ONeill, 2014, 182). Again, this political situation would exude a great amount of uncertainty for potential foreign investors who see opaque political practices as high-risk business environments (Nordal, 2001).
Nevertheless, with the signing of the peace accords and the resulting cessation of overt conflict, the state, leaning heavily on the directives of Western donors and the IMFs Enhanced Structural Facility, could begin its path toward reconstruction via the development of a market economy (Development Consulting International [DCI], 2003). Chief among structural adjustment initiatives was a complete restructuring of the formerly centralized financial sector, the rapid sell-off of state owned enterprises (SOEs), establishing tax and investment laws, enacting a land-titling regime and to make progress toward improved accounting and auditing standards as well as a rapid downsizing of civil services (DCI, 2003, 9). For the struggling and impoverished citizens of Cambodia, the rapid dismantling of government-administered services in the civil sector would compound their bleak situations further, as much of the free market benefits, as will be demonstrated, rarely made it out of the capital, Phnom Penh.
All of these policies were implemented in order to prepare Cambodias economy to be more investment and business friendly (IMF, 2006). Though many of the resulting changes seemed to challenge prospects of peace, as the faqade of democracy seemed to be legitimized by UNTACs reticence to oppose the hijacked power-sharing system they had imposed. Hun Sens stranglehold on government was apparently seen as permissible, so long as market reforms
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persisted. For the people, this arrangement, as one in-country author attests, would create disillusionment and apathy for the ruling party, sentiments that contradict a positive peace and perhaps have aided in Cambodias extensive culture of corruption and continued civil unrest (Curtis, 1993).
Development Hurdles and Aid Dependency: 1993-2003
The Tokyo Conference of 1992 gave the Secretary General a platform to issue a consolidated appeal for funds to cover Cambodias most immediate needs for national rehabilitation (Bernander et al., 1994/95). In essence, the conference served as an international fundraising assembly, where about USD 600 million was set as the immediate monetary goal to provide humanitarian assistance in Cambodia, as well as establishing a more permanent coordinating mechanism, named the International Committee for the Reconstruction of Cambodia (ICORC) which was meant to consolidate and coordinate reconstruction efforts moving forward (Bernander et al., 1994/95).
Since Vietnamese withdrawal in 1989, the capital city of Phnom Penh had been swarming with Blue Helmet peacekeepers and representatives of numerous NGOall pouring in to apply their various mission statements to the weathered citizens. SIDA (1994/95), a Swedish humanitarian organization that had singularly maintained a presence in Cambodia since 1979, followed arriving funds and changing conditions in Cambodia very closely. They note that total disbursements by 1993 equaled, USD 323 million, or 65 percent of the Tokyo pledges, of which nearly 57 percent had been absorbed by emergency food relief and restoration of services in rural areas (Bernander et al., 1994/95, 28). Needless to say, the bulk of relief funding was pouring in from external sources and by 1993, Foreign aid represented all of the governments capital expenditures (Bernander et al., 1994/95, 76).
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Domestic civil society was emerging by the early 1990s, but planning, channeling of funds and more grand macroeconomic goals were being strictly administered by the numerous international representatives crowding the scene (Bemander et al., 1994/95; Than, 1992). Aside from being removed from the planning of reconstruction projects, there was a much more ostensible disparity in compensation between local and international civil servants. Foreign NGOs with tremendous budgets and stipends through institutional giants like the IMF and World Bank, were able to absorb significant portions of humanitarian relief funding just to maintain daily operations in the country (Bernander et al., 1994/95; Than, 1992). Domestic civil servants could expect little more than an average compensation of less than US 20 per month, a meager pay well below the subsistence threshold (Bernander et al., 1994/95, 76). This top-down approach to Cambodias reconstruction seems to contradict lessons learned from Marshall Plan era policies, as well as the more recent 1999 Global Compact, in that the host state was largely removed from implementing its own strategies of peacebuilding and reconstruction (Oliver, 2014). With many of the local actors crowded out by international experts and organizations, and with funds being clearly squandered by immense operating budgets of these organizations, the seeds of corruption were being sewn.
In this practice local civil-servants (teachers, nurses, doctors, etc) were forced to supplement their incomes through engagement in the private sector, or simply by charging for services that were meant to be free (Bernander et al., 1994/95). Teachers began to charge students a fee to attend school, doctors were selling drugs out of state hospitals and ministry officials often straddled the public/private line using their official positions as financial gatekeepers for private firms (Bernander et al., 1994/95). The effects of this are clear: many children stopped going to school and many of the sick stayed sick, or worse. Of course there
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were facilities that received steady funding by the UN and other NGOs, But this coverage is partial and leaves countless hospitals, clinics and schools nonfunctional for lack of support (Bernander et al., 1994/95, 76). Clearly these qualities do not support a rebounding level of human capital that would aid in a more attractive investment destination, which as mentioned in the literature, could be one of the quickest avenues of economic recovery (Griffin & Whyte, 2014).
In combination of low civil-servant wages and a weak judicial system, corruption has also been bolstered in Cambodia by a complicated system of import procedures and the multiple bureaucratic points of contact involved in starting a business. To this end, The Australian Export Finance and Insurance Corporations risk assessment of Cambodia rates the country high for breach of contract risk, owing to weak property laws, and the Belgian export credit agency Delcredere Duroire, scores Cambodia a six for medium and long-term political risk on a seven-point scale (seven being the highest risk) (ONeill, 2014, 184). In a 2007 study of over 500 Cambodian firms, 60 per cent said, in relation to business operating environment, that the norm among government officials was for firms to provide informal payments or gifts... in order to get things done with regard to customs, taxes, licenses, regulations and services (ONeill, 2014, 184). As discussed in the literature review, these traits significantly increase the risk for foreign investors and as such would be a deterrent for most firms (ONeill, 2014).
As the role of domestic and international civil servants can be described as largely uneven in Cambodias reconstructive efforts, so too can the application of economic benefits that were realized by citizens. One such example, as documented by SIDA (1995/94), is the case where aid agencies provided 400 days of free food for returning refugees, making them appear pampered in comparison to local conditions, and was to a degree non-conducive to
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reconciliation (Bemander et al., 1994/95, 30). Furthermore, as these returning refugees, along with a bulk of internally displaced peoples (IDPs), were categorically resettled into more wealthy western provinces, the bulk of aid was poured into these areas, leaving the eastern and central provinces largely neglected in the immediate post-conflict period (Bernander et al., 1994/95).
Additionally, as much of the country was still organized along politically-affiliated blocs, with the Khmer Rouge and their leader Pol Pot having retreated into the jungles along the northwestern Thai-Cambodian border, along with other factional supporters spread throughout country, the flow of (predominantly Western) aid seemed to flow to where interests were aligned (Hill & Menon, 2011). This left huge segments of Cambodias rural population without access to aid or any economic stimulation. The regionally unequal application of aid seemed to run counter to concepts of building a positive peace, as those neglected regions and groups began to flock to areas where opportunity was present, only complicating reconstruction efforts for citizens in those areas (Hill & Menon, 2011).
Foreign aid, in the decade spanning 1993-2003, has averaged 12 percent of GDP a year.. .reaching $500 million in 2003. About 70% of aid flows were in the form of official grants, largely provided by donors, while the rest were concessional loans mainly from the WB and the Asia Development Bank (Nakamura, 2006, 51). Thus, the predication of continued aid has seemingly been more pronounced in the maintenance of stability than in tangible economic performance. This behavior is born largely from the fact that Cambodias fiscal policy has never had a chance to mature. With 15 percent of budget expenditure being derived from the Soviet Union until the late 80s, the government has always had a safety net to stave off disaster in the face of large fiscal and current account deficits (Hill & Menon, 2014). If necessity is the mother of invention, then fiscal safety nets are the fathers of economic stagnation. With significant
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investments not being made by the government into things like education, health and infrastructure, investments that might aid in elevating Cambodias level of human capital and regional networks, there would be few assets to use in promoting Cambodia as a viable investment climate.
As previously mentioned, many of Cambodias hurdles were bom from the very fact that the post-conflict government was young and widely contested by a populace who saw Hun Sen and his governing body as illegitimate vestiges of the past (Hill & Menon, 2011; Than, 1996). While domestic political contention can be expected in any power-sharing scenario, the largest obstacles Cambodias economic reconstruction seemed to face was the fact that political stability, judicial reform and concrete economic policies were altogether absent (Nakamura, 2006). These are all substantial obstacles for attracting foreign firms as well as creating the type of environment where spillovers from FDI can be realized (Berman, 2000). Though, as we shall see in the case study section, these setbacks did little to deter Chinas investment ambition.
Summary of Cambodias Post-Conflict Challenges Those involved in aligning Cambodias economy with the standards of modern economic practices faced immense obstacles. Below is a recap of some of the most pervasive problems facing Cambodias economic reconstruction that will further serve to highlight the unique investment climate that Cambodia offered.
Rural disadvantage: One such obstacle was the balancing act between providing much-needed humanitarian relief to the embattled rural poor and establishing commercial inroads in the much more business-friendly urban centers (Cuyvers et al, 2011). A 2002 survey conducted by the Cambodian Investment Board Council for the Development of Cambodia Foreign Investment illustrates that, 85% of the population lives in rural
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communities and 75% of the poor are farmer-headed households (Thoraxy, 2002, 2). The agriculture sector, the report continues, contributes about 43% of GDP and provides direct employment to nearly 80% of the labor force (Thoraxy, 2002, 2). Demographic figures are hard to establish in the immediate post-conflict years, but considering the urban swelling that has taken place after the Paris Peace Accords, it is safe to assume that rural populations were even more concentrated in the early 1990s (UNDP, 2008). This concentration of productive efforts will be important to bear in mind as we move toward surveying the impact of FDI in Cambodia.
Poor infrastructure: Cambodias infrastructure had been severely damaged throughout almost 30 years of civil conflict. With only 10% percent of the countrys road network being all weather, [leaving] much of the system impassable during the Cambodias annual rainy season (Hill & Menon, 2014, 14). This leaves segments of rural populations literally disconnected from much of the country on a seasonal basis. Furthermore, investments that might be fruitful in resource extraction or agriculture, for example, in rural areas are hampered by pronounced logistical hurdles.
Low human capital threshold: The concentration of the labor force in the agro-industry also conveys a fairly low level of human capital, as much of the domestic farming practices called for brute labor over technological know-how (Mehmet, 2011). While a clear majority of Cambodians reside in rural communities, these are still the communities facing the largest developmental challenges. Additionally, with around 55 percent of the population [being] under the age of 25, Cambodia has a young and vibrant, yet predominantly uneducated labor force (Dept, of State, 2014). While this social makeup
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might bode well for efficiency-seeking firms, the literature warns that spillovers will be limited, as the absorptive capacity is too low (Kubny & Voss, 2010).
A 2004 World Bank study revealed that, The informal costs in Cambodia are quite high: the so-called bribe tax is roughly 5% of total sales in the manufacturing sector, the highest among five countries for which similar data is available (Nakamura, 2006, 58). Furthermore, US Embassy officials in Phnom Penh explicitly stated that to promote business interests in Cambodia US firms would have to engage in activities that violate the [US Foreign Corrupt Practices] Act (ONeill, 2014, 178).
Weak/Inconsistent rule of law: Cambodias accession to the World Trade Organization (WTO) in 2003 has put pressure on the government to reform the judiciary, a critical step in implementing trade policy and a transparent legal framework (Nakamura, 2006). The judiciary thus far has proved to be inconsistent in its implementation and execution of law, creating an unpredictable business atmosphere in Cambodia (Thoraxy, 2002). Furthermore, legal code surrounding private property law is highly undevelopedowing largely to the fact that returning refugees are laying claims to land that has been occupied in their absence (Nakamura, 2006).
High cost of production: Energy costs in Cambodia are high, reflecting the dilapidated state of the countrys diesel generators and lack of domestic sources of fossil fuels (Nakamura, 2006, 58). This high energy cost would translate to the corporate world as high production costs, perhaps limiting many manufacturing firms from investing.
Weak consumer market: While there has certainly been an uptick in Khmer nationals garnering wealth over the post-conflict years, this circle is still rather small and significantly outweighed by the majority of citizens who cannot afford high-value goods
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and services. Thus, there is very little potential for attracting any significant levels of FDI which aim to serve the local market (Nakamura, 2006).
Pervasive poverty and urban flight: Approximately 36% of the Cambodian population lives below the poverty line with about 90% of the poor living in rural areas (DCI, 2003, 11). This concentration of rural poor has spurred urban migration for those attracted to the more robust economic activity in urban areas.
Security: Landmines continue to be a pervasive problem for rural citizens and potentially productive land that has not yet been cleared by NGOs is still too dangerous to work (Than, 1996). This has a had a very negative impact on the resumption of work for the many rural citizens who subsist through agricultural work.
Reliance on the informal economy The informal sector is prevalent in Cambodia comprising over 80% of GDP and 95% of employment. The informal sector is made up mostly of unregistered farmers and agricultural enterprises. The informal industrial sector is composed of over 27,000 small enterprises, which are not registered with the Ministry of Commerce (MoC, 2016). The informal industrial sector accounts for almost half of total industrial output and supplies mainly the domestic market (DCI, 2003, 10). The implications of the magnitude of informal economic activity in Cambodia suggest a widely ignored tax base and a complete disconnect between government policy and local business practices. The informal characteristics of this sector also limits the capacity to create linkages with foreign investing firms, as the illegality of informal firms would only compound risks for foreign firms (Kubny & Voss, 2010).
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Overview of Cambodias Investment Regime
As highlighted above, Cambodia has faced some tremendous obstacles in building an investment atmosphere that is conducive to reaping the benefits of positive spillovers from FDI. Before delving into the case study, it is worth highlighting a few domestic and international policies that were created to help facilitate Cambodias post-conflict growth. Cambodias Law on Investment (1994) was a policy that officially opened all sectors to FDI and permitted 100 percent foreign ownership (Dept, of State (DoS), 2014). This policy aimed at attracting firms away from countries that had more stringent conditions attached to FDI, like the requirement for MNCs to form joint ventures with a particular local firm chosen by the host government (Karabay, 2010, 220).
The next most important policy was the US extending most favored nation (MFN) status to Cambodia (1996), which significantly lowered tariffs exported to the US (DoS, 2014). The following year this privilege was expanded with Cambodia being designated as a beneficiary under the generalized system of preferences (GSP) which lowered tariffs for exports to, and expand engagement with, developed countries, namely: US, EU and Japan (Dos, 2014). This move was directly aimed at spurring FDI into the country, as any firm investing in Cambodia could reap the lower exporting costs. This is what spurred the explosion of the garment industry (discussed below) (Venugopal, 2011).
In 1999, Cambodia became a member of the regional association of Southeast Asian Nations (ASEAN) and garnered the benefits of the ASEAN free trade area (AFTA), which allows Cambodia to export to member states at a set tariff between 0 and 5%, a rate that will be altogether abolished by 2018 (UNCTAD, 2003). This arrangement both helps to broaden regional trade and engagement as well as attracting countries from outside the region who wish
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to serve some of the larger markets within ASEAN, like Malaysia, Thailand or Singapore, for example. Membership status within ASEAN will prove to be very important for investing states who seek to project more influence in the region, as will be discussed below. Finally in 2004, Cambodia became the first LDC to receive membership into the World Trade Organization (WTO) through full accession (WTO.org, 2016). As membership is based on economic and political performance, WTO membership has spurred an overhaul of domestic trade policy, aimed at enhancing the rule of law, business predictability and transparent policy (Dept, of State, 2014; WTO.org, 2016). Mmebership into the WTO surely helps legitimize Cambodias business climate, though, when looking at the lack of macro-level changes on the ground, much of the professed achievements may have simply been lip service.
At this point, it is hoped that there is a basic understanding of the overall investment climate in Cambodia. It is a resource-rich state that is plagued with regional disparities and, owing to the lack of judicial development and executive oversight, it is high on the list as one of the most corrupt countries in the world. Yet, with all of these traits considered, the World Bank praises it as an Olympian of growth and the sixth-fastest growing economy in the world (World Bank, 2014, para. 16).
While there is no arguing the rate of growth Cambodia has experienced throughout the past 25 years, to question whether this growth has contributed or detracted from the achievement of a positive peace is worth exploring. The following section will examine the patterns and ramifications of FDI into the country and will attempt to situate Cambodias growth as either a model for successful post-conflict development, or a model of caution for the development community.
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FDI in Post-Conflict Cambodia:
Following the UNCTAD administered elections in 1993, Cambodias decades-long economic isolation was rapidly replaced with a tree-market economic regime that was ready to open the door to the global economy. With most of the aid being absorbed by immediate humanitarian relief, there were several attempts to create incentives that were aimed at attracting FDI, namely by Western powers designating Cambodia as a preferential export locale through such policies as MFN and GSP. With later memberships including entrance into the regional ASEAN organization as well as membership into WTO, Cambodia seemed to be cultivating an air of legitimacy as a viable locale for foreign investments.
Although the US has taken an active role in implementing bilateral trade relations with Cambodia, Western investment has remained quite low (Venugopal, 2011). In fact, throughout the 1994-2013 period, FDI originating from China accounted for the bulk of FDI (Table 2), with Korea following up as the second largest investor. As the literature has pointed out that not all FDI source-states are equal, this Asian-centric investment pool might be delivering a more diverse set of spillovers, as the next section will explore.
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Table 2: Top Ten Foreign Direct Investors in Cambodia
(Cumulative 1994-2013)
FDI
Country (US$ Billions)
1. China 9.61
2. Korea 4.40
3. EU 3.7
4. Malaysia 2.62
5. Vietnam 1.524
6. USA 1.29
7. Taiwan 1.02
8. Thailand 0.899
9. Hong Kong 0.870
10. Singapore 0.786
Source: ONeill, (2014); China-ASEAN Expo, (2014)
The allocation of FDI in Cambodia has largely been concentrated in three main sectors: export-oriented manufacturing (namely garments), tourism, and the primary sector (those processes making use of natural resources) (Cuyvers et al, 2011). As we can see from the table above, China has initiated the bulk of these investments, though they have typically been aimed at the garment sector through Chinese private companies and the primary sector, namely hydroelectric dams, through state-owned enterprises (SOEs). This almost singular pool of FDI has put Cambodia in a precarious situation, as will be explored below.
Chinese FDI: A Recipe for Dependency?
China is no doubt a latecomer to the globalization game and with increasing investments in Sub-Saharan Africa and Southeast Asia, it has become a fixture in many developing states inward stock of FDI (ONeill, 2014). What seems most unique about Chinas investment behavior is that the country has no apparent qualms with investing in places deemed as pariah states by most of the international community, places like: Sudan, the Democratic Republic of Congo and (throughout its tenure as a rogue state) Myanmar (ONeill, 2014). While many of these states possess several qualities that would deter investments by MNCs who seek low-risk
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engagements, China seems to be attracted to these locales. One reason for this might be the amount of leverage China possesses.
In addition to the windfall of Western aid Cambodia received in the immediate post-conflict years, China also gave a substantial amount of loans and grants, reaching $2.7 billion by 2012 (Pheakdey, 2013, 3). With the Chinese crowding out other lenders by 2009, it has become the nations largest supplier of loans and grants, even though these loans often come at a higher interest rate than Western organizations (ONeill, 2014). Though, unlike aid received from Western institutions and countries, Chinese aid was given with no ostensible political or economic strings attached (ONeill, 2014; Pheakdey, 2013; Kubny & Voss, 2010). Prime minister Hun Sen has been recorded on several occasions praising Chinese aid: Normally, Chinese aid comes with no condition such as telling us to do this or that before they provide [the aid to] us, and When China gives, it doesnt say do this or that. We can do whatever we want with the money (as mentioned in ONeill, 2014, 182). US Embassy staff have been recorded confirming Chinas strategy of lending with few strings attached (ONeill, 2014, 182).
Considering the nature of pervasive corruption in Cambodia, along with the fact that Hun Sen hijacked UNTACs power-sharing arrangement, these string-less loans, rather than pressuring the host government to move toward more open and transparent practices has seemingly solidified the status quo. Though. As will be highlighted below, there are strings attached to Beijings loans, just instead of pushing for political or economic reform, these strings pressure the government to safeguard and perpetuate Chinas business interests in a location that would deter FDI from MNCs who lack this type of insurance (ONeill, 2014).
Considering its reduced risk in Cambodia, China has been the largest investor in Cambodias textile industry, the primary driver of exports, and has jump-started the countrys
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dilapidated energy sector through some of the largest hydropower investments in the world (CDC, 2016; ONeill, 2014; Pheakdey, 2013). Though, behind this seemingly benevolent approach to spur regional development, China has perhaps gained the most.
In 2009, for example, Cambodia followed Chinas urges to deport 20 ethnic Uyghur asylum seekers back to Beijing and in the ASEAN summit that same year, Cambodia kept silent on the issue of Chinas territorial aggressions in the South China Sea, which resulted in the failure of ASEANs foreign ministers to issue a joint communique for the first time in ASEAN history (Pheakdey, 2013, 3). Aside from securing an ally in a tense Southeast Asian environment, China has also secured safe and open access to Cambodias natural resources, as since 1994, according to the Cambodian Center for Human Rights, 50 percent of all land concessions totaling 4.6 million hectareswere relinquished to resource-seeking companies from China (Pheakdey, 2013, 3). This land acquisition, granted by a country in which a vast majority of its rural citizens continue to organize land ownership through common law practices, have been the cause of much social unrest in project areas (more below).
Chinas outward FDI comes from two primary sources, state sponsored investments through state owned enterprises (SOEs) and typical investments made from private sector entities, of which in the case of Cambodia, has been primarily directed at the garment sector (more below). While FDI originating from the private sector can vary in its investment targets throughout different countries, FDI from SOEs are typically extractive, resource-seeking investments. As such, given Cambodias abundance of rivers, China has invested heavily, much as they have done in several African states as well as in other regional LDCs like Myanmar and Laos, in the hydroelectric industry.
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Hydroelectric Industry: Water, Power & Conflict
On the surface, investments in projects like constructing hydroelectric dams in a country where, outside of urban centers, only about 15-20 percent of households have access to electricity, might seem like a logical step in the countrys development, in reality few have benefitted and many more have been negatively affected (Urban et al., 2015).
