Topic: Foreign Direct Investment - CIAO Search Results

1. Turkey’s Trade and Foreign Direct Investment in Ethiopia: An Insight into Challenges from 2012-2023

Author:: Betselot Adisu Ayal, Nani Debele Dubale, and Esayas Bamlack Bishaw
Publication Date:: 12-2024
Content Type:: Journal Article
Journal:: Turkish Journal of Middle Eastern Studies
Institution:: Sakarya University (SAU)
Abstract:: The first decade of the 21st century marks a new phase in relations between Ethiopia and Turkey. During this period, relations between the two countries transformed into an unprecedented stage. The aim of this study is to examine the challenges of Ethio-Turkish economic relations from 2012 to 2023, with particular reference to trade and FDI. To attain its objectives, the study employed a qualitative research approach. Essentially, primary data were collected through key informant interviews, observation, and document reviews. Despite the growth in trade and foreign direct investment between the two countries, various challenges hinder the smooth operation of these economic ties. The main results of this study show that issues like changing exchange rates, lacking access to the Generalised System of Preferences (GSP), corruption, inefficient government, high tariffs, infrastructure issues, companies that can't pay their debts, customs procedures, fluctuating exchange rates, and a lack of data were major problems for trade and investment between Ethiopia and Turkey. The findings of the study suggest that there are certain problems that need policy measures for further industrial development through attracting foreign direct investment.
Topic:: Bilateral Relations, Foreign Direct Investment, and Trade
Political Geography:: Africa, Turkey, and Ethiopia

2. Contribution of Finance and Transport Indicators on Carbon Emissions: Evidence from Eurasian Countries

Author:: Kenan Ilarslan and Tuğrul Bayat
Publication Date:: 01-2024
Content Type:: Journal Article
Journal:: Istanbul Journal of Economics
Institution:: Istanbul University Faculty of Economics
Abstract:: Carbon emission is one of the most significant causes of environmental degradation, global warming, and extraordinary meteorological events. It has reached a level that threatens the future of countries and human beings. To combat carbon emission, it is necessary to know the causes for developing policies. Environmental quality is a fundamental aspect of sustainable development in economies worldwide. In this context, Eurasian geography has always been an important region in the history of the world with its location, underground, and surface resources. Today, the region makes its strategic importance even more evident. The communist USSR ruled Eurasian countries, which served as a buffer between the Western world and China for many years. These countries, which gained their independence in the 1990s, have not yet fully captured the values of the modern world, such as democracy and a free market economy. This study focuses on Eurasian countries. This study aimed to determine the factors affecting carbon emissions. Foreign direct investment and transportation contribute significantly to carbon emission, which reduces environmental quality. Therefore, in this study, we investigated whether rail and road passenger transport and foreign direct investment affect carbon emission in Eurasian countries. The concurrent panel quantile regression method was used to estimate this relationship between 1992 and 2020. The results revealed that rail and road passenger transport and foreign direct investment increase emissions. Additionally, no clear result could be obtained regarding the effect of the GDP per capita variable. To support these findings, analyses were performed using the robust quantile regression method, and strong empirical evidence was obtained, particularly for the impacts of foreign direct investment and rail passenger transport on emissions.
Topic:: Economics, Foreign Direct Investment, Transportation, Carbon Emissions, and Quantile Regression
Political Geography:: Eurasia

3. Foreign Direct Investment, Brand Value, and Economic Performance: A Multinational Analysis

Author:: Tuba Yıldız, Ünal Arslan, Zeynep Ökten, Yıldız Sağlam Çelıköz, and Hale Kırmızıoğlu
Publication Date:: 06-2024
Content Type:: Journal Article
Journal:: Istanbul Journal of Economics
Institution:: Istanbul University Faculty of Economics
Abstract:: The visibility and dependability of multinational corporations’ products increase with the fact that they introduce their goods to markets in other nations through foreign direct investments. The method for presenting products to international markets through foreign direct investments reveals the product’s reputation and therefore the brand’s development value. This study examines the relationship between foreign direct investments and brand value in Australia, Canada, China, France, India, Japan, Spain, the USA, and the UK for the period 2007-2023. The majority of studies in the literature attempt to explain the impact of brand value on foreign direct investments. However, very few studies explain the impac foreign direct investments on brand value and 1st generation unit root tests were generally used. Unlike existing studies, In this study, the second-generation unit root test, Durbin-Hausman cointegration, and Common Correlated Effects Mean Group estimation methods were used. As a result, it is anticipated that this study will contribute to the literature in this regard. The findings show that increases in foreign direct investments boost brand value.
Topic:: Economics, Foreign Direct Investment, Multinational Corporations, Data, and Branding
Political Geography:: Japan, China, United Kingdom, Canada, India, France, Spain, Australia, Global Focus, and United States of America

4. The Future of the Belt and Road in Europe: How China’s Connectivity Project is Being Reconfigured across the Old Continent – and What It Means for the Euro-Atlantic Alliance

Author:: Nicola Casarini
Publication Date:: 02-2024
Content Type:: Working Paper
Institution:: Istituto Affari Internazionali
Abstract:: China’s Belt and Road Initiative (BRI) has entered the twilight zone in the old continent, following a deterioration of bilateral relations between the EU member states and China over the last years. Italy’s official exit from the BRI at the end of 2023 was a further blow to Chinese President Xi Jinping’s signature foreign policy. Yet, the BRI in Europe is being reconfigured rather than being terminated. In Western Europe, the BRI is moving away from physical infrastructure projects and investment in industrial assets – the latter being increasingly protected from Chinese takeovers by both national and EU legislation – to financial and monetary connectivity. This shift is welcomed by various European actors, including some policymakers at the national level, eurozone institutions and major banks. Concurrently, most of Eastern European countries continue to promote BRI projects and seek to attract Chinese investments, suggesting that there is a two-speed Europe when it comes to China, both in terms of geography and sectors.
Topic:: Infrastructure, Foreign Direct Investment, European Union, Belt and Road Initiative (BRI), and Currency
Political Geography:: China, Europe, Asia, and Italy

