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1. Chinese Investments in the US and EU Are Declining—for Similar Reasons

Author:
Jacob Funk Kirkegaard
Publication Date:
09-2019
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
For years China has been one of the world’s most rapidly growing sources of outward foreign direct investment. Since peaking in 2016, however, Chinese outward investments, primarily to the United States but also the European Union, have declined dramatically, especially in response to changes in China’s domestic rules on capital outflows and in the face of rising nationalism in the United States. Concerns about growing Chinese influence in other economies, the ascendant role of an authoritarian government in Beijing, and the possible security implications of Chinese dominance in the high-technology sector have put Chinese outward investments under intense international scrutiny. This Policy Brief analyzes the most recent trends in Chinese investments in the United States and the European Union and reviews recent political and regulatory changes both have adopted toward Chinese inward investments. It also explores the emerging transatlantic difference in the regulatory response to the Chinese information technology firm Huawei. Concerned about national security and as part of the ongoing broader trade friction with China, the United States has cracked down far harder on the company than the European Union.
Topic:
Economics, International Trade and Finance, National Security, Foreign Direct Investment, and Investment
Political Geography:
China, Europe, Asia, North America, and United States of America

2. Japanese Investment in the United States: Superior Performance, Increasing Integration

Author:
Theodore H. Moran and Lindsay Oldenski
Publication Date:
02-2015
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
Japan is reemerging as the most important source of foreign direct investment (FDI) in the United States. In 2013 Japanese firms were the largest source of new inflows of FDI into the United States for the first time since 1992, injecting almost $45 billion of fresh investment into the US economy in that year alone. Moran and Oldenski show how Japanese investment in the United States differs from that of other countries along several dimensions. These differences not only make FDI by Japanese firms especially valuable but point to some important policy goals for attracting it. Although the automotive sector is the single largest industry for Japanese investment in the United States, the focus should not be on competing to attract the auto industry in particular nor should any active industrial policy of "picking winners" be pursued. Japanese investment is unique because of its research and development intensity, manifested across a number of industries in which Japanese multinationals invest other than automobiles. US policy should focus on reinforcing and expanding the factors that attract high-performing firms and high-value production stages to the United States, regardless of industry.
Topic:
Development, Economics, Foreign Direct Investment, and United States
Political Geography:
Japan

3. Chinese Investment and CFIUS: Time for an Updated (and Revised) Perspective

Author:
Theodore Moran
Publication Date:
09-2015
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
For more than a decade, China has complained about what it maintains has been a pattern of erratic and politicized treatment of Chinese investors when they attempt to acquire US companies. The Chinese want the Committee on Foreign Investment in the United States (CFIUS) to be more open and transparent in its rulings and to not discriminate against Chinese firms. The United States is not likely to accede to these demands in any formal or legal manner. Moran proposes practical steps to address the concerns of Chinese investors without diluting CFIUS procedures. He provides a national security threat assessment filter, which allows Chinese investors—like investors of all nationalities—to determine when their proposed acquisitions might pose a genuine threat and when any such threat is simply not plausible. He also suggests that first-time Chinese investors seek expert counsel to overcome the secrecy surrounding CFIUS objections to figure out how to proceed with problematic acquisitions.
Topic:
Economics, Markets, and Foreign Direct Investment
Political Geography:
United States

4. The Influence of Foreign Direct Investment, Intrafirm Trading, and Currency Undervaluation on US Firm Trade Disputes

Author:
J. Bradford Jensen, Dennis P. Quinn, and Stephen Weymouth
Publication Date:
09-2015
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
The authors investigate a puzzling decline in US firm antidumping (AD) filings in an era of persistent foreign currency undervaluations and increasing import competition. Firms exhibit heterogeneity both within and across industries regarding foreign direct investment (FDI). Firms making vertical, or resource-seeking, investments abroad are less likely to file AD petitions and firms are likely to undertake vertical FDI in the context of currency undervaluation. Hence, the increasing vertical FDI of US firms makes trade disputes far less likely. Data on US manufacturing firms reveals that AD filers generally conduct no intrafirm trade with filed-against countries. Persistent currency undervaluation is associated over time with increased vertical FDI and intrafirm trade by US multinational corporations (MNCs) in the undervaluing country. Among larger US MNCs, the likelihood of an AD filing is negatively associated with increases in intrafirm trade. The authors confirm that undervaluation is associated with more AD filings. However, high levels of intrafirm imports from countries with undervalued currencies significantly decrease the likelihood of AD filings. The study also highlights the centrality of firm heterogeneity in international trade and investment in understanding political mobilization over international economic policy.
Topic:
Economics, International Political Economy, International Trade and Finance, and Foreign Direct Investment
Political Geography:
United States of America