Sinohydro, a Chinese SOE, is the worlds largest and most prolific constructors of overseas dams, has been at the forefront of projects in Cambodia (Urban et al., 2015). Its most recent project in Cambodia has been construction of the Kamchay Dam, which, according to environmental NGO, International Rivers, has been the source of numerous human rights abuses, massive dislocations and irreversible environmental consequences (Urban et al., 2015). Additionally, given the high costs and demand for highly skilled workers to implement this (and other similar) projects, China typically brings its own workforce with them, leaving Cambodia little in the way of absorbing any substantive spillovers (Kubny & Voss, 2010).
The site of the Kamchay Dam is located on the southern coast in Bokor National Park, an area that was supposed to be protected following years of illicit logging that took place throughout Cambodias conflict and following years of isolation (a topic too large to tackle in this study) and is also an area used for various income-generating activities by over 22,000 people (Urban et al., 2015). While measures in Cambodias accession to the WTO and ASEAN place great emphasis on environmental protection, encouraging environmental and social impact surveys to be taken prior to such projects, in Cambodia, as on local environmental NGO attests, there is only one checkpoint that needs to be cleared, the Prime Ministers ok (ONeill, 2014). Remarking on who comprised the ruling core of Cambodian leadership, leader of the opposition party Son Chhay, as gathered through extensive interviews in Cambodia by ONeill
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(2014), claimed: Hun Sen makes all the decisions, hes a dictator. They call him Saddam Hunsen (p. 183).
Thus, the Kamchay Dam project went ahead with little if any formal procedures of impact assessment and according to Urban et al. (2014), who were on site of the construction and held extensive interviews with affected community members, the project led to a series of severe impacts on the local population (p. 582). The most immediate effects were the disappearance of fertile land, fruit trees and bamboo forests of which the local populations livelihood depended (Urban et al., 2014). As a result of the changing landscape, the once thriving tourism industry that was drawn to the national parks scenery as well as to the diversity of fruits, pepper trees and aquatic life has diminished, with an 80 percent reduction in 2013 (Urban et al., 2014, 583).
The result has been the massive migration of rural citizens, most of which have low literacy rates, to urban areas where the inability to find sufficient work has led to reliance on microcredit loans of which many cannot repay and thus the downward cycle of financial hardships for the affected community (Urban et al., 2014). While there were some repayment efforts on behalf of Sinohydro, these fell significantly short as, instead of being compensated for the land that was lost to dams construction, the scheme was based on payments per lost tree, e.g. $10 for a banana tree, $30 for a mango tree, and a trifling $3 per square meter of rice paddy lost (Urban et al., 2014, 584). While this approach can ease the bloodletting temporarily, it cannot account for the subsequent years of harvests which the families depended on for subsistence as well as for their livelihoods. These sad realities have led to several protests from rural villagers and occasional episodes of violence being directed at Sinohydro security, though
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these were quickly quelled by Cambodian security forces who were at the ready to protect the dam (Urban et al., 2014).
While such substantial loss of livelihoods and dislocations might seem like a justified cost at the prospect of attaining a modem and reliable energy source, the fact is that similar projects have had vastly different results. Urban et al., (2014) also conducted a similar process of interviews and followed the construction of a Sinohydro project in Ghana. In the case of Ghana, before allowing the construction and resettlement process to proceed, parliament created a new authority, Bui Power Authority (BPA) (named after the Bui Dam project site) to directly deal with the management of the dam and its impacts, including the implementation of the resettlement plan (Urban et al., 2014, 584). This policy not only included the local government as a support mechanism for those adversely affected by the construction, but also held Sinohydro to strict standards of health and safety as well as mandated engagement with the affected community by hosting local consultation meetings (Urban et al., 2014).
The Kamchay Dam example is just one of many such projects that have taken place in Cambodia and clearly exemplifies Cambodias heightened fragility to such projects, owed largely to the lack of support of local governance. I argue that the relationship between China and the Cambodian government, namely Hun Sen and his capacity of making decisions with zero executive oversight, has created a laissez faire investment climate in Cambodia where, in order for projects and aid to continue to pour in from China, Hun Sen is best to utilize the rubber stamp approach to approving such projects. As we see in Ghana, bureaucracy does have the capacity to curb the deleterious effects of hydroelectric construction, though of course the results were an elevated cost for Sinopower in order to fulfill BPA mandates. It all seems to come down to the
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prerogative of the host country and the audacity to challenge such substantial investments to adhere to practices of corporate social responsibility (CSR).
What is most surprising about Chinese SOE investments in Cambodia is the nature of their ownership and the fact that Cambodia actually benefits very little from these large and socially divisive projects. Risks that Chinese investments might face in Cambodia, owing to its lack of a transparent and fully independent judiciary and bureaucracy, have been legally curbed by legislation that guarantees payments for such large scale investments to Sinohydro for the 44-year life of its build-operate-transfer (BOT) agreement (ONeill, 2014, 188). This agreement guarantees Chinese SOEs against losses caused by political instability or any other phenomenon that would hinder profits to be fall on the responsibility of the Cambodian government (ONeill, 2014). This means that after construction of the dam by the Chinese firm, the dam will be operated by the Chinese firm for several decades, until a profit margin has been met, and only then will be transferred to the host government, all the while the Cambodian government insures any potential losses owed to any domestic instability (ONeill, 2014). Hence the rapid response by Cambodian security forces when villagers began protesting at the Kamchay project as mentioned above.
BOT measures were typically initiated through public private partnerships (PPP) to safeguard, incentivize and help finance private firms to engage in large scale investment projects such as hydroelectric dams (ONeill, 2014). Though in this case, Sinohydro is clearly not a private firm and this relationship seems to benefit Chinese SOEs the most, as they are able to finance, operate throughout the early highest profit yielding stages of the dam and all the while passing risk to the host state with significant leverage afforded by the Chinese government (ONeill, 2014). Thus, even if Cambodian were to soon get its political, legal and economic
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cards in order, the state will still be tied to these agreements. While this arrangement clearly highlights Chinese investment foresight, it also highlights why such investments would be drawn to relatively weak states, where through leverage in the form of financing aid and needed projects, China can secure a beneficial and safe investment where other forms would dare not invest. Also highlighted in the case of the Kamchay dam project, these practices can have significant and negative consequences for achieving a durable positive peace. Next, to get a closer look at how Chinese private firms have impacted Cambodia, the following section will examine Cambodias engine of growth, the garment sector.
The Garment Sector: Made in Cambodia (Under Chinese Supervision)
The section above illustrates resource-seeking behavior of very large SOEs from China. Considering that Chinas domestic economy has grown remarkably in the past few decades resulting in a broadening middle-class and a demand for higher wages from an expanding skilled labor pool, it is of little surprise that private firms in China have been engaging more and more in efficiency-seeking FDI as a way to lower production costs and increase profits. In pursuit of this, many firms and Chinese expatriates have found a perfect market in Cambodias thriving garment sector.
As mentioned above, bilateral policy incentives from the US aimed at making Cambodia more competitive in exported goods combined with a low-skilled labor force in Cambodia have created the perfect recipe for efficiency-seeking firms to lower production costs and reap the benefits of low export tariffs. For the Chinese, given their historical status as fixtures in Cambodias merchant-class have given them the leg-up in dominating the domestic manufacturing industry. To this end, the bulk of FDI from China has gone to the garment sector, where large, labor intensive factories are typical (Kubny & Voss, 2010, 9).
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Looking back to the literature, this type of massive job-creation should be at the top of any post-conflict countrys agenda, but in the case of the garment sector, there seems to little in the way of positive spillovers, beyond job creation, as there is seemingly very little in the way of upward mobility for locals. Kubny & Voss (2010) conducted a study in Cambodia which surveyed Chinese-owned firms in the garment industry and found that while a typical firm will employ an average of 979 employees, senior management positions were usually filled by Chinese expatriates, with less than 30 percent of top or middle management posts occupied by local employees (p. 9). Of the large number of those employed by these firms, 90 percent are women, which given the cultural context of Cambodia, implies an even lower educational threshold than male counterparts (Kubny & Voss, 2010, 4). Supervisor positions were exclusively occupied by Chinese employees which, attributed to language and cultural barriers between management and employees, has led to occasional problems, like labor unrest and strikes (Kubny & Voss, 2010, 9). Additionally, of the companies surveyed by Kubny & Voss (2010), the figure of labor turnover was an average of 50 percent a year (p. 10). Given the nature of garment manufacturing being a low-skilled and labor-intensive process with such high labor turnover rates, it is only rational for firms to minize training expenditures, which is exactly what many of these firms expressed in regards to relegating higher-level positions to fellow Chinese (Kubny & Voss, 2010).
Beyond the occasional strikes by employees in these sectors, the authors found little correlation with negative effects attributed to Chinese FDI in this sector, though they also found zero positive effects, which would challenge the literature given the substantial breadth of FDI being dedicated to this sector (Kubny & Voss, 2010). The lack of spillovers is predominantly owed to low threshold of human capital in Cambodia, as well as the limited pool of competitive
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domestic industries that might be able to supplant sourcing of goods required in the garment sector in upstream/downstream linkages, though, those that are able to supply simple input goods to Chinese companies are firms that are themselves owned by overseas Chinese investors (Kubny & Voss, 2010, 11; Surhke & Buckmaster, 2005; UNDP, 2012). This lack of domestic innovation highlights both the devastating and far-reaching impacts that conflict can have on a society, as well as the lack of host government ambition in rebounding domestic human capital through education and training investments. Again, it seems that ample funds and steady investments from the Chinese have solidified the status quo, rather than urging any domestic renaissance.
Cambodia has taken some lengths to diversify investments with the creation of EPZs and have given firms within these zones special tax holidays of up to 9 years and tariff incentives in order to spur production (CDC, 2016). While these zones ban investments in the retail and export sector, they have been slow to attract substantial investments of industries that would support local manufacturing and thus have contributed little to potential absorptive capacity (Kubny & Voss, 2010; CDC, 2016). Furthermore, these zones are concentrated around the capital, which offers little in the way of regional distribution of benefits (CDC, 2016).
Investment risks in Cambodia have been widely identified with the primary factor being pervasive corruption. As the hydro-electric example illustrated that SOEs have carefully buffered risk by insisting on domestic legislature to guard their investments against any radical domestic shocks, the private sector investing out of China does not share the luxury of wielding state power behind its investments. Thus, Chinese firms in the manufacturing industry have had to find more creative ways to buffer risks, which primarily manifested in various levels of bribes being owed to local branches of the government (ONeill, 2014). To accomplish this, firms have
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had to rely on industry-wide collective action through the Garment Manufacturers of Cambodia (GMAC) (ONeill, 2014, 192). Due to their sheer numbers, with out of 438 member factories, over 400 of them are under Chinese ownership (when classifying greater ChinaTaiwan and Hong Kongas a single source) they have been able to curb the culture of corruption through widespread lobbying (ONeill, 2014). As a result of collective action from one of the countrys most important export sources, GMAC suggests, a drop in T-shirt prices from $2 per dozen to $1.10 is due entirely to more efficient bureaucratic regulations, in other words, fewer palms to grease (ONeill, 2014, 194). The success of this group, relative to other industries in Cambodia that face similar costs, can perhaps be attributed to their ability to threaten to exit. With highly mobile assets, sewing machines and similar equipment, and the ease in which they could relocate to another locale and diminish Cambodian government earnings, it seems that collective action in this sector is especially potent (ONeill, 2014).
In this regard, FDI in this sector, while offering little in the way of direct spillovers to its employees, has been able to influence local government to conform to prevailing business norms by reducing costs associated with corruption, though this reduction in costs might only be relegated to this specific set of actors. In many ways the concentration of foreign managers and apparent glass ceiling for the numerous low-level local employees is not conducive to a positive peace, as some of survey respondents indicated that there were occasional outbreaks of labor strikes (Kubny & Voss, 2010).
Aside from large investments in the primary sector via Chinese SOEs and the abundance of Chinese firms driven to the Sino-centric garment industry in Cambodia, a final and equally important driver of Cambodias economy has been the tourism sector. While there is very little data available as to which firms are driving the countrys booming tourism industry, its rising
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importance to Cambodias success has had some very interesting consequences. The following and final section will focus on this sector and will lead to a conclusion and possible policy recommendations.
Tourism: A Holiday in Cambodia
Cambodia has a rich cultural heritage and around 1200 years ago it was the seat of the great Khmer empirean empire so vast some scholars (of which recent NASA satellite imagery can attest to) claim it to be the largest pre-modern urban space on the planet (Winter, 2008, 526). Vestiges of this once powerful empire are still visible in the World Heritage Site of Angkor Wat, a 400 square kilometer sprawling complex of ornate temples, including the largest religious complex on the planet (the structure featured on Cambodias flag), tucked away and overgrown among the jungle near the northern city of Siem Reap (Winter, 2008,. 527). This site had previously made Cambodia, in the 1960s, one of the most famous tourist destinations in Southeast Asia, with annual tourist arrivals of 50,000 to 70,000 (Chheang, 2011, 13). All traces of this once thriving industry were decimated by the following decades of conflict (Chheang, 2011).
From early on in the post-conflict stages, and long serving as a source of national identity and pride, this site was seen as extremely important to the socio-political and economic reconciliation in post-conflict Cambodia. Thus, in 1992, right as recovery efforts were underway, Angkor was added to the list of World Heritage Sites (Winter, 2006). Beyond the ancient glory of the Khmer civilization, the Angkor complex also has important significance for the early presence of Buddhism in Southeast Asia, a religion that has a strong presence within Cambodia and the entire region (Winter, 2006). In addition to the Angkor site, Cambodia boasts six national parks, coastal retreats including a marine reserve, and abundant eco-tourism centered around lush
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rainforests and the Mekong River (Chheang, 2011). Needless to say, there is ample opportunity for tourism-based development.
In 1994, around 8,000 foreign tourists visited Angkor. Just over a decade later, in 2005, over 830,000 international tourists visited the site, an increase of 10,000% in just over a decade (Winter, 2006, 532). Reaching two million in 2007, the number of tourists are expected to go up yearly to around 20 to 30 percent (Chheang, 2011, 7). While the government was attempting to institute the first three-year structural adjustment program (see above), focused on promoting traditional economic drivers, the tourism industry, largely overlooked by early planning, was quickly revealing itself as one of the states most important economic assets (Winter, 2006,
534). International tourism receipts, as highlighted in the World Economic Forum (2012), are now estimated to be equivalent to about 15 percent GDP, a share that is almost double that of neighboring Thailand, a long famed tourist destination (Hill & Menon, 2014, 9). Though, as will prove to be a common theme in Cambodia, the economic benefits of this boom in the tourist industry are highly uneven, both geographically and socially (Winter, 2006).
Servicing this boom in tourism through FDI, China, Korea and Vietnam have become the most rigorous investors in Cambodias tourism and service industry (CDC, 2016).
Those citizens with language skills and service industry skills have found a highly lucrative market in the tourist industry (Winter, 2006). After tips, commissions and bonuses, the monthly income for head chefs, tour guides and hotel management staff often exceeds 1,000 US dollars per month and those endeavoring in entrepreneurial pursuits around the tourist industry can expect to make even more (Winter, 2006, 535). Compare this income to that of school teachers, manual laborers, nurses or market traders [which] remains in the region of 30 to 40 US dollars per month (Winter, 2006, 535). This stark contrast in income between these sectors
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illuminates a less obvious paradox in Khmer society, which is, while work within this sector requires minimal skills, the tourism industry is proving to have a strong pull for Khmer youth, who see the quick cash attained in this field as more alluring than continuing a formal education (Hill & Menon, 2014; Winter, 2006). In fact, much of the youth may see the rapid expansion of job opportunities in Cambodias tourist industry as one of the safest career avenues, as, projected by Cambodias Ministry of Tourism, [Cambodias] economy is expected to rise by 5.5% per annum in real terms between 2009 and 2018, and the tourism related employment is estimated at 1,102,000 jobs in 2008, 15.4% of total employment, or 1 in every 6.5 jobs. By 2018, this could total 1,121,00 jobs, 12.7% of total employment, or 1 in every 7.9 jobs (Chheang, 2011, 14).
Compounding the income disparity further is the fact that tourism is heavily concentrated in only a small percentage of the country. While there is certainly no shortage of eco-tourism potential throughout the country, poor investments in rural road works and infrastructure have made small distances between provinces incredibly long to traversea problem that is further complicated in the monsoon season (ADB, 2014). This allurement of the tourism industry in certain locales has caused a steady migratory flow from rural to urban centers of those that want a slice of the pie (Winter, 2006). This flow could perhaps be stemmed with a more balanced regional investment in infrastructure, which, as the literature suggests, would also increase the attractiveness of heavier FDI in rural areas that are currently ignored due to the high cost of production owed to logistical hurdles (ADB, 2014).
While not directly expressed in the literature, my own experience in Cambodia has revealed a common practice of impoverished parents keeping their children away from school to serve as begging-bate. To this end, one cannot walk down a street in any major city without the constant barrage of very young children asking for money so that they can go to school. This
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seems to be less a symptom of booming tourism than an effect of poor domestic policy and civil investments, yet where the tourists are, young beggars will be there too.
Making this troubled situation worse is the fact that Cambodia is largely recognized as a sex tourism hub in South East Asia (Cotter, 2009). Sexual exploitation is rampant and young children are easy prey for organized crime syndicates in Phnom Penh and other major cities catering to pedophile tourists drawn to Cambodias off-the-radar feel (Cotter, 2009). To this end, one-third of all sex workers in Cambodia are children and as with migratory pull of the tourist industry in general, the sex trade has a powerful pull for rural poor (Cotter, 2009). This isnt all to say that Cambodian officials allow such acts to take place, but combined with inadequate political will and widespread corruption throughout the police force, the best way to tackle the problem, scholars suggest, is through international pressure (ADB, 2014; Cotter, 2009, 512).
This pressure, however, as has been suggested, is largely circumvented by Chinas more lax and string-less policy of aid and investments.
While Tourism has proved to be a mode of rapid development and job expansion, the industry itself is inherently susceptible to external factors, like foreign demand and natural disasters and thus is not really a sustainable path of development in and of itself (ADB, 2014;
Hill & Menon, 2014). Additionally, Cambodia benefits from tourism more from its proximity to more popular destinations: Thailand, Singapore or Vietnam for example, and thus the flow of tourism is highly predicated on the performance, stability and overall appeal of these neighboring countries (Hill & Menon, 2013). As for the immediate future, tourism is not projected to slow, so perhaps the most important developmental step that be taken is to more widely disperse the economic benefits born out of tourism.
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Current trends in FDI in the tourism industry have left large gaps between those who reap the benefits and those who are excluded. While certainly everyone cant be expected to be brought into the fold, as the tourism industry in itself has been shown to have several negative social consequences, but the benefits of one of the top performing sectors in the country could expect to share more of the benefits derived through tourism via rural/infrastructure development policy. One of the largest missing drivers, according to one study, is the limited investment provided by Cambodian ministries to promote and facilitate tourism throughout the rest of the country (Chheang, 2011). Not everyone goes to Cambodia for the temples, Chheang (2011) suggests, as one of the rising forms of tourism is voluntourism (volunteering plus tourism), of which there is ample opportunity to promote throughout the country (p. 14).
Additionally, there is much to be lost if a youth culture becomes singularly drawn to tourism-centric jobs, which are often low to moderately skilled positions. While the short-term gain through higher wages is promising, the lack in skills that would be otherwise gained through more education or exposure to higher-skill positions is something to consider.
Conclusion
From the perspective of a multinational corporation, Cambodia is a country wrought with risks and as such is less than appealing for the majority of global firms who invest across borders. Chinese SOEs that engage in large-scale operations, like constructing hydroelectric dams, and mobilize significant resources to the host state, have hedged risks by exerting financial influence on the Cambodian government. Private Chinese firms that dominate Cambodias garment sector have reduced corruption costs through collective action combined with their ability to threaten an exit, of which would severely hurt Cambodias leading export commodity. While Chinese firms certainly infuse the state with revenues, there seems to be relatively few
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positive spillovers in regard to the garment sector and significant negative consequences resulting from large scale dam projects. As was exemplified through Ghanas imposition of standards of practices on Sinohydro, both social and environmental impacts can be curbed by more active engagement from the host state government. The Cambodian government, however, has taken a much more hands-off approach to Chinese investments.
To say that Cambodia has a reliance on Chinese investments would be fare, though the absence of those investments would reduce the countrys inward stock of FDI to paltry levels. Of course this begs the question that if there was an absence of abundant and string-less funding from China, might Cambodia begin to make inroads in creating a more attractive and diverse investment climate for firms that might be able to deliver more positive spillovers than Chinese firms have been able to provide?
While there is ample literature that points to the many potential benefits that can be realized through FDI, the cases above highlight that without parallel investments in local capacity building, there will little chance in absorbing these spillovers. Cambodia certainly possesses an abundance of marketable resources, but until domestic skill levels can be increased and an entrepreneurial capacity revived, it seems that investments will continue to be resource and efficiency-seeking in behavior, leaving locals with little potential to benefit at all. Furthermore, as long as the Cambodian government is amptly
This seems to be especially true in the case of tourism. With few avenues for upward mobility, there is large pull for youth to abandon prospects of higher education and training to reap the higher wages afforded by the booming, though relatively low-skilled industry of tourism. While handsome revenues can be earned, the vulnerability of this industry to external shocks makes it an industry that state should be over-reliant on. To broaden prospects for youth
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and curb the inequalities between the tourism sector and jobs within the civil sector, for example, again requires more domestic investments in education, job training and encouraging entrepreneurial endeavors.
While peace is always tenuous in a post-conflict society, prolonged exposure to this type of extractive behavior of foreign firms, combined with a domestic government that is not responsive to the needs of a post-conflict society will clearly not support a positive peace. In light of this, it seems that post-conflict governments need to balance rapid economic growth with careful planning of regional and sectoral diversity.
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Full Text