5. Productivity spillovers from FDI: A firm-level cross-country analysis

Author:: JaeBin Ahn, Shekhar Aiyar, and Andrea F. Presbitero
Publication Date:: 07-2024
Content Type:: Working Paper
Institution:: Bruegel
Abstract:: This paper provides cross-country firm-level evidence on productivity spillovers from foreign direct investment (FDI), separately for greenfield FDI and cross-border mergers and acquisitions (M&As). The granularity of bilateral sector-level FDI datasets allows for addressing possible endogeneity issues by applying a two-step approach whereby an exogenous FDI measure is constructed from a gravity-type regression of bilateral FDI flows. When looking at the effects of greenfield investments on firm labour productivity we find: i) positive intra-industry spillover effects for firms located in advanced countries, and ii) positive backward spillover effects for firms located in emerging and developing countries. These spillovers are driven entirely by FDI from advanced countries. The results from cross-border M&As are noisier, with weakly suggestive evidence for positive intra-industry spillovers in advanced countries but negative backward spillovers in emerging markets and developing countries.
Topic:: Foreign Direct Investment, Business, and Productivity
Political Geography:: Global Focus

6. Wooing foreign investors: Greenland should prepare for the next dispute

Author:: Rafael Cox Alomar and Ulrik Pram Gad
Publication Date:: 04-2024
Content Type:: Policy Brief
Institution:: Danish Institute for International Studies (DIIS)
Abstract:: Foreign direct investment (FDI) in energy and mining projects is critical for many resource-rich countries that wish to use their resources for economic development. However, from an investor perspective, projects are vulnerable to state intervention. Due to the intense global competition for FDI, countries therefore go to great lengths in assuring foreign investors that disputes will be resolved fairly. The current dispute over the Kuannersuit mining project demonstrates the legal and policy challenges facing Greenland as it aspires to economic and constitutional independence.
Topic:: Foreign Direct Investment, Mining, and Energy
Political Geography:: Greenland

7. Where are the Growth Potentials in CESEE? An Illustration of Sectors and Products Using the Product Space

Author:: Francesca Guadagno, Doris Hanzl-Weiss, and Robert Stehrer
Publication Date:: 07-2024
Content Type:: Special Report
Institution:: The Vienna Institute for International Economic Studies (WIIW)
Abstract:: This paper investigates the sectoral and export structures as well as the product spaces of 11 economies in Central, East and Southeast Europe (CESEE). We first employ an analysis based on revealed comparative advantages (RCAs) to identify promising sectors for future growth and then combine this analysis with a product space approach to detect related and complex products that could help these economies diversify and upgrade. The RCA analysis shows that the CESEE countries still hold a comparative advantage in manufacturing, although a slightly negative trend emerged between 2013 and 2020. Meanwhile, some services – particularly computer programming, consultancy and information service activities – have emerged as the most successful sectors to date. The product space analysis indicates that for the majority of the CESEE economies, it is possible to identify relatively complex products that could be easily targeted to spur upgrading. We also find that while we run the analysis separately for each of the 11 CESEE countries, the identified opportunities are often the same. While this is intuitively explained by the similar specialisations of these 11 countries, from a policy perspective this finding implies that each country has to deploy a battery of indicators to identify profitable and realistic niches within these broadly defined product categories.
Topic:: International Trade and Finance, Foreign Direct Investment, European Union, and Competition
Political Geography:: Europe

8. Can Multinationals Withstand Growing Trade Barriers?

Author:: Mahdi Ghodsi, Michael Landesmann, and Nina Vujanović
Publication Date:: 01-2024
Content Type:: Working Paper
Institution:: The Vienna Institute for International Economic Studies (WIIW)
Abstract:: Multinational enterprises (MNEs) are increasingly dealing with challenges shaped by the new geopolitical and trade environments. Besides traditional tariffs, exporting firms need to comply with regulatory non-tariff measures (NTMs) in the form of technical barriers to trade (TBTs) and sanitary and phytosanitary (SPS) measures. Although trade costs associated with these policy measures affect all firms, implications could be multifaceted for multinationals that base their international activities on exporting and importing and are important for the formation of global supply chains. Applying Poisson pseudo maximum likelihood to the unique Orbis dataset of firms on multinational subsidiaries, we show that NTMs pose a greater challenge to MNEs’ subsidiaries’ activity and performance than tariffs do. High-tech manufacturing subsidiaries of foreign MNEs are particularly vulnerable to these NTMs, as they suffer higher regulatory losses. However, multinational affiliates that have higher productivity, those with full foreign ownership representation, those that are embedded within a larger international network of subsidiaries, and those that are located in trading partners with deep preferential trade agreements can turn these trade challenges to their advantage. Our results have important implications for policy makers regulating trade in goods.
Topic:: International Trade and Finance, Foreign Direct Investment, Multinational Corporations, Tariffs, and Supply Chains
Political Geography:: Global Focus