5. Progress on Sovereign Wealth Fund Transparency and Accountability: An Updated SWF Scoreboard

Author:
Edwin M. Truman and Allie E. Bagnall
Publication Date:
08-2013
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
The term sovereign wealth fund (SWF) had not been coined a decade ago. By 2007, economists and the financial world were alternatively excited about or alarmed by the growing influence of these institutions, though in fact many of them had been around for decades. Politicians in countries in which the funds invested generally welcomed the additional financial resources from abroad while expressing concern about the motivations of investors and what they feared could be threats to political, economic, and financial security. The general public in the countries in which the funds were based realized at the same time that political leaders were investing large amounts of national wealth at home and abroad with limited disclosure, and they wanted to know more.
Topic:
Economics, Globalization, International Trade and Finance, Foreign Direct Investment, and Sovereign Wealth Funds

6. Transactions: A New Look at Services Sector Foreign Direct Investment in Asia

Author:
Jacob Funk Kirkegaard
Publication Date:
10-2012
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
In this paper Kirkegaard presents new micro-level data consisting of individual greenfield investment projects and mergers and acquisitions as a source for detailed analysis of services sector cross-border investment flows among the Asian Development Bank (ADB) regional membership in Asia. The new transactional foreign direct investment (FDI) data are methodologically distinct from traditional BPM5-compliant FDI data but found to yield generally comparable aggregates, when compared with the latest available International Monetary Fund (IMF) data from the Comprehensive Direct Investment Survey for the ADB regional membership. The services sectors are found to receive considerably larger amounts of foreign investment, when compared with the Asian region's manufacturing and raw materials sectors. OECD countries account for roughly three-quarters of total recorded inward services sector FDI of about $2 trillion, relatively evenly split between the United States, the EU-27, and regional OECD-level-income countries. The presence of sizable regional "upward flowing" services sector investments into OECD-level-income economies is verified. Kirkegaard draws preliminary policy conclusions based on the new transactional FDI data results concerning prospects for regional services sector liberalization, threshold income levels for inward services sector FDI, upward-flowing regional services FDI, and preferred modes of services sector investments.
Topic:
Economics, Emerging Markets, International Trade and Finance, and Foreign Direct Investment
Political Geography:
United States, Israel, and Asia

7. Integration in the Absence of Institutions: China-North Korea Cross-Border Exchange

Author:
Jennifer Lee, Stephan Haggard, and Marcus Noland
Publication Date:
08-2011
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Theory tells us that weak rule of law and institutions deter cross-border integration, deter investment relative to trade, and inhibit trade finance. Drawing on a survey of more than 300 Chinese enterprises that are doing or have done business in North Korea, the authors consider how informal institutions have addressed these problems in a setting in which rule of law and institutions are particularly weak. Given the apparent reliance on hedging strategies, the rapid growth in exchange witnessed in recent years may prove self-limiting, as the effectiveness of informal institutions erodes and the risk premium rises. Institutional improvement could have significant welfare implications, affecting the volume, composition, and financial terms of cross-border exchange.
Topic:
Economics, International Trade and Finance, and Foreign Direct Investment
Political Geography:
Israel

8. Foreign Direct Investment in Times of Crisis

Author:
Gary Clyde Hufbauer and Lauge Skovgaard Poulsen
Publication Date:
02-2011
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper compares the current foreign direct investment (FDI) recession with FDI responses to past economic crises. The authors find that although developed country outflows have taken an equally big hit as major developed countries have after past crises, outflows seem to be bouncing back more slowly this time. By contrast with the overall decline in recent years, inflows to emerging markets often remained stable during their past economic crises. Both patterns indicate that the global scale of the current crisis has led to a greater FDI response than after individual country crises in the past. Compared with global economic downturns since the 1970s, the current FDI recession has also been greater in magnitude. The exception is the FDI plunge in the early 2000s, despite the much smaller economic crisis at the time. The authors conclude by recommending that policymakers not just further liberalize FDI regimes—as they find was the typical pattern during earlier crises—but rather use the downturn to rethink their FDI policies with an enhanced focus on "sustainable FDI" promotion.
Topic:
Globalization, Global Recession, Foreign Direct Investment, and Financial Crisis