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FOREIGN DIRECT INVESTMENT IN POST CONFLICT RECONSTRUCTION POLICY: CAMBODIAN CASE STUDY by BRAYDEN A. KUHRE B.A., University of Colorado Denver 2011 A thesis submitted to the Faculty of the Graduate School of the University of Colorado in partial fulfillment Of the requirements for the degree of Master of Arts Political Science Program 2016

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i Kuhre, Brayden Anthony, ( M.A. Political Science ) Foreign Direct Investment in Post Conflict Peacebuilding and Reconstruction Policy Thesis directed by Associate Professor Sasha Breger Bush ABSTRACT When the Cold War ended, the international community witnessed a deluge of civil conflicts throughout the developing world. To stem the flow of violence, Western organiz ations implemented post conflict reconstruction initiatives cen tered around structural reforms that would both aim to create a state that mirrors the West as well as a state that would resist a return to conflict Since most of these conflicts took place in the poorest parts of the world, the standard prescription was economic overhaul. This typically took the form of creating an open free market which could attract foreign direct investments (FDI) into the po st conflict economy, which should create a windfall of po sitive spillovers for the host s tate. Cambodia, a state left without any formal i nstitutions following years of violent conflict is a perfect example of this model When the internat ional community arrived, and doled out measures of reform, Cambodia Cambodia is still a strong economic performer, it is one of the most corrupt countries in the wor ld and finds the bulk of FDI coming from a single source: China. Through this arrangement, Cambodia is in the precarious position of being dependent on Chinese FDI and positive spillo vers have failed to materialize. With stark regional disparities a nd little domestic investment to ex pand extremely limited. This reality can prove challenging for lasting peace in the country. The form and content of this abstract are approved. I recommen d its publication. Approved: Sasha Breger Bush

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ii TABLE OF CONTENTS CHAPTER I. ... II. FOREIGN DIRECT INVESTMENT IN POST 7 The Post FDI as a Complement to Post FDI and Development: Can MNCs Deliver?.........................................................21 Human Capital and Domestic Market Growth: Is FDI a Funnel?.........................26 III. SUMMARY OF LITERATURE, IV.

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iii Colonial Indochina .46 The Face of Post Post conflict Capacity Building: 1989 Development Hurdles and Aid Dependency: 1993 Over FDI in Post Chinese FDI: A Recipe for Dependency?..............................................................63 Hydroelectric Industry: Water, Power and The Garment Industry: Made in Cambodia (Under Chinese REFERENCES

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1 CHAPTER I INTRODUCTION The refugee crisis that is crippling parts of Europe and the Middle East at the moment is a vivid reminder of the fact that the effects of conflict in any part of the world do not exist in a vacuum While the physical aspects of conflict may be isolated, the economic effects of conflict can be far reaching, as formal economic functions are immobilized when violent conflict ensues forcing families workers and businesses to flee from the embattled state. The economic symptoms of conflict can pose significant challenges for post confli ct reconstruction initiatives D evelopment and peacebuilding experts alike agree that the most potent peace dividend that can arise in the post conflict state in addition to the cessation of physical violence, is economic integration for citizens (Collier, Hoef fler & Soderbom, 2008; IDA, 2014 ; Philpot & Powers, 2010). Attaining a rigid peace dividend in post conflict policy via the resumption of robust and ope n economic activity, as the literature will attest, can prove to be one of the most effective ways to curb violence, normalize relations with regional actors and enhance the post conflict lity to integrate and capitalize on the global economy. states where development has been hampered by conflict and the fact that states that have endured conflict have a 40 percent chance of relapsing into conflict, there seems to be a pernicious relationship between poverty and violent conflict (Collier et al 2008; IDA, 2014 ) A recent World Bank policy report s uggests that those in the 40 percent ile of states re lapsing into conflict within a ten year span of a civil conflict do so because post conflict development efforts have fail ed to deliver broadly shared economic benefits for those who are affected most

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2 by conflict: poor citizens (Collier et al ., 2016 ; IMF, 2003; UNDP, 2016 ). While reconstruction needs are immense and varied for states in a post conflict setting and many o institutional and economic systems have been fractured by conflict (more below) one policy initiati ve that institutions like The World Bank, International Monetary Fund (IMF) and the UNDP commonly implement is to open the economy and facilitate the arrival of foreign direct investment (FDI) into the state (Collier et al ., 2016; IMF, 2003; UNDP, 2016). By ado pting free market economic policies for example, deregulation, privatization, fiscal austerity, and free trade the literature argues, the host country will reach a threshold of economic stability that will attract FDI from global firms who have the expertise, resources, and global mobility that will aid in lifting emerging economies onto the main stage (Liu, 2008; UNDP, 2016). Through this arrangement, global lenders argue, states emerging from conflict can utilize international aid to implement structural reforms that will attract foreign investors into the country, building long term rela tionships wit h global firms that can contribute to a more sustainable pat h to development than aid alone can provide. In addition to accessing capital through foreign investments, the literature adds (more below), FDI will both directly and indirectly create a surge o f positive spillovers, from raising policies (Collier et al ., 2016; Kumar, 2007; Liu, 2008; UNDP, 2008). If the spillovers from FDI can then be harnessed and broad ly dispersed among sectors of society by host governments, the ave a more auspicious chance of (Kumar, 2007; Liu, 2008; UNDP, 2008). In this view, t he onus of success in post conflict policy lies with a host and global organizations to implement lasting policies that will deliver broadly shared benefits.

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3 This state centric approach to post conflict recon struction is a visible departure from policies that were guided more by political and economic reform, from lenders like the IMF and World Bank, thro ughout peacebuilding activities born from the onslaught of civil conflicts that erupted in the immediate po st Cold War years (IMF, 2016). While international institutions like the UN and its various branches had long been present, p ost conflict interventions were rarely mobilized until the Soviet Union fell and its many dependents ruptured into self determinant conflicts (UNDP, 2008). This means that post conflict intervention as a practice is still relatively novel and the subsequent lack of data and scholarly attention to mechanisms that have succeeded or failed pose both difficulties for policy making as wel l as opportunities to broaden the knowledge base. While conflicts continue to rage on throughout the world, questions of how to promote peace in regions susceptible to violence continue to challenge scholars and practitioners who strive to understand how s ustainable elements of development can be introduced and conflict recidivism avoided. While the circumstances surrounding civil conflict are as diverse as the countries that host conflict, generalizing effective policies that will work across all post conf lict situations is impossible. What will seemingly benefit the gap in literature most of all is more comparative context. This study seeks to contribute to this crucial, yet underserved, knowledge base by presenting an in depth case study that will seek to offer some nuance to the discussion of post conflict economic development, while focusing exclusively o n the primacy of promoting FDI. For this task, no country seems better suited to challenge prevailing development norms than Cambodia. Cambodia has overcome some tremendous obstacles throughout the past four decades. The country was sucked into the Vietnam war through a secret bombing campaign led

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4 by the US, which helped galvanize an embattled and impoverished countryside to support radic als led by Pol Pot who strove ; scorned Vietnamese Army stemmed the murderous Khmer Rouge, though at an extremely high cost for the beleaguered Khmer cit izens (Than, 1992). Add the decades of extractive colonialism that preceded these events and one can quickly see that Cambodia has faced some profound developmental challenges. From this deeply troubled past Cambodia has made some incredible transformatio ns, at the Olympians of growth. With an annual growth average of 7.7 percent for two decades now, it is the sixth fastest [growing economy] in the world from 1993 World Bank 2014 para. 16 ). This growth, the Minister of Finance notes, has been hinged on the ability of Cambodia to attract foreign direct investment (FDI) ( Chanthol, 2014) The Minister highlights a variety of traits that have allowed Cambodi a to attract FDI: proximity to the former and emerging tiger markets in Asia, a prominent, albeit fledgling, po rt city on the Gulf of Thailand ( one of the busiest trade routes in Southeast Asia ) ; a relatively young labor force; and natural resources spread throughout the country (Than, 1992). All else equal, Cambodia is really poised to succeed within the framework of globalization. Its assets have proved compelling for foreign investors and with these investments, in conjunction with immense flows of aid, Cambodia should have the necessary tools to steer a sturdy course. Unfortunately, all else has not been equal. conflict growth has indeed been impressive, especially considering the zero starting point in which Cambodia began to rebu ild when UN forces arrived in 1992, the optimism that is placed in overall growth distracts from the shortcomings that exist

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5 under the surface. Land rural, and predominantly impoverishe d, citizens (Than, 1992). Education falls far behind its Asian neighbors and corruption in Cambodia has consistently remained in the bottom 8 percent in the world, or 164th of 182 jurisdictions in Transparency International's Corruption Perception Index (Hill & Menon, 2014; Transparency.org, 2016). FDI since the 1991 signing of the Paris Peace Accords, has come primarily from a single source, FDI literature focu ses on benefits derived from developed, typically Western, societies, the question of positive spillovers from an Asian centric investment base is not as clear and current literature is lacking in addressing this These c onflict development I will argue, have run counter to the promises of FDI and may not bode well for continued peace in the future. With exclusive focus on the post conflict state of Cambodia, this study seeks to broaden our understanding of how FDI opera tes in theory and how FDI operates on the ground. In recognizing that no two post conflict situations will be the sam e and that conflict itself can affect states in a multitude of ways, there will be no attempt to generalize findings across all post confli ct locales. Rather, the attempt is to flesh out how a country like Cambodia, one that was decimated by civil war and foreign occupation, has fared in establishing a Western friendly economic identity and in harnessing the concomitant downpour of FDI. Is FD I providing the conflict reconstruction, where, in the absence of effective governance and sound judicial oversight, the economically mobile p rosper while the bulk of impoverished toil? Can reliance on a single source of FDI from China, as will be demonstrated below, create the kind of post conflict dependency that leaves a country more vulnerable than self sufficient? What does

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6 this tell us abo ut the role of FDI in a post conflict setting and what does this portend for future peace? This paper will proceed as follows: 1) The first chapter will outline the existing literature on FDI in theory and in practice, specifically in relation to develop ment and economic stability. 2) The following chapter will outline the data and methodological approach that will be used in conflict economic reform since the signing of the Paris Accords in 1991 to present. 3 ) The final chapter will present the findings in Cambodia and will conclude with possible directions for further research.