9. Mild Deglobalization: Foreign Investment Screening and Cross-Border Investment

Author:: Vera Z. Eichenauer and Feicheng Wang
Publication Date:: 03-2024
Content Type:: Working Paper
Institution:: Kiel Institute for the World Economy (IfW)
Abstract:: Openness to foreign investments is associated with risks. To mitigate these risks, many high-income countries have strengthened the control of foreign investments over the last decade in an increasing number of sectors considered critical. Investment screening distorts the market for cross-border investments in controlled sectors, which might lead to unintended economic effects. This is the first cross-country panel study to examine the economic effects of investment screening mechanisms. We combine deal-level data on cross-border mergers and acquisitions (M&A) for the period 2007–2022 with information on sectoral investment screening. Using a staggered triple difference design, we estimate a reduction of 11.7 to 16.0 percent in the number of M&A in a newly screened sector. The effects are driven by minority acquisitions and deals involving a foreign government or state-owned enterprises or US firms as investors. There is no reduction in the number of deals within the EU/EFTA, most of which are not subject to screening. The findings call policymakers’ attention to weighing the benefits of national security and the economic costs of introducing investment screening.
Topic:: Globalization, International Trade and Finance, National Security, Foreign Direct Investment, Investment, Geoeconomics, Global Capital Allocation, and Deglobalization
Political Geography:: China, Europe, and United States of America

10. What role for Chinese FDI in Africa? New survey evidence from Ethiopia and Ghana

Author:: Charles Ackah, Alemayehu Geda, Holger Görg, and Federico Merchan
Publication Date:: 04-2024
Content Type:: Working Paper
Institution:: Kiel Institute for the World Economy (IfW)
Abstract:: Foreign investments bring in not only new employment but also novel technology, managerial skill and know-how, that may also dissipate into the local economy. It is not clear whether this effect differs by the nationality of source countries, in particular between Chinese and non-Chinese firms. Based on a firm level survey on Ethiopia and Ghana, we found that all types of firms are engaged in limited R&D and innovation activity and their transfer to host countris in both countries. There is little difference between Chinese and non-Chinese foreign firms in such technology and managerial skill transfer once controlling for firm size and industry characteristics in the majority of metrices (R&D activities, horizontal & vertical spillover, directly adopting techniques). However, we found for Ghana that Chinese firms have more suppliers but are less likely to transfer technology to them. Chinese firms are more likely to transfer managerial skills than non-Chinese firms in Ghana though not in Ethiopia. Also, there is little evidence that foreign firms transfer technology via horizontal or backward spillovers in either countries. Finally, Chinese firms are much more likely to receive host country policy support than other foreign firms in Ghana but not in Ethiopia.
Topic:: Science and Technology, Foreign Direct Investment, Economy, and Technological Transfer
Political Geography:: Africa, China, Ethiopia, and Ghana

11. Foul Play? On the Scale and Scope of Industrial Subsidies in China

Author:: Frank Bickenbach, Dirk Dohse, Rolf Langhammer, and Wan-Hsin Liu
Publication Date:: 04-2024
Content Type:: Policy Brief
Institution:: Kiel Institute for the World Economy (IfW)
Abstract:: China makes extensive use of subsidies in order to take a leading role on the global markets in the green technology sectors of electric vehicles, wind turbines and railway rolling stock. According to DiPippo et al. (2022) and recent OECD studies, the industrial subsidies in China are at least three to four times or even up to nine times higher than in the major EU and OECD countries. According to a very conservative estimate, industrial subsidies in China amounted to around EUR 221 billion or 1.73% of Chinese GDP in 2019. According to recent data of 2022, direct government subsidies for some of the dominant Chinese manufacturers of green technology products had also increased significantly - the electric car manufacturer BYD alone received EUR 2.1 billion. The authors point out that Chinese companies are benefiting from further support measures, including subsidized inputs, preferential access to critical raw materials, forced technology transfers, the strategic use of public procurement and the preferential treatment of domestic firms in administrative procedures. The authors recommend the EU to use its anti-subsidy proceeding against BEV imports from China to enter into negotiations with the Chinese government and persuade it to abolish public support measures that are particularly harmful to the EU.
Topic:: Globalization, International Trade and Finance, Foreign Direct Investment, European Union, Business, Renewable Energy, Industry, Subsidies, and Electric Vehicles
Political Geography:: China and Europe

12. International investment income: patterns, drivers, and heterogeneous sensitivities

Author:: Giovanni Donato and Cedric Tille
Publication Date:: 07-2024
Content Type:: Working Paper
Institution:: Kiel Institute for the World Economy (IfW)
Abstract:: Financial globalization has led to a large increase in international asset holdings. While the rise of associated dividend and interest flows has until now been muted by the decreasing trend in interest rates, this pattern could change, leading to a larger role of investment income flows in the balance of payments. We use a broad sample of countries to document the heterogeneous evolution of the various components of investment income flows, with a rising role of FDI and equity income, especially in advanced economies. We then assess the impact of various variables on yields with a panel analysis. Various drivers have highly heterogeneous effects across investment categories and country groups, often impacting the yields on both assets and liabilities. This translates into substantial heterogeneity in the response of countries’ income balance, due to different compositions of asset and liabilities. This heterogeneity is amplified if we consider country-specific estimates in complement to the panel ones. Focusing on the impact of changes in interest rates, we find that higher rates only had a limited impact in the 2013 taper tantrum, investment income balances are likely to benefit from higher US rates in the current phase of higher rates, with offsetting effects of higher domestic rates.
Topic:: International Trade and Finance, Foreign Direct Investment, Financial Markets, Investment, Interest Rates, and Financial Integration
Political Geography:: Global Focus