9. Rent(s) Asunder: Sectoral Rent Extraction Possibilities and Bribery by Multinational Corporations

Author:
Nathan Jensen, Edmund Malesky, and Dimitar Gueorguiev
Publication Date:
12-2011
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
We argue that openness to foreign investment can have differential effects on corruption, even within the same country and under the exact same domestic institutions over time. Our theoretical approach departs from standard political economy by attributing corruption motives to firms as well as officials. Rather than interpreting bribes solely as a coercive “tax” imposed on business activities, we allow for the possibility that firms may be complicit in using bribes to enter protected sectors. Thus, we expect variation in bribe propensity across sectors according to expected profitability which we proxy with investment restrictions. Specifically, we argue that foreign investment will not be associated with corruption in sectors with fewer restrictions and more competition, but will increase dramatically as firms seek to enter restricted and uncompetitive sectors that offer higher rents. We test this effect using a list experiment, a technique drawn from applied psychology, embedded in a nationally representative survey of 10,000 foreign and domestic businesses in Vietnam. Our findings show that the impact of domestic reforms and economic openness on corruption is conditional on polices that restrict competition by limiting entry into the sector.
Topic:
Corruption, Economics, and Foreign Direct Investment

10. Delivering on US Climate Finance Commitments

Author:
Trevor Houser and Jason Selfe
Publication Date:
11-2011
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
At the United Nations climate change conference in Copenhagen in 2009 and Cancun in 2010, the United States joined other developed countries in pledging to mobilize $100 billion in public and private sector funding to help developing countries reduce greenhouse gas emissions and adapt to a warmer world. With a challenging US fiscal outlook and the failure of cap-and-trade legislation in the US Congress, America's ability to meet this pledge is increasingly in doubt. This paper identifies, quantifies, and assesses the politics of a range of potential US sources of climate finance. It finds that raising new public funds for climate finance will be extremely challenging in the current fiscal environment and that many of the politically attractive alternatives are not realistically available absent a domestic cap-and-trade program or other regime for pricing carbon. Washington's best hope is to use limited public funds to leverage private sector investment through bilateral credit agencies and multilateral development banks.
Topic:
Climate Change, Development, Economics, Energy Policy, Politics, and Foreign Direct Investment
Political Geography:
United States, America, Washington, and United Nations

11. Excessive Volatility in Capital Flows: A Pigouvian Taxation Approach

Author:
Olivier Jeanne and Anton Korinek
Publication Date:
05-2010
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper analyzes prudential controls on capital flows to emerging markets from the perspective of a Pigouvian tax that addresses externalities associated with the deleveraging cycle. It presents a model in which restricting capital inflows during boom times reduces the potential outflows during busts. This mitigates the feedback effects of deleveraging episodes, when tightening financial constraints on borrowers and collapsing prices for collateral assets have mutually reinforcing effects. In our model, capital controls reduce macroeconomic volatility and increase standard measures of consumer welfare.
Topic:
Economics, Emerging Markets, International Trade and Finance, Foreign Direct Investment, and Financial Crisis

12. Dealing with Volatile Capital Flows

Author:
Olivier Jeanne
Publication Date:
07-2010
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
The set of tools and mechanisms with which emerging-market countries insure themselves against volatile capital flows is in a state of flux. Most emerging-market countries had accumulated an unprecedented level of international reserves before the global financial crisis that started in 2008. The crisis itself led to a large increase in International Monetary Fund (IMF) resources and the introduction of a new lending facility, the Flexible Credit Line (FCL). Meanwhile, some progress was made toward transforming the Chiang Mai Initiative into an Asian Monetary Fund, and the Greek debt crisis even prompted calls for the creation of a European Monetary Fund.
Topic:
Development, Economics, Emerging Markets, Markets, and Foreign Direct Investment

13. China's Changing Outbound Foreign Direct Investment Profile: Drivers and Policy Implications

Author:
Daniel H. Rosen and Thilo Hanemann
Publication Date:
06-2009
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
In 1967 Jean-Jacques Servan-Schreiber published Le defi americain, a call to beware of American multinationals buying up the world. In the 1980s and 1990s it was Japan's turn, spawning books like Clyde Prestowitz's 1993 Trading Places: How We Are Giving Our Future to Japan. Today it is China's outbound foreign direct investment (OFDI) that elicits the most anxiety China's OFDI has reached commercially and geoeconomically significant levels and begun to challenge international investment norms and affect international relations.
Topic:
International Relations, Economics, International Trade and Finance, and Foreign Direct Investment
Political Geography:
China, America, and Asia