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7 CHAPTER I I FOREIGN DIRECT INVESTMENT IN POST CONFLICT POLICY Definitions As terms within the economic/globalization lexicon can be easily blurred in technicalities, I will employ the following definitions in my research. Foreign direct investment (FDI), will be understood as a flow of capital from any firm that establishes long term relationships through investments with enterprises in foreign markets and holds a minimum equity stake of ten percent (Kumar, 2007). FDI differs from other types investments, such as portfolio equity investment, which is when a foreign firm buys comp any shares, typically via the stock market, and does not necessarily gain any effective control of the company (Kumar, 2007). This distinction will be important moving forward, as the element of control garnered through FDI denotes a heavier influence and a more direct interaction between parent/affiliate companies, theoretically allowing for a more fluid movement of ideas, technologies and managerial know how from parent to affiliate enterprises (Kumar, 2008). Firms that invest across national borders wil l henceforth be referred to as multinational corpor ations (MNCs). These companies are typically based in developed countries and seek strategic investment in firms often located in lesser developed countries (LDCs) (Kumar, 2008). While this study does not seek to tie post conflict economic policy to the attainment of peace directly, global institution like the UN often frame post conflict interventions as practices in peacebuilding. Thus, p eacebuilding, as the UN describes it, denotes a strong lean toward establishing structures of peace that would sustainably reject a return to conflict. Put into the post base; making a constitution, or a new one, and establishing the rule of law; strengthening security;

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8 these steps are critical in the post conflict state building process, the literature suggests that peacebuilding initiatives often devolve back into conflict, which suggests that there are crucial elements missing, or are being misused, in their implementation (Call & Cousens, 2008; Del Castillo, 2008; Gersen, 2001 ; Venugopal, 2011; Yilmaz, 2009). States emerging from conflict throughout the past several decades, as well as states that revert to conflict, all seem to have entrenched poverty as a common denominator and thus peacebuilding as it relates to economic rec onstruction and FDI will be of central focus moving forward. The Post Conflict State: An International Problem Before delving into the development l iterature, it will first be important to illustrate just why the post conflict state differentiated from lesser developed countries (LDCs) in general, is such a unique subject that deserves explicit attention. While economies within most LDCs already struggle to compete in global markets as it is, conflict can exacerbate already difficult situations to disas trous levels, by crippling formal economies and stripping citizens of the capacity to earn a living (Venugopal, 2011). United Nations Development Program (UNDP) (2008) livelihoods, employment and incomes, debilitated infrastructure, collapse of state institutions and Afghanistan a country that has endured more than a quarter century of violent conflict, as an as one of the most impoverished, conflict prone states in the world, and ranks near the bottom of

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9 Conflict reshapes whatever political and economic institutions were in place prior to the outbreak of violence, as the breakdown of the formal economy will force people into other avenues of survival (Venugopal, 2011.). The loss of a traditional means of employment pushes citizens to operate in the informal, or shadow economy, where subs istence agriculture becomes the only means to eat and informal, or black market, transactions become the only means to trade (Call & Cousins, 2008). Illicit activities regulate such as drug and arms trading b ecome viable avenues for those stranded in what is essentially economic purgatory (Call & Cousins, 2008; UNDP, 2008; Yilmaz, 2009). While normalize the situation bec omes that much harder and its limited resources become squeezed that much more as a potential tax base cannot be fully realized (Call & Cousins, 2008). Furthermore, human capital is depleted as many of the educated and trained are either directly pulled in to will further challenge reconstructive efforts in the post conflict setting (Call & Cousins, 2008). The post conflict state is thus void of systems and infrastructure that might otherwise state is in dire need of external assistance (Berman, 2000; Dicken, 2007). At this point, the post conflict state often l ooks toward Western organizations. I n addition to the welfare of the state embroiled in conflict, regional ramifications can be felt by neighboring states in several ways. Of foremost concern is the mass movement of people mobilized by conflict and their subsequent drain on the resources of neighboring states, who

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10 themselves are often struggling LDCs (UNDP, 2008). This strain in itself can be a source of conflict for neighboring states and speaks to the necessity of governments and international actors to comprehensively address the sources of conflict at the state level, lest it devolve into regional chaos, i.e. D.R.C., C.A.R., and now the Levant. These previous examp les also speak to the dangers of leaving entire societies devoid of formal and open economic processes in the post conflict setting, as without jobs, young men and women might find whatever offers local militias are providing as quite attractive. Clearly a state emerging from conflict is disproportionally vulnerable and the new government is often weak and aid dependent (LeBillon, 2008). Whatever economic systems were in place prior to conflict have typically been destroyed or severely stunted and the most crucial peace dividend, economic reintegration, often takes second place to political reforms A significant wars occur in countries that have surely stands as a vivid example of these dangers and clearly illustrates the necessity of effective and susta inable post conflict intervention operations (Call and Cousins, 2008). conflict phase since the end of th as 40 percent among these often poor countries, it is clear that traditional means of peacebuilding need to adapt and find ways to promote and facilitate alternatives to conflict more rigor ously ( Collier et al., 2008; Del Castillo, 2008)

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11 Intervention however, is a costly and difficult process. Scholars and UN publications themselves often cite the complexities involved with mobilizing the tremendous amount of resources, personnel and capi tal required in any post conflict situation (much of which is absorbed by the mission itself) (Del Castillo, 2008; Gersen, 2001; UNDP, 2008). It is thus not surprising that in recent years the UN has been seeking partnerships with actors from the private s ector (UNDP, 2008). Additionally, the post capacity level in the aftermath of conflict differs substantially (Del Casti llo, 2008, Gohou & Soumare, 2010 ) These capacity differences include the level of human and structural damage possession of m arketable resource endowments and among many other attributes, its relationship and placement in the regional economy ( Del Casti llo, 2008, Gohou & Soumare, 2010 ; UNDP, 2008). These differing contexts have proved challenging for peacebuilding actors, namely the UN, World Bank and IMF, as they have been widely criticized by scholars and practitioners the developed onto cultures with significantly different value systems and different ways of doing things (Call & Cousins, 2008, Ger sen, 2001; Gohou & Soumare, 2010 ; Philpott & Powers, 2010). In light of the tremendous obstacles being faced by international peacebuilding bodies, post conflict protocol has been forced to recalibrate its approach, looking toward non traditional actors in the private sector to complement peacebuil ding processes (UN.org. 2015). The following section will examine the reasoning behind these shifting attitudes from external aid

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12 unique capabilities. Literature Review Development for Peace Peace cannot be maintained in a breadline for long. This was made explicitly clear in the days after WWII, when much of the developed world was left crawling after decades of violence and destruction. In order to avoid further conflict, it was clear that a sustainable political model for peace approach to post conflict reconstruction is best exem plified through the Marshall Plan, the champion of post made the Marshall Plan so successful, Del Castil lo (2008), Gohou & Soumare (2010 ), among others, argue, was the heav y emphasis placed on the states receiving aid and res ources to guide their own path for development and take domestic ownership of the reconstruction process. Comparing a war torn Europe of the 1940s with modern post conflict states necessitates proper contextualization, as, even then, the European states h ad a history and collective understanding of industry and what a functioning economy looks like (Del Castillo, 2008). Countries that are racked with conflict today and are primarily located in the global South, on the other hand, have experienced little mo re than the extractive end of globalization typically playing host to firms who invest in resource extraction and low skilled labor, and thus have little exposure in shaping and sustaining higher value added production capabilities that would aid in devel oping a more diverse and rigorous domestic economy (Del Casti llo, 2008; Gohou & Soumare, 2010 ). Despite these differences, situating the host state as the primary di rector of its post conflict institutional identity is widely seen as a success in the (Gohou

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13 & Soumare, 2010 ). This centralization of host state prerogative, which made the Marshall Plan so successful, will be an important attribute to keep in mind as we move toward uncovering conflict recon struction. Debates and inclusive decision making practices of th nature have changed significantly in peacebuilding protocol and have been replaced with a consistent call among global lenders for strict structural adjustment programs (SAP s), which typically involve adopting the hallmarks of a free market economy, such as: rapid de centralization, de regulation and open access to international firms ( Del Castillo, 2008 ; Kumar, 2008 ) notes framers of the Marshall Plan seemed to have had an understanding of the fact that development is indeed a slow and gradual process and spent a great deal of energy in tailor fitting processes that would maximize benefits for each country by first providing the platform of economic recovery and sustainability (Del Casti llo, 2008; Gohou & Soumare, 2010 ). Thoug h there has been a visible shift in publications from until 2001 that the World conflict procedures, which included: a period of observation bef approach competing agencies (IDA, 2014 9 ). Though, before structural reforms can begin, the primary con dition to be met is the cessation of violence, which is typically effected through internationally mediated pow er sharing arrangements among competing factions of governance in the initial stages of peace accords (USAID 2009; UNDP, 2008). While this is cle arly a necessary step toward building peace in a

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14 conflict ridden state, the extent to which power sharing reflects a true dividend of peace among rival citizens, or is simply a placation of international bodies to ensure the continuation of aid, is a highl y contentious subject in the peacebuilding literature (Hopp & Kloke Lesch, 2004; Philpott & Powers, 2010; Venugopal, 2011). To this end, the literature situates the attainment of peace into two main categories: positive peace and negative peace (Call & Cou se ns, 2008). Negative peace can simply be the absence of violence alone, where a positive peace is more focused on conflict Call & Couse ns, 2008, 3). Clearly a negative peace is a temporary solution to overt violence, while the processes involved with building a positive peace require an intimate understanding of the post and pre conflict context in order to implement lasting structures that will fo ster that peace. These structures, as demonstrated through the Marshall Plan, manifest in part through sound economic development built on country specific policies (Del Castillo, 2008; Call & Cousens, 2008). While many of the conditions placed on post con flict aid may indeed help in preparing the country for a place in the global market, in an attempt to hasten its economic development, the literature warns that conditions of aid do not always acknowledge the interests of the host country (Manning & Marlbr ough, 2010). First of all, as the post conflict state is quite f oreign to (often) Western actors, they innately lack an intimate knowledge of the country which would be required to create durable conditions (Manning & Marlbrough, 2010). This can lead to a particularly volatile situation if certain domestic actors, regions, or ethnic groups are ignored or favored by the resulting policy (Manning & Marlbrough, 2010 ). Moreover, the literature warns but should be understood as a long historical process with a host of preceding variables to address in peacebuilding, a point that

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15 seems often ignored by donors and practitioners as per their insistence on implementing size fi ts eforms (Putzel, 2005) This top down element of determining conflict state can complicate post conflict policy as many citizens or regions can be left out of the fold. Additionally peacebuilding often ignores the economic process es that were in place prior conflict affected states, the UNDP (2008) report adds, will not simply wait passively for external agents to bring them the good life. Rather, practitioners to mind t hese indigenous drivers when designing a reconstruction program and complement, rather than completely overhaul systems of the economy (UNDP, 2008). This is an area, the literature suggests, that could better be navigated by members of the private sector who, through business dealings and a working knowledge of domestic or regional processes, can more naturally implement themselves into the post conflict context, transferring capital and benefits along the way (Gariga & Phillips, 2014; Manning & Marlbrough 2010; Suhrke & Buckmaster, 2005). The fact that the face of donors and peacebuilding institutions are often associated with Western ways and values places another restraint on their effectiveness toward promoting a viable peace. Writing in the context neocolonialism some scholars within the development literature seem to recognize the tension that is created when conditions are placed on aid that require the host state to more closely resemble donors (Venugopal, 2011). Much like colo nial practices, donors can favor certain groups, political parties or regions within

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16 the post conflict state that are more closely aligned with their own interests (Venugopal, 2011). As this suggests that some groups would be placed on unequal economic foo ting, practices like these can run counter to peacebuilding goals of fostering a positive peace allowing resentment and contempt to fill the void of broadly shared benefits. The post conflict state is also sensitive to the patterns and manner in which ai d is dispersed. Surhke and Buckmaster (2005) note a distinct correlation with donors and their of money they disperse (p. 737). The more prolific the news surro unding a conflict is, Surhke financial aid and other physical resources into the state (p. 737). This type of donor behavior clearly suggests a self serving post confli ct aid strategy and raises several questions about the interests and the effectiveness of organizations that are involved in peacebuilding and post conflict reconstruction. Furthermore, pouring large amounts of financial aid into post conflict states, the literature suggests, can have long term negative impacts on economic development (Suhrke & Buckmaster, 2005; Venugopal, 2011). Highlighting a recent World Bank publication, Suhrke & Buckmaster (2005) suggest that while conditions are attached to initial a greements of aid, there is little oversight when it comes to funds actually being dispersed. The often new and fragile post conflict governments, rather than reinvesting funds to promote immediate and broadly shared economic growth, tend to disappear funds whether through corruption or poor investments ( Suhrke & Buckmaster, 2005, 739). It is because of blowback like this a 2012 Unit ed Nations Development Program (UNDP) publication illustrates, countries [and the development community at large] increasingly see foreign aid as a short term

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17 solution and a catalytic for trade and development driven With the domestic private sector being significantly set back as a result of conflict, FDI, the UNDP (2012) suggest s, can be a crucial driver of economic recovery. The newsworthiness aspect of donor choice also suggests a level of subjectivity on behalf of donors as to what and when is a conflict. This has been demonstrated in tracking aid flows over time throughout peacebuilding operations. In the cases of Bosnia and Cambodia as an country with the t wice the population of Bosnia (Surhke & Buckmaster, 2005, 739). As conflict involves the destruction of life, the implications that some conflicts would not be in the limelight enough to warrant aid is a frightening proposition. The approach to peacebuild ing and reconstruction illustrated by the Marshall Plan seemingly changed along with the polarizing political atmosphere of the Cold War years where development was used more as a proxy to create states that resembled West ern models (Gersen, 2001) What c hanged too was the manner in which wars were fought, or at least with whom they were fought. Inter state wars, where aggressors and victims are much easier to discern, were rapidly becoming exceptions, as intra state conflicts, where hostilities are deeply woven in complex relationships and histories, became the new norm (Gersen, 2001). Translated to the peacebuilding community, this shift means that Marshall Plan era approaches of relying on salvaging pre existing structures and simply funding the initiati ves of able state leaders were quite incapable of addressing the causes of modern day conflict in states that have few financial resources, stark social/ethnic cleavages and weak institutions (Del Castillo, 2008). Finally, the changed nature of conflict has also had profound implications for the legal national conflicts occur within

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18 nal actors reluctant to with an explosion of post Cold War conflicts, public international institutions charged with the task of promoting development and av oiding conflict, namely the UN, IMF and World Bank, were in a constant race to implement top down peacebuilding structures in situations that were anything but transparent and in locales that were anything but familiar to peacebuilding practitioners (Gerso n, 2001). This approach clearly did little to douse the flames of contempt, as peacebuilders, trying to operate through a singular policy approach of political and economic reform, failed to recognize the intricacies of each site of conflict as vastly diff erent and unique to one another. By structuring policy around the inherent traits and indigenous drivers of the host state, the literature argues, policy can build upon already existing processes, rather than implementing a clean sweep of reform (UNDP, 200 8; Yilmaz, 2009). FDI as a Complement to Post Conflict Intervention When domestic processes are widely hampered from conflict, the literature argues, post conflict aid and policies directed toward encouraging countr y with access to capital, jobs, skills, technology, and international business networks that are (See Table 1) (Griffin & Whyte, 2014, 1). In attracting these external inputs the literature highlight s, in addition to providing an immediate peace dividend in the form of economic activity, FDI can significantly contribute to the long term growth prospects of the domestic economy by creating linkages with upstream/downstream domestic industries (Griffin & Whyte, 2014; Surhke & Buckma ster, 2005; UNDP, 2012). In the tense political environment of the early nineties, UN Secretary General Boutros

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19 Agenda for Peace and expanded its post conflict prerogative, as: and solidify peace in order to avoid a relapse into confl ict (Call & Cousens 2008, 3; Secretary General of the United Nations, 1992). This definition, with its call for structural reinforcements of peace, is a clear departure from 90s era post conflict i nterventions that made aid contingent on complete political economic reform regardless of whether or not those conditions would continue to be upheld once aid arrived and experts left (Manning & Marlbrough, 2010). ons and post Wennmann and Berdal (2010) elaborate peacebuilding as a two To this end, a 1999 initiative led by then Secretary General of the UN, Kofi Annan, launch ed the Global Compact, a voluntary seeks to rt private sector reform supported by the UN, World Bank, IMF and other actors typically engaged in post conflict reconstruction ( Oliver 2014, 9 ). The concerted approach to post conflict expressed in the Global Compact, is very reminiscent to Marshall Plan era policies which rested heavily on planning and tailor fitting reforms to best match the host growth model (GuechHeang & Moolio, 2013).

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20 places emphasis on economic growth through transfers of FDI, the endogenous framework nently affect the growth rate and those include research and development (R&D), human capital accumulation, an d externalities Moolio, 2013, 89). FDI literature situates its spillover potential into two channels. De Mello (1999), Dunning (1993), Blomstrom et al. (1996) and Borenszt ein et al. (1998) posit that the first channel consists of capital accumulation via the arrival of new economic inputs and technology that foreign firms bring to the table which boosts the productive capacity of the recipient state (GuechHeang & Moolio, 20 13). The second channel, highlighted by De Mello (1996, 1997, the in as cited in GuechHeang & Moolio, 2013, 89). Furthermore, the more productive a society is, that is the more a host state can harness and expand these spillovers, the more FDI will serve as a self fulfilling prophecy, further garnering the attention of international firms who see the newly stable and vivacious state as a solid investment (Dunning, 1993; GuechHeang & Moolio, 2013; De Mello, 1997). Much has been covered so far about the dangers and inefficienc ies of a n externally driven approach to post conflict reconstruction and much stock h as been placed in the building a sustainable development through the arrival and proper harnessing of FDI. While FDI is painted in the literature as something as a panacea to invalid economies throughout the developing and distribute these benefits. This relationship expressed through the endogeno us growth literature,

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21 growth (Azam & Ahmed, 2015, 100). In this sense, Azam & Ahmed (2015) discuss the tremendous growth potential in states with an already healthy level of human capita l stock, that is citizens whom have had the opportunities to develop marketable skill sets through higher education, on the In this model, states that have the ability to inves t significant resources into the skills and health of the local populace can augment significant returns from both a diverse domestic economy, as well as in attracting foreign firms drawn to the prospect of a healthy and skilled labor base (Borensztein et al., 1998; Azam & Ahmed, 2015). While this model has had success in describing rapid growth throughout the developed world in the age of globalization, it offers little in explaining the potential growth in a post conflict situation, as most of the domest ic stock of human capital has been obliterated throughout conflict (more below). Nonetheless, this conception of creating a threshold of domestic investments in things like health and education before FDI can be adequately attracted will be important to ke ep in mind when considering the decimated post conflict context of Cambodia. The following section will take a closer look at the emergence of FDI in the development landscape as well as some of the professed benefits of FDI. FDI and Development: Can MNCs Deliver? The evolution of FDI, like that of post conflict development, has its roots in the post and stocks increased around the world, especially in developing c 2010 rather than by economic motives, Second, since the 1990s, FDIs have been concentrated in countries that offer fiscal benefits, subsi 0