13. Timing Is Everything: Italy Withdraws from the Belt and Road Initiative

Author:: Aurelio Insisa
Publication Date:: 12-2023
Content Type:: Commentary and Analysis
Institution:: Istituto Affari Internazionali
Abstract:: After months of rumours and speculations, on 6 December 2023, the Italian newspaper of record, the Corriere della Sera, broke the news that Rome had finally withdrawn from China’s Belt and Road Initiative (BRI), via a note sent to Beijing three days earlier.[1] In the absence of an explicit request to withdraw before the end of December, the memorandum of understanding (MoU) instrumental to Italy’s participation in the BRI would have automatically been renewed for another five years starting from March 2024. Italy’s subdued withdrawal from the BRI marked the epilogue of a long, laborious, yet ultimately successful diplomatic process that reflected a reassessment of its bilateral relations with China. The origins of this reassessment can be traced back to the government led by Mario Draghi between 2021 and 2022. In June 2021, during the first post-pandemic, post-Trump G7 Leaders’ Summit in Carbis Bay, Draghi stated that his government would “examine […] carefully” the MoU.[2] Draghi’s words reflected a deeper awareness of the broader implications of Beijing’s assertiveness in international politics and a close alignment with the Biden administration in Rome. This shift also reflected the absence of tangible economic benefits from BRI membership for Italy, although this was also due to the devastating effect of the Covid-19 pandemic on the designed trajectory of Sino-Italian economic relations.[3] Furthermore, the security-driven decision of the Draghi government to repeatedly exercise its “golden power” to veto Beijing’s investments in Italy’s strategic sectors contributed to shaping the MoU’s outcome.[4] This course correction in Rome’s China policy survived the fall of the Draghi government in July 2022 and the victory of the centre-right coalition led by Giorgia Meloni and her Fratelli d’Italia (Brothers of Italy, FdI) party in the legislative elections of September that year. After all, Meloni and her party had consistently opposed the MoU with China from the very beginning, a decision arguably also linked to the perceived need to bolster the party’s credentials as a reliable partner in the eyes of Washington – as in the case of the clear support for Ukraine well before the September electoral victory.
Topic:: Foreign Policy, Foreign Direct Investment, Belt and Road Initiative (BRI), and International Politics
Political Geography:: China, Europe, Asia, and Italy

14. The Effects of Robotization on Foreign Direct Investment

Author:: Sungwoo Hong, Wongi Kim, and Yeo Joon Yoon
Publication Date:: 08-2023
Content Type:: Working Paper
Institution:: Korea Institute for International Economic Policy (KIEP)
Abstract:: This study aims to investigate the effects of robotization on foreign direct investment (FDI). We address this research question by providing a theoreti-cal prediction derived from a simple model and then empirically testing our prediction. Theoretically, we found that an exogenous rise in industrial robots depresses both the robot rental rate and the domestic cost of task execution. Thus, it is more profitable to perform more tasks at home, leading to a de-crease in FDI. Empirical results are summarized as follows. First, an increase in robotization in source countries negatively affects outward FDI. Second, this negative effect is not consistent across global regions.
Topic:: Economics, Foreign Direct Investment, and Industrial Structure
Political Geography:: Global Focus

15. Mekong Subregion-RoK Cooperation to Build Stable Supply Chains in Southeast Asia

Author:: Sungil Kwak, Jaewan Cheong, Mingeum Shin, and Jegook Kim
Publication Date:: 08-2023
Content Type:: Policy Brief
Institution:: Korea Institute for International Economic Policy (KIEP)
Abstract:: The Mekong subregion has emerged as a key hub in the global value chain (GVC), driven by a surge in foreign direct investment (FDI). This development is rooted in the Mekong subregion's robust economic growth, positioning it strategically amid the ongoing competition between the United States and China for global hegemony. The RoK recognizes the strategic significance of the Mekong subregion and has embarked on cooperative efforts in this context. We delve into the potential of harnessing the Mekong subregion to enhance RoK's supply chain diversity. While it may pose challenges for the Mekong subregion to promptly function as a target for RoK's supply chain diversification due to its developmental and infrastructural status, we proactively explore potential avenues of RoK-Mekong cooperation to determine feasibility.
Topic:: Foreign Direct Investment, Economic Growth, Global Value Chains, and Supply Chains
Political Geography:: Asia, South Korea, and Southeast Asia

16. Electric Vehicles and the Changing Automotive GVC: A Window of Opportunity for African Countries?

Author:: Tobias Wuttke
Publication Date:: 03-2023
Content Type:: Policy Brief
Institution:: Centre for Business and Development Studies (CBDS), Copenhagen Business School
Abstract:: Only two African countries have successfully integrated with the automotive GVC to date: South Africa and Morocco. Their experiences, compared to other even more successful developing and emerging economies with automotive industries, highlight both the opportunities as well as the limitations of automotive GVC participation as an economic development engine. Scale in vehicle production, facilitated by government industrial policy, is the key prerequisite for successful participation with localisation benefits. These fundamentals do not change with the shift to electric vehicles. Governments in Africa and elsewhere need to attract FDI in electric vehicle production and from there can support the development of a local component and materials value chain. Once these basics are covered, governments and local firms can aim for making use of the technological window of opportunity by investing in EV-related technology, mainly battery technology, to potentially capture more value from automotive GVC participation than has traditionally been possible in the ICE vehicle value chain.
Topic:: Development, Industrial Policy, Foreign Direct Investment, Global Value Chains, Automotive Industry, and Electric Vehicles
Political Geography:: Africa

17. A More Strategic Approach to Foreign Direct Investment Policy

Author:: Markus Jaeger
Publication Date:: 02-2023
Content Type:: Policy Brief
Institution:: German Council on Foreign Relations (DGAP)
Abstract:: Cross-border investment and trade give rise to both economic gains and economic vulnerabilities. As geopolitical competition is intensifying, governments increasingly resort to restricting cross-border investment and trade. Policies are informed by a desire to limit security risks and secure technological advantages rather than pursue efficiency gains.
Topic:: Science and Technology, Foreign Direct Investment, Strategic Competition, and Geoeconomics
Political Geography:: Europe, Asia, and Americas