14. Capital Flows to Developing Countries: The Allocation Puzzle

Author:
Olivier Jeanne and Pierre-Olivier Gourinchas
Publication Date:
11-2009
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
The textbook neoclassical growth model predicts that countries with faster productivity growth should invest more and attract more foreign capital. We show that the allocation of capital flows across developing countries is the opposite of this prediction: capital seems to flow more to countries that invest and grow less. We then introduce wedges into the neoclassical growth model and find that one needs a saving wedge in order to explain the correlation between growth and capital flows observed in the data. We conclude with a discussion of some possible avenues for research to resolve the contradiction between the model predictions and the data.
Topic:
Economics, International Trade and Finance, and Foreign Direct Investment

15. Criss-Crossing Globalization: Uphill Flows of Skill-Intensive Goods and Foreign Direct Investment

Author:
Arvind Subramanian and Aaditya Mattoo
Publication Date:
08-2009
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Th is paper documents an unusual and possibly significant phenomenon: the export of skills embodied in goods, services, or capital from poorer to richer countries. We fi rst present a set of stylized facts. Using a measure that combines the sophistication of a country's exports with the average income level of destination countries, we show that the performance of a number of developing countries, notably China, Mexico, and South Africa, matches that of much more advanced countries, such as Japan, Spain, and the United States. Creating a new combined dataset on foreign direct investment (FDI) (covering greenfi eld investments as well as mergers and acquisitions) we show that fl ows of FDI to Organization for Economic Cooperation and Development (OECD) countries from developing countries like Brazil, India, Malaysia, and South Africa as a share of their GDP are as large as fl ows from countries like Japan, Korea, and the United States. Th en, taking the work of Hausmann et al. (2007) as a point of departure, we suggest that it is not just the composition of exports but their destination that matters. In both cross-sectional and panel regressions, with a range of controls, we fi nd that a measure of uphill fl ows of sophisticated goods is signifi cantly associated with better growth performance. Th ese results suggest the need for a deeper analysis of whether development benefi ts might derive not from deifying comparative advantage but from defying it.
Topic:
Economics, Globalization, and Foreign Direct Investment
Political Geography:
China, South Africa, and Mexico

16. It Should Be a Breeze: Harnessing the Potential of Open Trade and Investment Flows in the Wind Energy Industry

Author:
Jacob Funk Kirkegaard, Thilo Hanemann, and Lutz Weischer
Publication Date:
12-2009
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This working paper maps out the structure and value chains of the wind industry, analyzes the wind industry's increasing global integration via cross-border trade and investment flows, and offers recommendations to policymakers for the design of investment and trade policies to help realize wind energy's potential. We find that demand for wind energy through long-term government support policies creates the basis for local supply of wind capital equipment and services and associated local job creation; policies that put a price on carbon will further help to make wind energy more competitive and increase the overall demand for turbines and equipment. Cross-border investment rather than trade is the dominant mode of the wind industry's global integration. Principal barriers to global integration are nontariff trade barriers and formal and informal barriers that distort firms' investment decisions. These include local content requirements, divergent national industrial standards and licensing demands, and in particular political expectations. Intellectual property accounts for only a very small part of cost in the wind industry, and wind technology is widely available for licensing. Intellectual property rights are correspondingly not a major impediment for market participation. Credible long-term commitments coupled with a reduction or elimination of existing barriers to cross-border trade and investment are necessary to harness the full potential of global integration in reducing wind industry prices and increase worldwide deployment of wind energy.
Topic:
Economics, Energy Policy, Environment, and Foreign Direct Investment

17. Popular Attitudes, Globalization, and Risk

Author:
Marcus Noland
Publication Date:
07-2004
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Popular opposition to globalization may be interpreted as xenophobia or hostility to market economics and signal country risk, including the degree of security risk—the possibility that local staff or facilities could be subject to discriminatory treatment, harassment, or attack. This paper integrates the Pew Global Attitudes data into a series of economic models on foreign direct investment (FDI), sovereign ratings, and local entrepreneurship and finds that some responses correlate with economic variables of interest, conveying information beyond what can be explained through standard models. More tolerant countries attract more FDI, obtain better ratings, and exhibit more entrepreneurship.
Topic:
Economics, Globalization, Politics, and Foreign Direct Investment