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22 76). As previously mentioned, in order to be included in FDI data, a firm must hold at least 10 per cent ownership equity in the foreign affiliate (Kumar, 2007). While an investment threshold of 10 percen t may seem slightly arbitrary, it does imply a substantial mobilization of financial and human assets to the affiliate company in the process of expanding, enhancing, or building productive elements anew in the host country (Bwalya, 2006). This movement of resources is what is generating fanfare for FDI in the peacebuilding literature, in that, through the transfer of foreign physical assets, there is an indirect benefit for the host entity in addition to the direct benefit of attaining foreign capital and resources in what are commonly referred to as Beyond FDI, capital flows come in two other primary forms: Portfolio equity investing is when a foreign firms buys company shares, usual ly through stock markets, without gaining any effective control and Portfolio debt investments are investments that typically cover bonds and short/long term borrowing from banks and multilateral institutions (Kumar, 2007, 3). While all three modes denote the movement of capital from one MNC to a foreign enterprise, only FDI denotes an element of ownership. This level of ownership implies that the investing MNC will have a much more hands on relationship with the affiliate, transpiring in the transplantatio n of methods, knowledge and technology to the affiliate in order to maximize investment yields (Bardy et al., 2012). Most importantly, while all three modes of investment will bring much needed capital to the host state, only FDI, through its entrenched re lationship with local enterprises, connotes a sense of productive sustainability to the host state (Kumar, 2007). The sustainability and the longer time horizon of FDI versus portfolio debt investments and even foreign aid, is an aspect of FDI that has great potential for development. Whereas aid is predicated on the commitment of lenders, which can be capricious (as discussed above), and

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23 portfolio investments can, and typically do, flee the country at the first sign of incre asing risk, FDI, with its threshold of 10 percent ownership, is typically undertaken with the long game in mind for investors (Azam & Ahmed, 2015). This threshold of investment also denotes a substantial mobilization of resources and capital and thus it i s worth highlighting what compels MNCs to invest abroad. The literature highlights several reasons that drive FDI, but for the relevance of this paper, the three main drivers are: market seeking, efficiency seeking and resource seeking investments (Kavita & Sudhakara, 2011). For those firms that are market seeking, they are usually drawn to the spending capacity of local citizens as a way to broaden their consumer base and as such, host countries tend to be more developed and the resources the firm s move ab road tend to be high er tech and require high skilled employees (Kavita & Sudhakara, 2011). Conversely, efficiency seeking behavior tends to be driven by lower productive costs, typically owed to cheaper labor relative to source state labor. These firms are typically low skilled a nd low tech manufacturing firms, like the garment industry, for example (Kavita & Sudhakara, 2011). Finally, resource seeking behavior is driven by the presence of raw materials in the host state. Firms engaged in resource extractio n tend to mobilize high tech processes, though typically bring the necessary skilled labor with th em (Urban, Nordensvard, Siciliano & Li, 2015). Resource seeking also lends itself to controversy, as host states are typically located in LDCs and subsequentl y have lesser developed regulatory capacities which firms can exploit, through environmental or social degradation, for example (Urban et al. 2015). Additionally, with lower levels of human capital in economies that attract efficiency seeking investments, there is less absorptive capacity of workers to reap the benefits of spillovers and thus these firms typically exploit lower labor costs while reserving higher management positions for source state employees (Kubny & Voss, 2010).

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24 Aside from the access to needed inputs, MNCs seek investments with the fewest risks. FDI requires host state approval and is usually secured through contracts with the firm and the appropriate ministries in the country. As such, countries with opaque or unstable political and leg al institutions pose tremendous risks for foreign firms, as if policy were to change, a firm could risk losing investments through nationalization, contract reneging or lost profits through This will be an important con sideration when discussing the FDI environment in the Cambodia case study section. The focus on FDI, as being as much or more pertinent in the post conflict setting as international aid, is gaining more prominence in development circles as it is, above al l, a non debt source of finance in which the government can utilize for economic investment projects as FDI is a long term capital inflow and has the smallest constancy in capital flows is crucial to development as with other avenues, such as aid and loans, the financial spigot is turned on and off as per the whims of the lender. Where actors in volved in providing aid to post conflict countries might have core interests they are seeking to achieve, as much of the funding from these organizations is provided re politically neutral (Jamali & Mirshak, 2009). In a study that interviewed leaders of MNCs throughout the world who have conducted business in fragile and conflict affected areas, many respondents clarified their neutral stance, with one manager saying:

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25 are neutral, nonpolitical i on nor (Jamali & Mirshak, 2009, 458). cannot operate neutral. The very fact that noted in Jamali & Mirshak, 2009, 460). The argument behind this is that a firm has the capacity to legitimize any state or ruling government simply by their presence. Regardless of their their policies of corporate social r esponsibility ( CSR ) through continuing business in fragile states and providing for customers within states, actions, the authors note, may have an indirect capacity to aid in peacebuilding initiatives (Jamali & Mirshak, 2009). As bleak as the post confli going to require support and resources. To this end, things are looking up for the developing for instance, inward stock of FDI to developing countries amounted to about a third of their 2 [billion] in 1 ). that have for the past decade exceeded that of global trade (Gorg & Greenaway, 2004, 171). Indeed, FDI rose steadily throughout the 1990s, though as Figure 1 represents, FDI has been anything but impervious to global market shocks and downturns. FDI flows took a noticeable at the onset of the OECD, 2014 3). While it is impossible to deny the substantial flows of capital that FDI has spurred throughout the global economy, over reliance on

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26 capital derived from FDI for the purpose of development, due to the inherent risks involved with potential global economic slowdowns, should caution policymakers to implement FDI as a tool, not a cure all. Figure 1: Global FDI flows from 1999 to 2013 (USD billion) Source: OECD International Investment Statistics database https://www.oecd.org/investment/FDI in Figures Dec 2014.pdf While the statistics and data (above) both affirm the growing presence of FDI as a crucial actor in development, they a lso express that firms are drawn to countries for a variety of reasons and the fact that an LDC has experienced conflict does not mean that it is necessarily less attractive for the business community. Clearly attracting capital is crucial in the post con flict context, but the physical transfer of assets is only half of the expected benefits that can be derived through FDI. Human Capital and Domestic Market Growth: Is FDI a Funnel? While the arrival of foreign capital is often the most visible manifestati on of FDI, it is not capital itself that will provide the most benefits to the developing recipient country (Mihalache conflict state and while governments should seek to att ract it the best they can, there are other, perhaps

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27 more sustainable methods, to promote broad based development in a post conflict setting. In response to the praises that FDI can help reduce the savings gap of the recipient country, by supplanting domest ic government revenues aimed toward reconstruction, Liu (2008) reminds us 2008) term economic growth, it must lead the recipient country to adopt policies that are conducive to economic growth or policies that facilitate technology O ne of the most sought after spillovers o f FDI that is cited in the literature is its promotion of human capital in the host country (Bwa lya, 2006; Gohou & Soumare, 2010 ; Kumar, 2007; Liu, 2008; UNDP, 2008). As previously mentioned, human capital can be expressed in many forms, but it is ultimate ly a relative figure gauging the productive capacity, as well as health vigor, of a labor force in a potential host state to that of the labor pool available throughout the developed world. As discussed in respect to endogenous growth, high levels of human capital are what typically attract FDI ( Azam & Ahmed, 2015; Noorbakhsh, Paloni & Youssef, 2014). While it seems striking that FDI alone can generate any amount of substantial change within the host country, it is important to remember just how depleted th e resource base is for a post conflict country. As mentioned above, a state that has endured conflict has both tremendous physical damage to restore in order resume market activity, as well as substantial losses to the skilled workforce, who often become e ntangled or lost in conflict (Call & Cousins, 2008; Yilmaz, 2009). Furthermore, conflict forces a life style change among the poorest often the most numerous segment of society forcing many into modes of subsistence, whereby the formal economy is abandoned further reducing potential revenue streams for both citizen and

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28 state (Call & Cousins, 2008). While the post conflict state faces many pressing challenges in times of transition, it can be easy for the needs of those extremely impoverished citizens to be diluted by more macro level policies in the immediate post conflict years. Though, as the poor often represent the largest segment of a post conflict society and in turn the most viable labor and tax base, policy should be quickly aimed at re aching the po or and rebounding levels of human capital may be the principle contributor to self sustained growth in GDP per capita (Gohou & Soumare, 2010 76). The underlying premise of FDI and its effects on the host country rests in the fact that MNCs possess various intangible assets, including technology, managerial know how, export contacts and reputation (Bwalya, 2006). While MNCs are not the only actors to engage in FDI, others might include state owned enterprises (SOEs), they are often the most prolific and flexible when it comes to moving operations abroad, as many firms already have some level of supply chain in neighboring countries or regions (Griffin & Whyte, 2014). While there is no attempt to color all MNCs as amiable actors the very fact that firms are large enough to engage in FDI denotes a certain mastery of the global economy and of whatever sector they are involved in. This firm level mastery is direly needed in the post conflict context. this means that systems and processes have been honed to an optimal level and can be replicated and transplanted to a variety of environments with relatively little investment (Liu 2008). With proven processes, combined with the intangible assets they possess, firms, as the literature suggests, can initiate human capital and technological spillovers via at least three channels: 1) Through the movement of highly trained and skilled staff from foreign firms to domestic firms.

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29 length relationships between foreign and domestic firms, which enables the latter to learn and adopt superior production technologies and managerial and org anizational skills upgrade production techniques in order to remain competitive and productive. (Bwalya, 2006, 515). Just the very presence of a MNC in a post conflict setting, as Bwalya (2006) suggests, will have an indirect effect on the behavior of local industries, either by demonstrating new methods and technology for production or by enhancing sector level competition, both of which can be attributed to the fact that MNCs possess the skills and expertise that domestic enterprises, stunted by either violence or poor economic policy, are starving for. The bottom line, Kusago (p. 509). With a broader base of skilled workers, the logic implies, foreign firms will have to invest less in training and can mobilize more technical industries to these locales. An influx of skills will also naturally support entrepreneurialism, which is extremely important to all economies (Bwalya, 2006; Kumar, 2007). As FDI arrives and skill sets are augmented by the host state signals are sent to international investors and a cascade effect can result, whereby spillovers from one sector or firm can be built upon induces more investments in human capital, which enhances the ca tch up potential of the

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30 capital, the recipient state will be more incentivized to broaden their own investments in human capital, further readying the population and domestic market for more growth. locales, investment in a post conflict market might very well mean a concomitant stimulation in domestic industries, which migh t supplant distant sourcing, productive or logistic activities for ). sectoral) and upstream (inter sectoral) linkages, in which foreign firms can utilize local inputs or services to complement one of many stages of product development (Bwalya, 2006 520). FDI as a promoter of domestic growth, Gohou and Soumare (2010 ) add, can also be seen as a contributor to regional integration, trust building, and bilateral engagement with regional markets. To back this up, Gohou and Soumare (2010 ) suggest that sm aller and less accessible markets, like those in Sub Saharan Africa, are beginning to band together regionally as a way of expanding market shares and attracting FDI. In the same capacity that FDI can build inter/intra sectoral relati onships, Gohou and Sou mare (2010 ) argue, the arrival of FDI can also spur low level exchanges among regional enterprises in a way that leads to both greater market access for foreign firms as well as creating a more robust peace dividend for the region. Compounding the posit ive relationship between foreign and domestic markets further, early post potential trading partners that the post 685). In addition to the correlative benefits of FDI being present in the host country on domestic

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31 as a domestic indicator of their ability to govern and secur e their own legitimate tenure (Appel & Loyle, 2012 a level of accountabilit y to policy (Kumar, 2007, 3). These effects of FDI all send positive signals to the pool of potential MNCs to invest, which in turn may urge a windfall of FDI and the arrival of more of the benefits already discussed. Kwok and Tadesse (2006) expand on the re lationship between MNC and host government by situating the effects into three channels: 1) Regulatory pressure effect wherein standard practices of the MNC can might rebuke corruption practices of the host government and encourage transparent investment policies. 2) Demonstration effect in line with indirect spillovers previously discussed, a foreign firm can demonstrate the effectiveness of investment in human capital and technology research, creating somewhat of a model for state governments. 3) Profe ssionalism effect the presence of an MNC can be very attractive to potential workers, especially younger generations. In order to make oneself more marketable to these firms, citizens will strive for applicable training and courses that are most relevant creating a more professional employee base (Kwok and Tadesse, 2006, 769 771). In relation to the promotion of peace, Bardy et al (2012), illustrate the spillover effect of FDI as follows: FDI=>Spillovers=> Increase in human capital threshold=>improved living standards (p. 186). This simple illustration reflects the tremendous potential impact that scholars see as a consequence of FDI in shaping post conflict development and peace. It has been demonstrated t hat FDI can have profound effects on the post conflict country, from elevating (or rebounding) human capital, to promoting a vibrant investment atmosphere, to conferring legitimacy on new

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32 post conflict governments. What is most important of these spillover s, in the post conflict context, are the implications that FDI, in its job creating and training capacities, can significantly reduce the risk of a return to violence by increasing human capital and offering an escape route from cycles of violence and pove rty (Call & Cousins, 2008). In this context, FDI can certainly contribute to the peace process by helping to stem poverty and offering alternatives to the industry of conflict. The benefits of FDI that have been covered will be illustrated below ( Table 1 ). Though, like all things even remotely political, there are those who praise the role of FDI and there are the detractors. The following section will look at some of the most glaring arguments of FDI with an eye toward suggesting policy in the post conflic t state that can reduce these negative impacts.

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33 FDI Spillovers Potential for Peacebuilding Source 1. Spur regional trade Opens channels of regional channels of communication and economic ties. Bilateral engagement Gohou & Soumare, 2010 2. Influx of capital Increased exports an d economic inputs into the host state can r Bardy et al., 2012; Bwalya, 2006; Kumar, 2007; Liu, 2008 3. FDI signals FDI Initial investments signal further investments, stimulating economy and creating more jobs Dicken, 2007; Appel & Loyle, 2012 4. Technology/knowledge transfer Increased human capital, expanding skilled labor force, expanding economic mobility for citizens Bwalya, 2006; Dicken, 2007; Liu, 2008 5. Domestic industry linkages Expansion of upstream/downstream productive engagement in domestic firms Kusago, 2005 6. Discipline local governments Capital flows from firms with a stake in returns can help policy aiding in policy transparency Kumar, 2007 7. Supports government legitimacy T he more inflows of capital f e more legitimate they appear to the population Appel & Loyle, 2012 8. Contingencies on investment for supporting infrastructure Can assist in focused reconstruction projects that can lead to further investments Bardy et al., 2012; Gohou & Soumare, 2010 9. Job creation Aside from intra sectoral job linkages with MNCs and the host state, FDI investments can create new jobs in post conflict states Bwalya, 2006; Kumar, 2007; Liu, 2008; 10. Human capital growth With new jobs and technologies being infused into the state, portions of the labor pool will gain exposure and training for new production processes Bwa lya, 2006; Gohou & Soumare, 2010 ; Kumar, 2007; Liu, 2008; UNDP, 2008 Table 1: Global FDI flows from 1999 to 2013 (USD billion) Potential Drawbacks of FDI: Strong Policy First, Benefits Second FDI has certainly been gaining more and more prominence in the development and correlation with the advancement of human capital and its indirect, but substantial, rel ationship

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34 with domestic firms has been demonstrated, there are issues of contingency that must be discussed. One major issue, as was highlighted in the literature, is that technology transfers, as beneficial as they may be, are very expensive and initially require vast mobilization of resources via the MNC (Goho u & Soumare, 2010 ; Liu, 2007; Robertson & Tietelbaum, 2011). While the expense of technology transfer is true in most situations of FDI, it is especially true in the post conflict context, as aspects of physical damage to the state challenge normal productive abilities (Berman, 2000; Dicken, 2007; Liu, 2007). These are challenges, Bardy et al (2012) suggests, With the onus on the state and supporting institutions to build policies that will be synergistic with FDI, allowing spillovers to be realized and widely dispersed, the literature urges post conflict policy to mold FDI and supporting framework s into the peacebuilding architecture (Bardy et al 2012; Gouhou & Soumare, 2011). While much has been said about the positive spillovers associated with FDI, it is important to note that, while many of these spillovers are praised for their long term benefits towa rd post conflict reconstruction, there are short term sacrifices that must be made. To this market shares at the expense of domestic firms and force the latter to p roduce smaller outputs at Liu (2007) argues, the long term effect is positive, perhaps from exposing domestic firms to rigorous competition and making them m ore efficient in the process, or by simply benefiting and eventually adapting from the spillovers of FDI. Essentially, domestic firms may suffer throughout the initial stages of FDI, but, as the literature suggests, those that do survive the diminishing ef fects of FDI will be more lean and competitive as a result, further contributing to

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35 the long road of economic development (Liu, 2007). Situated in the post conflict context, these findings offer little argument against FDI, as domestic markets, by most acc ounts, will be decimated by the effects of conflict and will thus have very little to lose. FDI is a both a product and a driver of globalization. As such, the effects of FDI on a host state can have global implications. Making this argument, Robertson an d Tietelbaum (2011) offer a unique study that correlates FDI with a global rise in labor unrest, leading to an increase in industrial strikes and protests. One possible explanation for this phenomenon, the authors ed with rapid inflows of FDI in low and middle income zones and thus create waves of rural and Tiete lbaum, 2011, 667). The result of this phenomenon, Robertson and Tietelbaum (2011) re of MNCs and their visible reputation, means both that workers of a MNC can view and share information about worker related issues and grievances across sectors and boundaries, and, that MNCs, due to their international exposure, are less willing to put down strikes (Robertson and Tietelbaum, 2011). While this study suggests a slight vulnerability in the global operations of a MNC, it also suggests that peace can be sacrificed if careful attention is not paid to the regional dispersion of benefits resulti ng from FDI. Thus, in order to stave off a regional imbalance of development, post conflict policy might benefit significantly from careful attention being paid to rural, as well as urban, development. Corruption is another vital element that can be both combatted and enabled by the behaviors of FDI. Kwok and Tadesse (2006) note that, as FDI is typically derived from more

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36 developed countries with more rigorous anti corruption practices, i.e. OECD regulations and US Foreign Corrupt Practices Act (1977), fir ms are more constrained in engaging with corrupt practices with host governments. On the other side of the coin, FDI that is sourced from actually target countr ies with pervasive corruption as they will see a potential trade o ff: greasing the wheels of host state corruption while escaping the regulatory prowess found in more transparent governments. Of course this behavior can contribute to and intensify corrupt practices in the host state. To this end, all FDI is not equal. A final distinction in the FDI literature worth mentioning is a study done by Kotrajaras et al. (2011) that looked at FDI throughout several East Asian countries. The authors found that while domestic policy does indeed influence the capacity of a state to benefit from the spillovers of FDI, levels of development also seem to matter. Focused squarely on economic growth in the region, the study found that high income and middle income countries which typically have higher education and financial development, benefitted most from FDI while low income had little to show for equal levels of FDI. This study reveals that FDI can be unequal in its distribution of benefits, depending on how high up th e development ladder a country i s. Another interesting caveat worth mentioning is how firms from highly developed cou country sourced FDI is viewed favorably because it can c onvey to host countries policies and practices developed to accommodate stringent home note, MNCs that engage in FDI from developed states often have more developed policies of nsibility (CSR), issues like environmental protection and fair labor

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37 developed countries to LDCs, though it does suggest a level of hierarchy in the levels of FDI founded in CSR and FDI from middle and low income countries which the authors note tend be geared more toward extractive industries (Zeng & Easton, 2007). While global FDI flows have traditionally been sourced in developed/global north economies recent trends have showed a spike in south south investment (Zeng & Easton, 2007). While this bodes well for economic engagement among the South, if FDI is sourced from states with relatively weak regulatory bodies and whom have weak environmental stewardship pol icies, however, the n chances are, the authors argue, that similar behavio rs will be demonstrated in host states (Zeng & Easton, 2007). These characteristics may have dire consequences in attempting to construct a positive peace in post conflict situations. An important factor in attracting FDI to LDCs and post conflict countries lies within the host eate incentives for MNCs who m could easily choose another locale. One such incentive that has become a popular way to attract MNCs into LDCs since the early 19 80 s is the creation of export processing zones (EPZs) (Hooshang & Weiping, 1995) EPZs are s pecia l zones designated by host state governments which provid e, among other country specific incentives tax breaks for MNCs, duty free or low tariff imports of raw materials for firms and access to low wage labor (Sargent & Matthews, 2009). Essentially, an EP Z is an enclave of manufacturing where favorable treatment is given to investing MNCs. While there are significant benefits for MNCs within these zones, the host state can expect to reap significant profits either from increasing exports ( at near duty fre and achieving other development goals (Sargent & Matthews, 2009, 1069). While there is much hope placed in the performance of EPZs by host governments, their success has been limited, especially in A sian developing countries (Hooshang & Weiping, 1995).