18. Who Learns More from Afar? Spatial Empirical Evidence on Manufacturing and Services

Author:: Nina Vujanović
Publication Date:: 02-2023
Content Type:: Working Paper
Institution:: The Vienna Institute for International Economic Studies (WIIW)
Abstract:: This paper investigates spatial dependence of FDI knowledge spillovers in manufacturing and services using spatial panel techniques applied to the 2006-2014 Bureau Van Dijk’s Amadeus firm-level dataset for Croatia and Slovenia. The paper finds diverse results across the two sectors. The distance between regions does not hinder the absorption of foreign knowledge in manufacturing despite the strong market-stealing effects operating within regions as well as spatially. On the other hand, FDI knowledge spillovers decrease service productivity within regions, because of market-stealing effects operating strongly across a smaller geographical scale. However, its impact is lost as knowledge spillovers from more distant neighbours are accounted for, because the poaching of local labour is impeded by distance due to rising costs of labour mobility. The research indicates that for knowledge absorption, geographic distance plays differing roles in manufacturing and services, due to the different nature of the production process.
Topic:: Development, International Trade and Finance, Foreign Direct Investment, Manufacturing, Econometrics, and Competition
Political Geography:: Europe, Croatia, and Slovenia

19. Assessing Digital Leadership: Is the EU Losing out to the US?

Author:: Dario Guarascio and Roman Stöllinger
Publication Date:: 03-2023
Content Type:: Working Paper
Institution:: The Vienna Institute for International Economic Studies (WIIW)
Abstract:: Since Leontief’s (1953) seminal work on the factor content of trade, the validity of the Heckscher-Ohlin-model has been judged not only on the basis of formal tests of the theory but also tested against prior expectation. In this vein, this paper uses the Heckscher-Ohlin-Vanek (HOV) approach to investigate whether supposed US leadership in the digital domain can be traced back to digital task endowments embodied in labour services. In a comparison between EU member states and the US, we find that the latter is more intensive in digital tasks than the EU and that this difference is explained by both an intensity-effect (US occupations being more digital-task intensive) and a structural component (relatively more digital-task intensive occupations). Viewed through the lens of the HOV theorem we find that the US is abundant in digital tasks relative to non-digital tasks, while the opposite is true for the EU. The standard tests for the predictive power of the HOV theorem are high and in line with the results for labour in previous literature.
Topic:: International Trade and Finance, Foreign Direct Investment, European Union, Digitalization, and Competition
Political Geography:: Europe and United States of America

20. Employment Effects of Offshoring, Technological Change and Migration in a Group of Western European Economies: Impact on Different Occupations

Author:: Michael Landesmann and Sandra Leitner
Publication Date:: 03-2023
Content Type:: Working Paper
Institution:: The Vienna Institute for International Economic Studies (WIIW)
Abstract:: This paper estimates conditional demand models to examine the impact of offshoring, technological change, and migration on the labour demand of native workers differentiated by four different types of occupational groups: managers/professionals, clerical workers, craft (skilled) workers and manual workers. The analysis is conducted for an unbalanced panel of five economies Austria, Belgium, France, Spain, and Switzerland covering the period 2005-2018. Our results point to important and occupation-specific effects: offshoring seems to have beneficial employment effects for native craft workers in this set of economies, while negative effects for native manual workers across a wide set of industries (including manufacturing and services industries) and managers/professionals in manufacturing. Furthermore, there are important distinctions whether offshoring occurs in other advanced economies, in the EU13 or in developing countries. The analysis of the impact of technological change shows the strong positive impact which the additional IT equipment has on most occupational groups of native workers (with the exception of manual workers), while robotisation in manufacturing showed strongly negative impacts on the employment of all groups of workers and especially of craft workers. Increasing immigrant shares in the work forces showed strongly negative impacts on native workers – however, considering only the partial substitution effects and not including the potential for productivity and demand effects – and this is mostly accounted for by immigration from low- to medium-income source countries.
Topic:: International Trade and Finance, Migration, Labor Issues, Immigration, Foreign Direct Investment, Employment, Competition, Income Distribution, and Offshoring
Political Geography:: Europe, France, Belgium, Spain, Switzerland, and Austria

21. Functional Specialisation and Working Conditions in Europe

Author:: Sandra Leitner, Roman Stöllinger, and Zuzana Zavarská
Publication Date:: 05-2023
Content Type:: Working Paper
Institution:: The Vienna Institute for International Economic Studies (WIIW)
Abstract:: Specialisation in value-chain functions is one of the new phenomena introduced by global value chains (GVCs). This report investigates the effects of functional specialisation on labour markets in fabrication and R&D activities as the two polar cases of value-chain functions, whereby the former is associated with factory economies, while the latter is characteristic of headquarter economies. More precisely, a metric similar to revealed comparative advantage is used to study the effect of relative functional specialisation on wages and non-wage working conditions. In line with the GVC literature emphasising power relations and organisational aspects of production networks, we are able to identify differentiated effects for functional specialisation patterns on wages in EU member states at the industry level across time. While relative functional specialisation in fabrication tends to hold back wages, functional specialisation in R&D has a positive effect on wage progression, controlling for labour productivity, GVC participation and numerous labour supply- and labour demand-side factors. The use of a constructed ‘sharp’ instrument allows giving these results a causal interpretation. Conversely, both functional specialisation measures are found to improve some non-wage working conditions, namely workers’ physical environment and their work intensity, which is evidence against a potential ‘race to the bottom’ effect of functional specialisation along GVCs. The effect is stronger for relative specialisation in fabrication than for relative specialisation in R&D.
Topic:: International Trade and Finance, Labor Issues, Foreign Direct Investment, European Union, Labor Market, Value Chains, and Wages
Political Geography:: Europe

22. Determinants of Functional Specialisation in EU Countries

Author:: Aleksandra Kordalska and Magdalena Olczyk
Publication Date:: 05-2023
Content Type:: Working Paper
Institution:: The Vienna Institute for International Economic Studies (WIIW)
Abstract:: This paper aims to identify factors that determine functional specialisation (FS) in global value chains (GVCs) in European Union countries. We focus on fabrication and R&D as two opposite business functions in terms of their character and their potential of creating value-added. To make our results robust two different approaches to measuring functional specialisation are used – an FDI-based approach and a trade-based approach. To assemble a relative functional specialisation index, for each approach we use the same metric – a revealed comparative advantages index. Our results suggest a positive effect of wages on specialisation in an R&D function, and a negative impact on FS in fabrication. Increasing labour productivity boosts both specialisation in fabrication and in R&D. The results are robust to different model specifications and different time intervals. The instrumental variables method allows us to interpret the results as causal relationships. Additionally, human capital and labour skills foster FS in R&D (only in FDI data), and growing employment makes FS in fabrication increase. The growth of GDP per capita positively affects functional specialisation in R&D activities. Among GVC participation measures, we confirm the importance of increasing backward linkages to explain the boost in fabrication activities. Dividing a full sample into a group of EU15 countries and a group of Central Eastern European countries we observe that patterns for the EU15 are similar to those for the full sample, while for CEE countries wages are insignificant and labour productivity affects FS in fabrication only.
Topic:: International Trade and Finance, Foreign Direct Investment, European Union, Economy, Value Chains, and Competition
Political Geography:: Europe

23. Regulatory Convergence within Technical Barriers to Trade

Author:: Mahdi Ghodsi
Publication Date:: 09-2023
Content Type:: Working Paper
Institution:: The Vienna Institute for International Economic Studies (WIIW)
Abstract:: This paper analyses how regulatory convergence in different categories of technical barriers to trade (TBTs) imposed on imports of goods in information and communications technology (ICT) globally affected the values, volumes, and unit values of imported goods during the period 1996-2019. Keywords cited in TBTs that are notified to the World Trade Organization (WTO) give an indication of the regulatory objectives behind the imposition of TBTs. MAST also classifies TBTs based on their applicability, procedural and administrative uses, factors which will also be taken into consideration in the analysis. However, objectives of TBTs may provide better insights to policymakers. TBTs are non-discriminatory measures that are imposed unilaterally on all trading partners and on domestic producers. It is not feasible to analyse unilateral TBTs in a gravity setting, as they are excluded by the introduction of country-product-time fixed effects that control for multilateral resistances. However, regulatory convergence in TBT categories is a bilateral time-varying variable that is analysed in a gravity model in this paper. The empirical results suggest that regulatory convergence between trading partners in some TBT categories stimulates import values and volumes. However, the impact is very heterogeneous across TBT objectives and classes and across ICT product categories.
Topic:: International Trade and Finance, Communications, World Trade Organization, Foreign Direct Investment, Regulation, Information Technology, and Competition
Political Geography:: Global Focus

24. The Impact of Populist Executive on the Inflow of Foreign Direct Investment in Latin America

Author:: Seungho Lee
Publication Date:: 04-2023
Content Type:: Policy Brief
Institution:: Korea Institute for International Economic Policy (KIEP)
Abstract:: Populist forces have been resilient in Latin America and continue to cause instability and uncertainty across the region. Populist figures in the region first rose to prominence during the period of import substitution industrialization in the 1930s, capitalizing on the growing demands for mass politics and better social benefits from the rapidly expanding urban working class. Populism, which had been rampant in Latin America for more than 30 years since then, seemed to fade into obscurity with military regimes which have dominated regional politics in the 1960s and 1970s. However, after a series of democratic transitions, Latin American democracies witnessed yet another wave of populism. A notable number of candidates with a populist discourse have achieved victories in presidential elections in the 1980s and 1990s. With the wave of democratization and the accumulation of public dissatisfaction due to a series of economic crises, some so-called neopopulists took power in a number of Latin American countries. They attracted voters by combining neoliberal economic policies with the typical “us-versus-them” discourse, demonstrating that any economic ideology can be linked to populist ideas. The new millennium witnessed another tide of populist presidents across the region. While a rapid transition to neoliberal policies led to various socioeconomic problems, traditional parties and politicians could not respond effectively to the emerging problems. This time around, left-wing populist figures dominated the region’s political landscapes, combining populist ideas with so-called 21st-century socialism. While the era of radical left-wing populists came to an end, new breeds of populists appeared one after another and were elected to office in the 2010s. Not many expect that populist executives will cease to exist across the region in the near future. Social and economic inequality is worsening in the aftermath of COVID-19, and the public distrust of established party politics and existing democratic institutions is growing more than ever. All in all, there is fertile ground for populist forces to spread even more, who claim that they are the only ones who can eliminate the "incompetent and corrupt" establishment and truly represent the "virtuous" people. Against this backdrop, there is a growing need to improve our understanding of the characteristics of populist governments that have repeatedly emerged in the region. Among many channels through which populist rule influences Latin American countries, Lee et al. (2022) dedicate one of their chapters to analyzing the impact of populist rule on the inflow of foreign direct investment, a variable of much importance in Latin American economies.
Topic:: Foreign Direct Investment, Populism, and Instability
Political Geography:: Latin America