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38 the success of EPZs in developing Asian economies (Hooshang & Weiping, 1995, 843). While in Asia, such as Malaysia and India, one can only expect these problems to be magnified in post conflict, low income countries like Cambodia. potential positive spillovers of FDI within the zones. This is in part because the host state, especially in a post conflict context, typically lacks the ability to create upstream or downstream inputs that are of the quality required by firms located in EPZs which handicaps the benefits derived from linkages (Hooshang & Weiping, 1995). Thus, firms heavily rely on importing higher quality materials from their global networks (Hooshang & Weiping, 1995). Aside from not generating linkages with domestic firms, the over reliance on imported goods also cuts in to the stock of foreign cur rency, which would be significantl y more if products were sourced locally (Hooshang & Weiping, 1995). Finally, operations drawn to EPZs are typically low skilled and labor intensive and as such, there is little incentive for firms to invest in professional training for its workers (Hoosh ang & Weiping, 1995). This severely limits the impact of MNCs to spur human capital development. While the promotion of EPZs in developing economies may be beneficial in various ways, the purpose of highlighting their mixed successes here is because EPZs h ave become a popular approach in attracting FDI, though as Hooshang & Weiping (1995) have highlighted, the success stories come from countries with established markets and at least moderate levels of human capital. In cases of post conflict policy, impleme nting EPZs should not be seen as a singular tool

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39 to attract foreign investments, but should be an integral part of a broad economic policy that seeks to bolster domestic productive capabilities across several sectors and geographic regions (Hooshang & Weip ing, 1995). Furthermore, while in many cases host governments implement conditions on investing MNCs that would guarantee more lucrative returns, i.e. required levels of reinvested capital, partnerships with local industries and minimal threshold of hiring from the lo cal labor force, for example, the post conflict state is often devoid of adequate resources to bargain (Hooshang & Weiping, 1995) Thus, it seems more creative policy approaches are needed to reap the potential rewards from EPZs. While FDI can both seemin gly complement and complicate peacebuilding initiatives, it seems that to promote broad dispersion of economic benefits, while curbing deleterious elements, the effec ts of FDI boil down to the host spillovers of FD I in a coherent and regionally cohesive manner. The problem is, as the literature suggests, there is simply not enough concrete data to predict the effects of FDI on a post conflict state and thus policy directives are inconsistent at best (Liu, 2008; Robe rtson and Tietelbaum, 2011). In order to contribute to the void of literature on this issue, the remainder of this paper will explore the case of Cambodia and how the emergence of FDI following decades of conflict and isolation has shaped the Cambodia of t oday. The next section will outline the methodology and data that will be used to explore this relationship. Will the promised spillovers of FDI be apparent, or will Cambodia reveal a caveat to the discussion of FDI in post conflict development?

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40 CHAPTER II I SUMMARY OF THE LITERATURE, METHODOLOGY AND DATA Summary of the Literature The literature has highlighted that recidivism rates of a return to conflict are as high as 40 percent (USAID, 2009). The fact that nearly half of conflicts suspended in peace talks or through international intervention will devolve back into conflict is ominously high. The literature has also pointed out some of the enduring economic hardships that conflict can pose for states while also highlighting the fact that conflic t is predominantly hosted in the poorest regions of the world (Call & Cousins, 2008). In this light, conflict can have the capacity to transform countries and entire regions into self perpetuating cycles of violence (Bwalya, 2006; Call & Cousins, 2008; Ger sen, 2001; Yilmaz, 2009). When societies come to depend on industries of conflict and subsist squarely through the informal economy, the developmental capacity of a state diminishes (Bwalya, 2006). In this respect, conflict prone locales are isolated from the technologies, investments, and expertise that drive modern free market economies, undermining the economic changes necessary to In a development for peace approach to post conflict reconciliation, the literature exempl ifies the success of the Marshall Plan (Del Cast illo, 2008; Gohou & Soumare 2010 ). The success of this policy was in its ability to build on pr e existing features of the host state economy and in its ability to shape reconstruction policy around the unique interests and capabilities of the host state. While global institutions seem to be moving back toward this approach, many peacebuilding operations of late have relied on the expertise of Western organizations to reshape the conflict affected state to resemble Western political and economic characteristics (Surhke &

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41 Buckmaster, 2005; Venugopal, 2011). The mixed success of these operations have revived scholarly and institutional interest in endogenous growth models, where the onus of absorbing positi needs (GuechHeang & Moolio, 2013). To this end, conflict intervention and subsequent domestic policy must be carefully ers in order to reap spillovers from FDI. While there is abundant scholarly attention paid to the role of FDI in LDCs there is very little work that focuses on FDI in the post conflict period as both an agent of development as well having potential to a ssist or detract from peacebuilding initiatives. While there are numerous factors that would make a post conflict state especially prone to return to conflict, there are very few factors that scholars have identified as being pro peace and thus compelling a state away from conflict. As the breadth of these factors are too immense to be tackled here, the purpose of this research is to focus on one factor that seems to be gaining prominence in reconstruction agendas: the attraction and facilitation of FDI. It has been demonstrated that the post conflict state is extremely vulnerable to conflict relapses and such cases do not only hurt the prospects of development for that country, but can turn entire regions into conflict zones (UNDP, 2008; Venugopal, 2011). W hile there may be many unique drivers of conflict within a state which require careful attention throughout peacebuilding initiatives, one of the most broadly recognized peace dividends that can be realized in the post conflict setting is economic mobility (Collier et al., 2008; IDA, 2016; Philpot & Powers, 2010). The literature has detailed the many positive ways in which FDI can boost the development agenda of the host state. The literature has also expressed that there may be a

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42 minimal thres hold of devel opment in the host state that is required in order to reap these benefits (Kotrajaras et al., 2011). Thus, while the attainment and broadening of human capital might be one of the most promising spillovers of FDI, the post conflict state, with its depleted physical resources might not meet the threshold to garner these benefits. Rather, as the literature illustrates a spike in south south FDI, lower skilled and extractive industries m ight be filling the gaps of higher tech industries that are drawn to state s that possess the minimal threshold of development (Zeng & Easton, 20017). In this regard the literature warns, it is important to consider the characteristics of the state sourcing the investments (Zeng & Easton, 2007). Methodology With the World Bank it is clear that Cambodia has made tremendous progress in achieving postconflict economic growth ( World Bank 2014 para. 16 ). Cambodia has resisted a return to the kind of conflic t that destroyed the nation in the 70s, it has achieved membership status to prestigious regional organizations (more below) and has garnered some of the largest FDI flows in the region ( Nakamura, 2006). Yet the country continu es to be plagued by intense poverty, stark regional disparities in the context of development and holds the ominous title of the 8 th most corrupt country in world (Hill & Menon, 2014; Transparency.org, 2016). Furthermore, Cambodia has had little luck in di versifying its FDI allocation, as China, a country not known for its promotion of CSR, remains the largest Than, 1992). For all of these reasons Cambodia presents itself as an interesting subject when trying to unde rstand the long term effects of FDI into a post conflict country. might be to track the changing le vels of human capital over time, as that has been described as

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43 the m ost potent effect of FDI. Accessing accurate makeup, however, is quite difficult as any base line government records were largely destroyed through out the Khmer Rouge occupation and efforts to gather country wide data are still lacking (Than, 1992). Therefore, the content of this study will be more broad and exploratory. While a large n study might seem ideal for such a pervasive subject as FDI, the unique characteris tics of post conflict countries, having suffered vastly different levels of destruction and having vastly different reconstruction needs, will leave any findings insufficient in capturing accurate data. Thus, this study will utilize the case study approach. In focusing in depth on a singular event, the hope is to extract specific behaviors and consequences of FDI that can potentially be projected in states with similar levels post conflict reconstruction needs. By following FDI trends in Cambodia throughout the 1990s to present, and focusing more on regio nal di stribution of FDI flows as well as practices of firms sourcing FDI into Cambodia, I hope to present how FDI, especially investments sourced from non western countries, have shaped, if at all, current position as a popular FDI host state with hi gh levels of corruption and inequality (more below). Data As previously mentioned, the Khmer Rouge effectively wiped the historical slate clean and thus economic data preceding the 1975 civil conflict is sparse. Additionally, as much of c precedence is that of a relatively isolated, centrally planned economy, figures concerning the role of private, foreign enterprises are equally sparse. Therefore, this study will rely on figures that have been published following the United Nations inter vention in evolving economic situation.

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44 institutional overhaul and thus were also heavily invested in collecting data which would follow the large amount of monetary relief that was pouring into the country (USAID, 2009; IMF, 2006). IMF data was succinctly organized in a 2006 publication detailing the changed economic conditions since intervention as well as the economic trajectory f or Cambodia. Figures concerning investments from foreign firms as well as political and economic conditions, from that of economic isolation to that of its current status as an apparent destination for international investors, in Cambodia will be derived f rom this publication. In order to not be overly reliant on institutional data, this study will also draw, as much as possible, from domestic government publications that have been published through the Council for the Development of Cambodia (CDC). The CD C serves as the liaison for foreign investors and the state and is thus responsible for tracking and publishing all relevant sector specific data, labor characteristics and the legal framework involving FDI Though, as becomes immediately clear when pourin g through official records, many statistics in Cambodia are only partially represented or are altogether absent and as such this study will also draw on other scholarly work that has been done in the region, primarily from sources who have conducted in cou ntry research. Much of the historical and inter war descriptions of Cambodia will be garnered through academic work as well as publications from nongovernmental organizations (NGOs) who operated in Cambodia throughout the reconstruction period. The Swedish organization, SIDA (Bernander et al., 1994/95) was one of the first and longest serving aid oriented agencies in Cambodia and has consequently published several detailed reports concerning the changing realities of citizens in post conflict years ( Bernander Charny, Eastmond. Lindahl, & Ojendal,

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45 inter war and post conflict economy, which will be important in understanding both the level of destruction tha conflict starting point. Cambodia continues to make important advances in its economic position and identity within the dynamic Southeast Asian market and while this study seeks to explore some of the capture all of the phenomena surrounding these important changes. The primary goal of this study is to contribute to a better understanding of how FDI operat es and effects a delicate economy in the immediate post conflict years and findings will therefore be partial and incomplete. Firms are more mobile than ever before and as places from Afghanistan to Yemen serve as a testament to the continuing presence of conflict, the nexus between economic stimulation and conflict prevention is an area deserving greater emphasis in devel opmental and peace studies. The next chapter will proceed as follows: the first section will briefly outline the historical context of C ambodia from colonial to post conflict times. This historical overview will help the reader in understanding the traditional, indigenous drivers that have long shaped h the UNDP (2008) strongly urge po licymakers to build off of when implementing post conflict policies. Additionally, in presenting the history around the conflict years the reader can better understand the nature of conflict starting point. The next section will focus exclu post economy. The final section will present findings from recent FDI inflows as they relate to

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46 supporting a positive peace in the country. The st udy will then conclude with possible policy recommendations for future post conflict economic policies.

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47 CHAPTER IV CAMBODIAN CASE STUDY Colonial Indochina: Origins of Extraction Once part of the Southeast Asian colonial holdings of France, Cambodia has had an extensive history of foreign investment and resource extraction. The height of pre conflict foreign investment was the decade leading up to the Wall Street crash of 1929 (Fre eman, 2002). During this time the agricultural sector, rubber plantations in particular (along with coffee, tea, rice, sugar cane, teak, and other agricultural commodities) attracted the bulk of foreign billion considering inflation) of new capital issues recorded between 1924 and 1930, of which over 90% were funds raised by private from various private enterprises up until the 1930s (Freeman, 2002, 6). While capital foreign investment in Indochina was sourced from France (Freeman, 2002, 7). I mplementing strict protectionist trading policies, the exclusivity of French investment, while good for France, effectively divorced the Indochina region from commercial relationships with the rest of East Asia (Freeman, 2001, 7). A theme that, as will be presented, might be replicating itself in the current relationship dynamics with China. This limited investment pool made the Indochina region extremely susceptible to downturns in the French economy. Thus, as the 1930s global recession began to exact its toll on

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48 Indochina until the French colony was finally dissolved in 1949 (Than, 1992). This dependency on a limited pol of foreign investors will something to watch closely as we investigate Becoming an independent nation state in 1953, inward FDI continued to flow into the region throughou t the 1950s and 1960s stemming from three primary sources: China, France and Japan (Cuyvers et al 2011; Hill & Menon, 2014). Again, investment was primarily focused on ent 2011, 223). This robust period of foreign capital accumulation created an emerging middle/merchant class concentrated in the capital, sparking economic cleavages between rural/u rban citizens (Hill & Menon, 2014). This all came to a grinding halt in the early 1970s as Pol Pot and the Khmer Rouge embarked on a malevolent path of complete transformation. Cambodia would not see the likes of foreign firms within her borders for nearly 25 years. The Face of Post conflict Cambodia While the Khmer Rouge were effectively removed from power, they were not altogether removed from Cambodia ( Bernander et al 1994/95). Retreating to the fr Thai border the Khmer Rouge withd rew into the remaining enclaves of rural support they had, establishing geographical blocs of political tension and economic isolation from what little activity the rest of the country was involved (Than, 1992). Although blood had ceased to be spilled in t he killing fields in Phnom Penh, Cambodia was still a largely divided and broken country. The continued presence of combatants in the Cambodian forests would leave reconstruction efforts to be skewed away from these areas, leaving many unfortunate citizen s cut off from aid and services (Nernander et al., 1994/95).

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49 Formal economic activity in Cambodia had long been replaced by subsistence living in the informal economy. To this end, the post Khmer Rouge Cambodian populace was far enough removed from formal economic activity that nearly all vestiges of the economic mobility that existed in the 50s and 60s was gone. Now that NGOs and Western Aid organizations were arriving in droves to stifle the dire humanitarian crisis, Cambodia could officially begin its a rduous path toward reconstruction, renormalization and stability from ground zero. Specific figures concerning the number of citizens who perished or fled the country under the Khmer Rouge vary anywhere from 1 1.5 million people, which is equivalent to ro ughly 25 percent of the population (Hill & Menon, 2014). The following decade under Vietnamese rule saw only a prolonged retardation of economic progress peppered with intermittent outbreaks of idden problem came into Menon, 2014, 3). been destroyed during conflict, most of the educated citizenry and skilled merchants had been killed off or had fled the country, there was no functioning legal system or effective bureaucracy Riel) 3). To this the age of 15 (Curtis, 1993, 8). This is an ominously low possession of a skilled labor pool and, a s mentioned in the literature, the combination of t hese damages would make the task of attracting quality FDI (those higher skilled industries that have the capacity to create spillovers) difficult.

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50 Reconstruction efforts would be further obstructed by a tenuous security situation, owed both to the contin ued presence of ex combatants who had retreated to the countryside and to the pervasive presence of unexploded land mines littering the eastern countryside (Hill & Menon, are injured everyday 1800 per year of which leaves 1 out of 24 persons living in Cambodia without a limb and effectively leaves workable land too dangero previously mentioned, agricultural work had long been Cambo primary driver of economic and productive activity and the presence of land mines undermined a quick resumption of work for the nine out of ten citizens who reside in rural areas and subsist through agricultural work (Curtis, 1993). With very little capital to work with and having tremendous humanitarian relief demands, Cambodia would have to relinquish reconstruction efforts to the willing and financially able members of the international aid community. Thus, as much of the literature written on pos t conflict Cambodia attests, reconstruction would be on Western terms ( Curtis, 1993 ; Hendrickson, 2001 ; Than, 1996 ). This would be a jarring process for the Kingdom, and would prove to be a divisive process for a country traditionally oriented around the r oyal family and administered through customary law (Bernander et al., 1994/95). Post Conflict Capacity Building: 1989 1993 Article I in the 1991 Paris peace Accords dictate that the United Nations Transitional Authority in Cambodia (UNTAC) would lead the transitional period until free and fair elections have been organized and the results approved by the UN (usip.org, 2016). F ree and fair elections were held in 1993, though while giving the Khmer citizenry a formal modicum of government, they offered little in the way of a new direction for Cambodia. The UNTAC administered

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51 peacebuilding initiatives brought all concerned politic al factions into the fold in a structure of power sharing that would give all political rivals a seat at the table ( Bernander et al 1994/95). The process of political reconciliation was overseen by formerly exiled King Sihanouk through the Supreme Nation al Council (SNC), a transitional source of authority legitimized by UNTAC (Mehmet, 1997; Bernander et al 1994/95). Those incorporated into the new government were members of the royalist backed FUNCINPEC party, members of the former Khmer Rouge party, an d members of the former PRK (Vietnamese backed) government now the CPP (Mehmet, 1997; Bernander et al 1994/95). On paper, the structure of power sharing would offer the fledgling parliamentary system proportional representation for all concerned bodies. Though, considering the tense history among the parties and the disparate political views arising from communist o riented Khmer Rouge, the royal/traditionalist orientation of FUNCINPEC, and the liberal economic leanings of the CPP, it is of little surprise that, in this absence of political hegemony, a power struggle was born (Mehmet, 1997). In 1997 the CPP, headed by a 32 year old Hun Sen, led a coup against the coalition government. Victorious in this power struggle and suffering little international backlash, Hun Sen, leader of the CPP and member of the former PRK government, ostensible supporter of free market ideo logies and at the time the youngest heads of state in the world had solidified his role as head of Cambodian government (Mehmet, 1997; Than, 1992). Of course this did not send positive signals to global investors from the developed world. With a few adju stments to the young constitution concerning re election practices, Hun Sen has secured a fifth Prime Ministerial and has embodied the political status quo in Cambodia ever since reconstruction began in 1993 (Mehmet, 1997). Considering the lack of internat ional hold, it is clear that the international community

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52 prefers stability over political viability and the CPP government, while not popularly legitimized by the Cambodian people, seemed to have a firm grip on power and a complete reclamation on according to Polity IV, now scores a 2 on a scale of between fully autocratic and fully democrati Again, t his political situation would exude a great amount of uncertainty for potential foreign investors who see opaque political practices as high risk business environments (Nordal, 2001). Nevertheless, w ith the signing of the peace accords and the resulting cessation of overt Structural Facility, could begin its path toward reconstruction via the development of a market economy (Development Consulting International [DCI], 2003). Chief among structural adjustment initiatives was a complete restructuring of the formerly centralized financial sector, the rapid sell off of state owned enterprises (SOEs), establishin g tax and investment laws, enacting a land titling regime and to make progress toward improved accounting and auditing standards as well as a rapid downsizing of civil services (DCI, 2003, 9). For the struggling and impoverished citizens of Cambodia, the rapid dismantling of government administered services in the civil sector would compound their bleak situations further, as much of the free market benefits, as will be demonstrated, rar ely made it out of the capital, Phnom Penh. All of these policies wer more investment and business friendly (IMF, 2006). Though many of the resulting changes seemed to challenge prospects of peace, as the faade of democracy seemed to be legitimized by stranglehold on government was apparently seen as permissible, so long as market reforms

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53 persisted For the people, this arrangement, as one in country author attests, would create disillusionment and apathy for the ruling party, sentiments that contradict a positive peace and perhaps have aided in extensive culture of corruption and continued civil unrest (Curtis, 1993). Development Hurdles and Aid Dependency: 1993 2003 onference served as an international fundraising assembly, where about USD 600 million was set as the immediate monetary goal to coordinating mechanism, named the Intern ational Committee for the Reconstruction of moving forward (Bernander et al., 1994/95). Since Vietnamese withdrawal in 1989, the capital city of Phnom Penh had been swa rming with Blue Helmet peacekeepers and representatives of numerous NGO all pouring in to apply their various mission statements to the weathered citizens. SIDA (1994/95), a Swedish humanitarian organization that had singularly maintained a presence in Cam bodia since 1979, followed arriving funds and changing conditions in Cambodia very closely. They note that total Bernander et al., 1994/95 28). Needless to say, the bulk of relief funding Bernander et al., 1994/95 76).

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54 Domestic civil society was emerging by the early 1990s, but planning, channeling of funds and more grand macroeconomic goals were being strictly administered by the numerous international representatives crowding the sce ne (Bernander et al., 1994/95; Than, 1992). Aside from being removed from the planning of reconstruction projects, there was a much more ostensible disparity in compensation between local and international civil servants. Foreign NGOs with tremendous budge ts and stipends through institutional giants like the IMF and World Bank, were able to absorb significant portions of humanitarian relief funding just to maintain daily operations in the country (Bernander et al., 1994/95; Than, 1992). Domestic civil serva nts could expect little more than an average compensation of less than US 20 per month, a meager pay well below the subsistence threshold (Bernander et al., 1994/95, 76). This top down ed from Marshall Plan era policies, as well as the more recent 1999 Global Compact, in that the host state was largely removed from implementing its own strategies of peacebuilding and reconstruction (Oliver, 2014) With many of the local actors crowded ou t by international experts and organizations, and with funds being clearly squandered by immense operating budgets of these organizations, the seeds of corruption were being sewn. In this practice local civil servants (teachers, nurses, doctors, etc) were forced to supplement their incomes through engagement in the private sector, or simply by charging for services that were meant to be free (Bernander et al., 1994/95). Teachers began to charge students a fee to attend school, doctors were selling drugs ou t of state hospitals and ministry officials often straddled the public/private line using their official positions as financial gatekeepers for private firms (Bernander et al., 1994/95). The effects of this are clear: many children stopped going to school and many of the sick stayed sick, or worse. Of course there

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55 (Bernand er et al., 1994/95 76). Clearly these qualities do not support a rebounding level of human capital that would aid in a more attractive investment destination, which as mentioned in the literature, could be one of the quickest avenues of economic recovery (Griffin & Whyte, 2014). In combination of low civil servant wages and a weak judicial system, corruption has also been bolstered in Cambodia by a complicated system of import procedures and the multipl e bureaucratic points of contact involved in starting a business. To this end, The Australian Export Belgian export credit agency Delcredere Duroire, term political risk on a seven 184). As discussed in the literature review, these traits significantly increase the As the role of domestic and international civil servants can be described as la rgely were realized by citizens. One such example, as documented by SIDA (1995/94), is the case ing refugees, making them appear conducive to

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56 with a bulk of internally displaced peoples (IDPs), were categorically resettled into more wealthy western provinces, the bulk of aid was poured into these areas, leaving the eastern and central provinces largely neglected in the immediate post conflict period ( Bernander et al. 1994/95). Additiona lly, as much of the country was still organized along politically affiliated blocs, with the Khmer Rouge and their leader Pol Pot having retreated into the jungles along the north western Thai Cambodian border, along with other factional supporters spread throughout country, the flow of (predominantly Western) aid seemed to flow to where interests were aligned aid or any economic stimulation. The regionally unequa l application of aid seemed to run counter to concepts of building a positive peace, as those neglected regions and groups began to flock to areas where opportunity was present, only complicating reconstruction efforts for citizens in those areas (Hill & M enon, 2011). Foreign aid, in the decade spanning 1993 largely provided by donors, while the rest were concessional loans mainly from the WB and the Asia Development Bank (Nakamura, 2006, 51). Thus, the predication of continued aid has seemingly been more pronounced in the maintenance of stability than in tangible economic performance. This behavior is born largely from the had a chance to mature. With 15 percent of budget expenditure being derived from the Soviet Union until the late 80s, the government has always had a safety net to stave off disaster in the face of large fiscal and current account deficits (Hill & Menon, 2014). If necessity is the mother of invention, then fiscal safety nets are the fathers of economic stagnation. With significant

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57 investments not being made by the government into things like education, health and regional networks, there would be few assets to use in promoting Cambodia as a viable investment climate. re born from the very fact that the post conflict government was young and widely contested by a populace who saw Hun Sen and his governing body as illegitimate vestiges of the past (Hill & Menon, 2011; Than, 1996). While domestic political contention can be expected in any power sharing scenario, the largest stability, judicial reform and concrete economic policies were altogether absent (Nakamura, 2006). These are all substantial obstacles for attracting foreign firms as well as creating the type of environment where spillovers from FDI can be realized (Berman, 2000). Though, as we shall t ambition. Conflict Challenges practices faced immense obstacles. Below is a recap of some of the most pervasive problems conomic reconstruction that will further serve to highlight the unique investment climate that Cambodia offered. Rural disadvantage: One such obstacle was the balancing act between providing much needed humanitarian relief to the embattled rural poor and establishing commercial inroads in the much more business friendly urban centers (Cuyvers et al, 2011). A 2002 survey conducted by the Cambodian Investment Board Council for the Development of lation lives in rural

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58 communities and 75% of the poor are farmer 2002, 2). Demographic figures are hard to establish in the immediate post conflict years, but considering the urban swelling that has taken place after the Paris Peace Accords, it is safe to assume that rural populations were even more concentrated in th e early 1990s (UNDP, 2008). This concentration of productive efforts will be important to bear in mind as we move toward surveying the impact of FDI in Cambodia. Poor infrastructure: almost 30 annual rainy season (Hill & Menon, 2014, 14). This leaves segments of rural populations litera lly disconnected from much of the country on a seasonal basis. Furthermore, investments that might be fruitful in resource extraction or agriculture, for example, in rural areas are hampered by pronounced logistical hurdles. Low human capital threshold: The concentration of the labor force in the agro industry also conveys a fairly low level of human capital, as much of the domestic farming practices called for brute labor over technological know how (Mehmet, 2011). While a clear majority of Cambodians re side in rural communities, these are still the communities predominantly uneducated lab or force (Dept. of State, 2014). While this social makeup

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59 might bode well for efficiency seeking firms, the literature warns that spillovers will be limited, as the absorptive capacity is too low (Kubny & Voss, 2010) the so called bribe tax is roughly 5% of total sales in the manufacturing sector, the 58). business interests in Cambodia US firms would have to engage in activities that violate Weak/Inconsistent rule of law: (WTO) in 2003 has put pressure on the government to reform the judiciary, a critical step in implementing trade policy and a transparent legal framework (Nakamura, 2006). The judiciary thus far has proved to be inconsistent in its implementation and execution of law, creating an unpredictable business atmosphere in Cambodia (Thoraxy, 2002). Furthermore, legal code surrounding private property law is highly undeveloped owing largely to the fa ct that returning refugees are laying claims to land that has been occupied in their absence (Nakamura, 2006). High cost of production: (Nakamura, 2006, 58). This high energy cost would translate to the corporate world as high production costs, perhaps limiting many manufacturing firms from investing. Weak consumer market: While there has certainly been an u ptick in Khmer nationals garnering wealth over the post conflict years, this circle is still rather small and significantly outweighed by the majority of citizens who cannot afford high value goods

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60 and services. Thus, there is very little potential for att racting any significant levels of FDI which aim to serve the local market (Nakamura, 2006). Pervasive poverty and urban flight: DCI, 2003, 11). This concentration of rural poor has spurred urban migration for those attracted to the more robust economic activity in urban areas. Security: Landmines continue to be a pervasive problem for rural citizens and potentially productive lan d that has not yet been cleared by NGOs is still too dangerous to work (Than, 1996). This has a had a very negative impact on the resumption of work for the many rural citizens who subsist through agricultural work. Reliance on the informal economy informal sector is prevalent in Cambodia comprising over 80% of GDP and 95% of employment. The informal sector is made up mostly of unregistered farmers and agricultural enterprises. The informal industrial sector is composed of over 27,000 small enterpri ses, which are not registered with the Ministry of Commerce (MoC, 2016). The informal industrial sector accounts for almost half of implications of the magnitude of infor mal economic activity in Cambodia suggest a widely ignored tax base and a complete disconnect between government policy and local business practices. The informal characteristics of this sector also limits the capacity to create linkages with foreign inves ting firms, as the illegality of informal firms would only compound risks for foreign firms (Kubny & Voss, 2010).

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61 As highlighted above, Cambodia has faced some tremendous obstacles in building an investment atmos phere that is conducive to reaping the benefits of positive spillovers from FDI. Before delving into the case study, it is worth highlighting a few domestic and international conflict growth. Ca on Investment (1994) was a policy that o fficially opened all sectors to FDI and permitted 100 percent foreign ownership (Dept. of State (DoS) 2014). This policy aimed at attracting firms away from countries that had more stringent conditions attached to FDI, like the requirement for (Karabay, 2010, 220 ) The next most important policy was the US extending most favored nation (MFN) status to Cambodia (199 6), which significantly lowered tariffs exported to the US (DoS, 2014). The following year this privilege was expanded with Cambodia being designated as a beneficiary under the generalized system of preferences (GSP) which lowered tariffs for exports to a nd expand engagement with developed countries, namely: US, EU and Japan (Dos, 2014). This move was directly aimed at spurring FDI into the country, as any firm investing in Cambodia could reap the lower exporting costs. This is what spurred the explosion of the garment industry (discussed below) (Venugopal, 2011). In 1999, Cambodia became a member of the regional association of Southeast Asian Nations (ASEAN) and garnered the benefits of the ASEAN free trade area (AFTA), which allows Cambodia to export t o member states at a set tariff between 0 and 5%, a rate that will be altogether abolished by 2018 (UNCTAD, 2003). This arrangement both helps to broaden regional trade and engagement as well as attracting countries from outside the region who wish

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62 to serv e some of the larger markets within ASEAN, like Malaysia, Thailand or Singapore, for example. Membership status within ASEAN will prove to be very important for investing states who seek to project more influence in the region, as will be discussed below. Finally in 2004, Cambodia became the first LDC to receive membership into the World Trade Organization (WTO) through full accession (WTO.org, 2016). As membership is based on economic and political performance, WTO membership has spurred an overhaul of dom estic trade policy, aimed at enhancing the rule of law, business predictability and transparent policy (Dept. of State, 2014; WTO.org, 2016). climate, though, when looking at the lack of m acro level changes on the ground, much of the professed achievements may have simply been lip service. At this point, it is hoped that there is a basic understanding of the overall investment climate in Cambodia. It is a resource rich state that is plagu ed with regional disparities and, owing to the lack of judicial development and executive oversight, it is high on the list as one of the most corrupt countries in the world. Yet, with a ll of these traits considered, the World Bank ( World Bank, 2014, para. 16 ) While there is no arguing the rate of growth Cambodia has experienced throughout the past 25 years, to question whether this growth has contributed or detra cted from the achievement of a positive peace is worth exploring. The following section will examine the patterns and model for successful post conflict develop ment, or a model of caution for the development community.

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63 FDI in Post Conflict Cambodia: long economic isolation was rapidly replaced with a free market economic regime that was ready to open the door to the global economy. With most of the aid being absorbed by immediate humanitarian relief, there were several attempts to create incentives that were aimed at attracting FDI, namely by Western powers designating Cambodia as a preferential export locale through such policies as MFN and GSP. With later memberships including en trance into the regional ASEAN organization as well as membership into WTO, Cambodia seemed to be cultivating an air of legitimacy as a viable locale for foreign investments. Although the US has taken an active role in implementing bilateral trade relation s with Cambodia, W estern investment has remained quite low (Venugopal, 2011). In fact, throughout the 1994 20 13 period, FDI originating from China accounted for the bulk of FDI ( Table 2 ) with Korea following up as the second largest investor As the liter ature has pointed out that not all FDI source states are equal, this Asian centric investment pool might be delivering a more diverse set of spillovers, as the next section will explore.

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64 Table 2: Top Ten Foreign Direct Investors in Cambodia (Cumulative 1994 2013) ASEAN Expo, (2014) The allocation of FDI in Cambodia has largely been concentrated in three main sectors: export oriented manufacturing (namely garments), tourism, and the primary sector (those processes making use of natural resources) (Cuyvers et al, 2011). As we can see from the table above, China has initiated the bulk of these investments, though they have typically been aimed at the garment sector through Chinese private companies and the p rimary sector, namely hydro electric dam s, through state owned enterprises (SOEs). This almost singular pool of FDI has put Cambodia in a precarious situation, as will be explored below. Chinese FDI: A Recipe for Dependency ? China is no doubt a latecomer to the globalization game and with increasing investments in Sub s behavior is that the country has no apparent qualms with investing in places deemed as pariah states by most of the international community, places like: Sudan, the Democratic Republic of Congo and (throughout its tenure as a rogue state) Myanmar ( f these states possess several qualities that would deter investments by MNCs who seek low risk

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65 engagements, China seems to be attracted to these locales One reason for this might be the amount of leverage China possesses. In addition to the windfall of Western aid Cambodia received in the immediate post conflict years, China also gave a substantial amount of loans and grants by 2012 (Pheakdey, 2013 3 ). With the Chinese crowding out other lenders by 2009, it has become the nation higher interest rate than Western organizations ( Though unlike aid received from Western institutions and countries, Chinese aid was given with no ostensible political or Prime Chinese aid comes with no condition such as telling us to do this or that before they provide [the Considering the nature of pervasive corruption in Cambodia, along with the fact that Hun sharing arrangement, these string less loans, rather than pressuring the host government t o move toward more open and transparent practices has seemingly solidified the status quo. Though. As will be highlighted below, there are strings strings pressure would Considering its reduced risk in Cambodia, China has been the largest investor in Cambodia driver of exports, and has jump

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66 dilapidated energy sector through some of the largest hydropower investments in the world olent approach to spur regional development, China has perhaps gained the most history (Pheakdey, 2013, 3). Aside from securing an ally in a tense Southeast Asian environment, according to the Cambodian Center for Human Rights, 50 percent of all land concessions totaling 4.6 million hectares were relinquished to resource seeking companies from China ( Pheakdey, 2013, 3). This land acquisition, granted by a country in which a vast majority of its rural citizens continue to organize land ownership through common law practices, have been the cause of much social un rest in project areas (more below). through state owned enterprises (SOEs) and typical investments made from private sector entities of which in the case of Cambodia, has be en primarily directed at the garment sector (more below) While FDI originating from the private sector can vary in its investment targets throughout different countries, FDI from SOEs are typically extractive, resource seeking investments. As such, given as they have done in several African states as well as in other regional LDCs like Myanmar and Laos, in the hydro electric industry.