25. Does Institutional Quality Matter to Korean Outward FDI? A Gravity Model Analysis

Author:: Muhammad Akhtaruzzaman
Publication Date:: 01-2023
Content Type:: Policy Brief
Institution:: Korea Institute for International Economic Policy (KIEP)
Abstract:: According to Korea’s Ministry of Knowledge Economy (currently the Ministry of Trade, Industry and Energy), foreign investment has now become one of the major economic pillars driving the Korean economy over the past 15 years (Tang 2022). The Korean economy started to open up to rest of the world following the Asian financial crisis in 1997 and was the biggest FDI policy reformer among 40 developed and emerging economies over the period from 1997 to 2010 (Nicolas et al. 2013). Over the last decade, Korea’s outward FDI grew much faster than inward FDI (See Figure 1) and Korea is now a net capital exporter to the world. In 2021, Korea’s outward FDI flows totaled $76.64 billion and a total of 2323 Korean enterprises invested in overseas countries (Korea EXIM Bank 2022). Due to this increased amount of outward FDI, a large number of studies (Kim and Rhee 2009; Park and Jung 2020) investigated what determines Korea’s outward FDI (OFDI). Institutional quality is found to be a major determinant in FDI literature in general. It suggests that political risk (lack of/poor institutional quality) not only deters FDI inflows to host countries but also can lead FDI to countries with higher risks and to ‘pollution heaven’ which might have an adverse impact on long term growth and development in both host and home countries. There are strong empirical evidences in literature that lack of institutional quality or good governance is associated with lower FDI inflows. An extensive literature (Alfaro et al. 2008; Ali et al. 2010; Akhtaruzzaman et al. 2017; Bénassy‐Quéré et al. 2007) investigated FDI response to various types of institutional quality in FDI host countries. Over the last 20 years data evidenced that Korea’s OFDI flowed to developing countries with a sustained large gap existing in institutional quality between host countries and Korea (See, Fig 2 top panel); however; those countries had been offering a higher degree of capital account openness. A sharp increase in capital account openness since the early 2000s coincides with sharp increase in Korea’s OFDI to those host countries. For example, Peru was the least open economy and started to initiate measures to open capital account since the mid-90s and early 2000s. The degree of openness in Peru is now similar to that of developed countries. On the other hand, Peru is one of the least progressed countries in terms of institutional quality over the same period of time. This slow or no progress in institutional quality is a common pattern of institutional improvement for a large sample of host countries of Korea’s OFDI (see, Figure 2). However, those developing countries including Peru are regular destinations of a substantial amount of Korea’s OFDI. Does this suggest that institutional quality of host country does not matter to Korean investors, or is there a 3rd factor mitigating the impact of institutional quality on Korea’s OFDI? Few studies on Korea’s OFDI considered institutional quality of host country as a control variable instead of main determinant of FDI (Park and Jung 2020). However, existing studies do not explain why Korea’s OFDI flowed to countries with a large gap in institutional quality between Korea and host countries. This research fills the gap in the literature of Korea’s OFDI. The findings of this research suggest that high degree of capital account openness (a factor that ensures profit repatriation of investors) weakened the negative impact of poor institutional quality in host countries on Korea’s OFDI. The remaining of this paper is organised as follows. Section II reviews relevant literature of FDI and identifies major determinants for Korea’s OFDI from existing studies; Section III discusses research method and empirical issues; Section IV presents the research findings; Section V concludes the research, points to the research limitations, and provides policy recommendations.
Topic:: Economics, Foreign Direct Investment, Institutions, and Knowledge Economy
Political Geography:: Asia and South Korea

26. Reshuffling Value Chains - South Korea as a Case Study

Author:: Françoise Nicolas
Publication Date:: 04-2023
Content Type:: Working Paper
Institution:: Institut français des relations internationales (IFRI)
Abstract:: Despite all the talks about the reshuffling of value-chains and the trend to a form of industrial “Desinicization” (or decoupling/disengagement from China), the example of South Korea does not vindicate such assertions. The expansion of Korean direct investment in neighboring countries such as China and the Association of Southeast Asian Nations (ASEAN) remains a reality and it has not changed in any fundamental way over the past two decades. South Korean companies’ decisions to locate in one country rather than another are still very much based on cost factors, even if security considerations are increasingly factored in. Similarly, reshoring, which has been high on the South Korean government’s agenda for a long time, remains a marginal phenomenon for South Korean companies, despite the incentives provided. Rather than the relocation of production (in the form of reshoring or nearshoring) South Korean companies have turned to more unexpected options, such as the development of complementarity-based partnerships or vertically-integrated production networks with commodity suppliers, as in the case of the production of rare earth-based magnets. Such a strategy is likely to become more popular in the future, as it nicely combines economic and security considerations. Without a doubt, due to the highly politicized nature of the technology involved, the semiconductor industry is the one undergoing the most significant changes. In a context of rising Sino-US rivalry, the US has ramped up pressures on China with far-reaching consequences, leading South Korean semiconductor companies (with the support of the government) to engage in a strategy combining relocation to the US and onshoring in South Korea. While the economic logic is likely to prevail in most sectors thus limiting the scope for supply chain reshuffling, the examples of the semiconductor and rare earth-based magnets suggest that important changes can still be expected in the future in industries that are deemed strategic.
Topic:: Foreign Direct Investment, Supply Chains, Value Chains, and Semiconductors
Political Geography:: China, South Korea, North America, and United States of America