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67 Hydroelectric Industry: Water, Power & Conflict On the surface, investments in projects like constructing hydro electric dam s in a country 20 percent of households have access to electricity development, in reality few have benefitted and many more have been negatively affected (Urban et al. 2015). ic constructors of overseas dam s, has been at the forefront of projects in Cambodia (Urban et al., 2015 ). Its most recent project in Cambodia has been construction of the Kamchay Dam, which, according to environmental NGO, International Rivers, has been the source of numerous human rights abuses, massive dislocations and irreversible environmental consequen ces (Urban et al., 2015). Additionally, given the high costs and demand for highly skilled workers to implement this (and other similar) projects, China typically brings its own workforce with them, leaving Cambodia little in the way of absorbing any subst antive spillovers (Kubny & Voss, 2010). The site of the Kamchay Dam is located on the southern coast in Bokor National Park, an area that was supposed to be protected following years of illicit logging that took place following years of isolation (a topic too large to tackle in this study) and is also an area used for various income generating activities by over 22,000 place great e mphasis on environmental protection, encouraging environmental and social impact surveys to be taken prior to such projects, in Cambodia, as on local environmental NGO attests

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68 ator. They call him Saddam Thus, the Kamchay Dam project went ahead with little if any formal procedures of impact as sessment and according to Urban et al. (2014), who were on site of the construction and held extensive interviews with livelihood depen ded (Urban et al., 2014). As a result of t he changing landscape, the once thriving pepper trees and aquatic life has diminished, with an 80 percent reduct ion in 2013 (Urban et al., 2014, 583). The result has been the massive migration of rural citizens, most of which have low literacy rates, to urban areas where the inability to find sufficient work has led to reliance on microcredit loans of which many c annot repay and thus the downward cycle of financial hardships for the affected community (Urban et al., 2014). While there were some repayment efforts on behalf of Sinohydro, these fell significantly short as, instead of being compensated fo r the land tha t was lost to dam lost (Urban et al., 2014, 584). While this approach can ease the bloodl etting temporarily, it cannot account for the subsequent years of harvests which the families depended on for subsistence as well as for their livelihoods. These sad realities have led to several protests from rural villagers and occasional episodes of vio lence being directed at Sinohydro security, though

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69 these were quickly quelled by Cambodian security forces who were at the ready to p rotect the dam (Urban et al., 2014 ). While such substantial loss of livelihoods and dislocations might seem like a justif ied cost at the prospect of attaining a modern and reliable energy source, the fact is that similar projects have had vastly different results. Urban et al., (2014) also conducted a similar process of interviews and followed the construction of a Sinohydro project in Ghana. In the case of Ghana, before allowing the construction and resettlement process to proceed, parliament created a new authority, Bui Power Authority (BPA) (named after the Bui Dam project site) to directly deal resettlement plan (Urban et al., 2014, 584). This policy not only included the local government as a support mecha nism for those adversely affected by the construction, but also held Sinohydro to strict standards of health and safety as well as mandated engagement with the affected community by hosting local consultation meetings (Urban et al., 2014). The Kamchay Da m example is just one of many such projects that have taken place in largely to the lack of support of local governance. I argue that the relationship between China and the Cambodian government, namely Hun Sen and his capacity of making decisions with zero executive oversight, has created a laissez faire investment climate in Cambodia where, in order for projects and aid to continue to pour in from China, Hun Sen is best to utilize the rubber stamp approach to approving such projects. As we see in Ghana, bureaucracy does have the capacity to curb the deleterious effects of hydroelectric construction, though of course the results were an elevated cost for Sinopower in orde r to fulfill BPA mandates. It all seems to come down to the

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70 prerogative of the host country and the audacity to challenge such substantial investments to adhere to practices of corporate social responsibility (CSR). What is most surprising about Chinese SOE investments in Cambodia is the nature of their ownership and the fact that Cambodia actually benefits very little from these large and socially divisive projects. Risks that Chinese investments might face in Cambodia, owing to its lack of a transparen t and fully independent judiciary and bureaucracy, have been legally curbed by legislation that guarantees payments for such large scale investments 44 year life of its build operate agreement phenomenon that would hinder profits to be fall on the responsibility of the Cambodian m by the Chinese firm, the dam will be operated by the Chinese firm for several decades, until a profit margin has been met, and only then will be transferred to the host government, all the while the Cambodian government insures any potential losses owed the rapid response by Cambodian security forces when villagers began protesting at the Kamchay project as mentioned above. BOT measures were typically initiated through public private partnerships (PPP) to safeguard, incentivize and help finance private firms to engage in large scale investment projects private firm and this relationship seems to benefit Chinese SO Es the most, as they are able to finance, operate throughout the early highest profit yielding stages of the dam and all the while passing risk to the host state with significant leverage afforded by the Chinese government mbodian were to soon get its political, legal and economic

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71 cards in order, the state will still be tied to these agreements. While this arrangement clearly highlights Chinese investment foresight, it also highlights why such investments would be drawn to r elatively weak states, where through leverage in the form of financing aid and needed projects, China can secure a beneficial and safe investment where other forms would dare not invest. Also highlighted in the case of the Kamchay dam project, these pract ices can have significant and negative consequences for achieving a durable positive peace. Next, to get a closer look at how Chinese private firms have impacted Cambodia, the following section will The Garment Sector: Made in Cambodia (Under Chinese Supervision) The section above illustrates resource seeking behavior of very large SOEs from China. resulting in a broadening middle class and a demand for higher wages from an expanding skilled labor pool, it is of little surprise that private firms in China have been engaging more and more in efficiency seeking FDI as a way to lower production costs and increase prof its. In pursuit of this, many firms and sector. As mentioned above, bilateral policy incentives from the US aimed at making Cambodia more competitive in exported goods comb ined with a low skilled labor force in Cambodia have created the perfect recipe for efficiency seeking firms to lower production costs and reap the benefits of low export tariffs. For the Chinese, given their historical status as fixtures in chant class have given them the leg up in dominating the domestic manufacturing industry.

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72 Looking back t o the literature, this type of massive job creation should be at the top of any post the way of positive spillovers, beyond job creation, as there is seemingly very little in the way of upward mobility for locals. Kubny & Voss (2010) conducted a study in Cambodia which surveyed Chinese owned firms in the garment industry and found that while a typical firm will Of the large number of those employed by these firms, threshold than male counterparts (Kubny & Voss, 2010, 4). Supervisor positions were exclusively occupied by Chinese employees which, attri buted to language and cultural barriers Additionally, of the companies surveyed by Kubny & Voss (2010), the figure of labor turnover was an average of 50 percent a year (p. 10). Give n the nature of garment manufacturing being a low skilled and labor intensive process with such high labor turnover rates, it is only rational for firms to minize training expenditures, which is exactly what many of these firms expressed in regards to relegating higher level positions to fellow Chinese (Kubny & Voss, 2010). Beyond the occasional strikes by employees in these sectors, the authors found little correlation with negative effects attributed to C hinese FDI in this sector, though they also found zero positive effects, which would challenge the literature given the substantial breadth of FDI being dedicated to this sector (Kubny & Voss, 2010). The lack of spillovers is predominantly owed to low thre shold of human capital in Cambodia, as well as the limited pool of competitive

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73 domestic industries that might be able to supplant sourcing of goods required in the garment sector in upstream/downstream linkage e input ( Kubny & Voss, 2010, 11; Surhke & Buckmaster, 2005; UNDP, 2012 ). This lack of domestic innovation highlights both the devastating and far reaching impacts that conflict can have on a socie ty, as well as the lack of host government ambition in rebounding domestic human capital through education and training investments. Again, it seems that ample funds and steady investments from the Chinese have solidified the status quo, rather than urging any domestic renaissance. Cambodia has taken some lengths to diversify investments with the creation of EPZs and have given firms within these zones special tax holidays of up to 9 years and tariff incentives in order t o spur production ( CDC, 2016 ) While these zones ban investments in the retail and export sector, they have been slow to attract substantial investments of industries that would support local manufacturing and thus have contributed little to potential absorptive capacity (Kubny & Voss, 2010; CDC, 2016) Furthermore, these zones are concentrated around the capital, which offers little in the way of regional distribution of benefits (CDC, 2016). Investment risks in Cambodia have been widely identified w ith the primary factor being pervasive corruption. As the hydro electric example illustrated that SOEs have carefully buffered risk by insisting on domestic legislature to guard their investments against any radical domestic shocks, the private sector inve sting out of China does not share the luxury of wielding state power behind its investments. Thus, Chinese firms in the manufacturing industry have had to find more creative ways to buffer risks, which primarily manifested in various levels of bribes being To accomplish this, firms have

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74 wide collective action through the Garment Manufacturers of Cambodia 38 member factories, Taiwan and Hong Kong as a single source ) they have been able to curb the culture of corruption through shirt prices from $2 per dozen to $1.10 is due entirely to more efficient bureaucratic regulations, in other words, fewer palms to 194). The success of this group, relative to other industries in Cambodia that face similar costs, can perhaps be attributed to their ability to threaten to exit. With highly mobile assets, sewing machines and similar equipment, and the ease in which they could relocate to another locale and diminish Cambodian government earnings, it seems that collective action in In this regard, FDI in this sector, while offering little in the way of direct spillovers t o its employees, has been able to influence local government to conform to prevailing business norms by reducing costs associated with corruption though this reduction in costs might only be relegated to this specific set of actors In many ways the conce ntration of foreign managers and apparent glass ceiling for the numerous low level local employees is not conducive to a positive peace, as some of survey respondents indicated that there were occasional outbreaks of labor strikes (Kubny & Voss, 2010). A side from large investments in the primary sector via Chinese SOEs and the abundance of Chinese firms driven to the Sino centric garment industry in Cambodia, a final and equally re is very little

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75 and final section will focus on this sector and wil l lead to a conclusion and possible policy recommendations. Tourism: A Holiday in Cambodia Cambodia has a rich cultural heritage and around 1200 years ago it was the seat of the great Khmer empire tellite 2008, 526). Vestiges of this once powerful empire are still visible in the World Heritage Site of Angkor Wat, a 400 square kilometer sprawling comple overgrown among the jungle near the northern city of Siem Reap (Winter, 2008,. 527). This site had previously made Cam Southeast Asia, with annual tourist arrivals of 50,000 to 70,000 (Chheang, 2011, 13). All traces of this once thriving industry were decimated by the following decades of conflict (Chhean g, 2011). From early on in the post conflict stages, and long serving as a source of national identity and pride, this site was seen as extremely important to the socio political and economic reconciliation in post conflict Cambodia. Thus, in 1992, right as recovery efforts were underway, Angkor was added to the list of World Heritage Sites (Winter, 2006). Beyond the ancient glory of the Khmer civilization, the Angkor complex also has important significance for the early presence of Buddhism in Southeast Asia, a reli gion that has a strong presence within Cambodia and the entire region (Winter, 2006). In addition to the Angkor site, Cambodia boasts six national parks, coastal retreats including a marine reserve, and abundant eco tourism centered around lush

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76 rainforests and the Mekong River (Chheang, 2011). Needless to say, there is ample opportunity for tourism based development. over 830,000 international tourists visited the si te, an increase of 10,000% in just over a decade to institute the first three year structural adjustment program (see above), focused on promoting traditional economic drivers, the tourism industry, largely overlooked by early planning, was inter, 2006, now estimated to be equivalent to about 15 percent GDP, a share that is almost double that of neighboring Thailand, a long famed tourist destinatio n (Hill & Menon, 2014, 9). Though, as will prove to be a common theme in Cambodia, the economic benefits of this boom in the tourist industry are highly uneven, both geographically and socially (Winter, 2006). Servicing this boom in tourism through FDI, C hina, Korea and Vietnam have become the Those citizens with language skills and service industry skills have found a highly lucrative market in the tourist industry (Winter, 2 monthly income for head chefs, tour guides and hotel management staff often exceeds 1,000 US can expect to make teachers, manual laborers, nurses or market traders [which] remains in the region of 30 to 40 US ors

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77 illuminates a less obvious paradox in Khmer society, which is while work within this sector requires minimal skills, the tourism industry is proving to have a strong pull for Khmer youth, who see the quick cash attained in this field as more alluring than continuing a formal education (Hill & Menon, 2014; Winter, 2006). In fact, much of the youth may see the rapid expansion of annum in real terms between 2009 and 2018, and the tourism related employment is estimated at 1,102,000 jobs in 2008, 15.4% of total employment, or 1 in every 6.5 jobs. By 2018, this could total 1,121,00 jobs, 12.7% of total employment, or 1 in every 7.9 jobs (Chheang, 2011, 14). Compounding the income disparity further is the fact that tourism is heavily concentrated in only a small percentage of the country. While there is certainly no shortage of eco tourism potential throughout the country, poor investments in rural road works and infrastructure have made small distances between provinces incredibly long to traverse a problem that is further complicated in the monsoon season (ADB, 2014). This allurement of the tourism industry in certain locales has caused a steady migratory flow from rural to urban centers of those that want a slice of the pie (Winter, 2006). This flow could perhaps be stemmed with a more balanced reg ional investment in infrastructure, which, as the literature suggests, would also increase the attractiveness of heavier FDI in rural areas that are currently ignored due to the high cost of production owed to logistical hurdles (ADB, 2014). While not dir ectly expressed in the literature, my own experience in Cambodia has revealed a common practice of impoverished parents keeping their children away from school to the constant barrage of very young children asking for money so that they can go to school. This

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78 seems to be less a symptom of booming tourism than an effect of poor domestic policy and civil investments, yet where the tourists are, young beggars will b e there too. Making this troubled situation worse is the fact that Cambodia is largely recognized as a sex tourism hub in South East Asia (Cotter, 2009). Sexual exploitation is rampant and young children are easy prey for organized crime syndicates in Phno m Penh and other major cities the radar feel (Cotter, 2009). To this end, one third of all sex workers in Cambodia are children and as with migratory pull of the tourist industry in general, the sex tr to say that Cambodian officials allow such acts to take place, but combined with inadequate the problem, scholars suggest, is through international pressure (ADB, 2014; Cotter, 2009, 512). string less policy of aid and investments. While Tourism has proved to be a mode of rapid development and job expansion, the industry itself is inherently susceptible to external factors, like foreign demand and natural disasters and thus is not really a sustainable path of development in and of itself (ADB, 2014; H ill & Menon, 2014). Additionally, Cambodia benefits from tourism more from its proximity to more popular destinations: Thailand, Singapore or Vietnam for example, and thus the flow of tourism is highly predicated on the performance, stability and overall a ppeal of these neighbor ing countries (Hill & Menon, 2013). As for the immediate future, tourism is not projected to slow, so perhaps the most important developmental step that be taken is to more widely disperse the economic benefits born out of tourism.

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79 Current trends in FDI in the tourism industry have left large gaps between those who reap brought into the fold, as the tourism industry in itself has been shown to have several negative social consequences, but the benefits of one of the top performing sectors in the country could expect to share more of the benefits derived through tourism via rural/infrastructure development policy. One of the largest missing drive rs, according to one study, is the limited investment provided by Cambodian ministries to promote and facilitate tourism throughout the rest of the country (Chheang, 2011). Not everyone goes to Cambodia for the temples, Chheang (2011) suggests, as one of t which there is ample opportunity to promote throughout the country (p. 14). Additionally, there is much to be lost if a youth culture becomes singularly drawn to tourism centric jobs, which are often low to moderately skilled positions. While the short term gain through higher wages is promising, the lack in skills that would be otherwise gained through more education or exposure to higher skill positions is something to consider. Conclusion From the perspective of a multinational corporation, Cambodia is a country wrought with risks and as such is less than appealing for the majority of global firms who invest across borders. Chinese SOEs that engage in large scale operations, l ike constructing hydroelectric dams and mobilize significant resources to the host state have hedged risks by exerting financial garment sector have reduced corruption costs through collective action combined with their While Chinese firms certainly infuse the state with revenues, there seems to be relatively few

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80 positive spill overs in regard to the garment sector and significant negative consequences standards of practices on Sinohydro, both social and environmental impacts can be curbed b y more active engagement from the host state government The Cambodian government, however, has taken a much more hands off approach to Chinese investments. To say that Cambodia has a reliance on Chinese investments would be fare, though the absence of t from China, might Cambodia begin to make inroads i n creating a more attrac tive and diverse investment climate for firms that might be able to deliver more positive spillovers than Chinese firms have been able to provide? While there is ample literature that points to the many potential benefits that can be realized through FDI, the cases above highlight that without parallel investments in local capacity building, there will little chance in absorbing these spillovers. Cambodia certainly possesses an abundance of marketable resources, but until domestic skill levels can be i ncreased and an entrepreneurial capacity revived, it seems that investments will continue to be resource and efficiency seeking in behavior, leaving locals with little potential to benefit at all. Furthermore, as long as the Cambodian government is amptly This seems to be especially true in the case of tourism. With few avenues for upward mobility, there is large pull for youth to abandon prospects of higher education and training to reap the higher wages afforded by the booming, though relatively low ski lled industry of tourism. While handsome revenues can be earned, the vulnerability of this industry to external shocks makes it an industry that state should be over reliant on. To broaden prospects for youth

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81 and curb the inequalities between the tourism s ector and jobs within the civil sector, for example, again requires more domestic investments in education, job training and encouraging entrepreneurial endeavors. While peace is always tenuous in a post conflict society, prolonged exposure to this type of extractive behavior of fo reign firms, combined with a domestic government that is not responsive to the needs of a post conflict society will clearly not support a positive peace. In light of this, it seems that post conflict governments need to balanc e rapid economic growth with careful planning of regional and sectoral diversity.

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82 REFERENCES Appel, B.J. & Loyle, C.E. (2012). The Economic Benefits of Justice: Pos t Conflict Justice and Foreign Direct Investment. Journal of Peace Research, 49 (5): 685 699. Asian Development Bank, ADB (2014). Cambodia: Diversifying Beyond Gar ments and Tourism Country Diagnostic Study. Asian Development Bank, November, 2014. Bardy, R., Tumenta, K.F., & Rubens, A. (2012). Economic Growth and Welfare: How Foreign Direct Investment Contributes to Improving Social Order in Less Developed Countries. Journal of Organizational Transformation & Social Change, 9 (2). Harvard International Review, (Fall): 28 32. Bernander, B., Charny, J., Eastmond, M., Lindahl, C., & Ojendal, J. (1994/95). Facing a Comple x Emergency: An Evaluation of Swedish Support to E mergency Aid to Cambodia. SIDA Evaluation Report 1994/95. http://www.sida.se/publications Bwalya, S.M. (2005). Foreign Direct Investment and Technology Spillo vers: Evidence from Panel Data Analysis of Manufacturing Firms in Zambia. Journal of Development Economics, 81: 514 526. Call, C., & Cousens, E. (2008). Ending Wars and Building Peace: Inter national Responses to War Torn Societies. International Studies Perspectives, 9. 1 21. Cambodia Development Resource Institute (CDRI) (2013). Annual Report 2012 2013. Cambod ia. Council for the Development of Cambodia, CDC. (2016). FDI Trend. Retrieved July 20, 2016, from http://www.cambodiainvestment.gov.kh/investors information/fdi trend.html. Chanthol, S. [Bloomberg TV]. (2014, Oct. 13). Fighting Corruption through Priva te Sector. [MCC Minister of Commerce]. Retrieved from, https://www.youutbe.com/watch?v=QYSSAGOT131'

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