27. EFFECT OF CORRUPTION ON FOREIGN DIRECT INVESTMENT INFLOWS IN COUNTRIES OF THE WESTERN BALKANS

Author:: Artan Hajdini, Lum Collaku, and Safet Merovci
Publication Date:: 03-2023
Content Type:: Journal Article
Journal:: Journal of Liberty and International Affairs
Institution:: Institute for Research and European Studies (IRES)
Abstract:: The purpose of this study was to investigate the effect of corruption on Foreign Direct Investment (FDI) in the Western Balkans countries, including Bosnia and Herzegovina, Croatia, Kosovo, Montenegro, North Macedonia, Serbia, and Albania. Secondary data from The World Bank, Transparency International, and International Monetary Fund databases were utilized to complete this study for 2012-2020. The built model of multiple linear regression included four independent variables, namely: Corruption Perception Index (CPI), Western Balkan Corruption Ranking (WBCR), Exchange Rate (EXG), and Inflation Rate (INFL), as well as FDI as a dependent variable, and data effects were analyzed through the SPPS scientific research software program. The results found that if CPI and WBCR were to increase by one unit, FDI would decrease by 0.088, namely 0.624, while if EXG and INFL were to increase by one unit, FDI would increase by 0.165, namely 0.236. In order to fight corruption and potentially attract more foreign direct investment, the governments of these countries should work to harmonize their anti-corruption laws with those of the European Union. In order to prevent the negative consequences of FDI inflows, they should also maintain a balanced rate of inflation, which entails stabilizing exchange rate fluctuations.
Topic:: Corruption, Foreign Direct Investment, Exchange Rate Policy, and Inflation
Political Geography:: Eastern Europe and Balkans

28. Time to say goodbye? The impact of environmental regulation on foreign divestment

Author:: Haiou Mao, Holger Görg, and Guopei Fang
Publication Date:: 09-2023
Content Type:: Working Paper
Institution:: Kiel Institute for the World Economy (IfW)
Abstract:: We look at divestments by foreign firms – a topic that has received comparatively little attention in the literature – and investigate how changes in the regulatory environment in the host country may impact on such divestment decisions. We use the implementation of China’s Two Control Zone (TCZ) policy as a “quasi-natural experiment”, using detailed firm level combined with city level data for the empirical analysis. Our results show that the implementation of TCZ policy has led to higher probabilities of divestments by foreign firms in targeted TCZ cities and industries. The mechanism behind this seems to be a TCZ-induced increase in discharge fees and efforts to reduce SO2 emissions. Allowing for heterogeneity of effects, we find that the effect is particularly strong for firms from source countries with less stringent environmental regulation, and those using less advanced technology. We furthermore show that firms using intermediates from polluting industries also experience a higher probability of divestment.
Topic:: Climate Change, Environment, Foreign Direct Investment, Regulation, Business, and Divestment
Political Geography:: China and Asia

29. The Great Supply Chain Shift from China to South Asia?

Author:: Ganeshan Wignaraja
Publication Date:: 07-2023
Content Type:: Research Paper
Institution:: Gateway House: Indian Council on Global Relations
Abstract:: Global supply chains connect world industry and international trade in manufactures. East Asia’s dominance with China as the preferred assembly hub in global supply chains has brought unprecedented regional prosperity, but South Asia remains a latecomer. However, pandemic-related and post-pandemic continuing disruptions to supply chains and slowing growth are being keenly felt, dampening China’s attractiveness. In an uncertain global economy, increasingly footloose foreign investors are looking for alternative production locations. Is it South Asia’s turn to prosper through supply chains in this uncertain world? This is the topical public policy question facing India and the others in South Asia. This paper discusses the concept of global supply chains, the industrial rise of East Asia, drivers of supply chain relocation from China, South Asia’s prospects, India as a complementary hub and policy lessons from East Asia’s industrial success. For the purposes of this paper, South Asia is broadly defined as the India and its contiguous countries: Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka.
Topic:: Industrial Policy, Monetary Policy, Foreign Direct Investment, Industrialization, COVID-19, Supply Chains, and Geoeconomics
Political Geography:: China, South Asia, Asia, Southeast Asia, and United States of America

30. Xi Jinping’s Vision for the Middle East

Author:: Yair Albeck
Publication Date:: 07-2023
Content Type:: Policy Brief
Institution:: Hudson Institute
Abstract:: Chinese leader Xi Jinping clearly aspires to establish a new global economic order centered around Beijing, not Washington. However, a new global economic order cannot be built in a day. The immensity of this challenge has forced Xi to set his sights on a set of interim goals. These include cementing the Communist Party’s control of the Chinese economy and shielding supply chains, capital flows, and strategic bilateral and multilateral relationships from hostile American policies. These goals equate to the creation of a Sinocentric global economic subsystem. This would be partially integrated into the current Western-led system but would be sufficiently decoupled from the West to protect the pillars of the Chinese Communist Party’s political economy. In Beijing’s grand design, the Middle East plays an indispensable role. But Western analysts have often misjudged China’s interests in the region as purely commercial. While Xi values the region for its economic potential, he sees it as one of the most important arenas of competition with the United States. Yet when United States National Security Advisor Jake Sullivan recently discussed American leadership of the global economy, he focused on Europe and the Indo-Pacific and mentioned Africa and Latin America. He did not mention the Middle East once.1 Washington’s persistent blind spot in the Middle East has obscured its view of Beijing’s global ambitions. If the US does not rectify this mistake, it risks losing more influence in the region and aiding China’s effort to supplant the US atop the global economic order.
Topic:: Foreign Policy, National Security, Political Economy, Foreign Direct Investment, and Xi Jinping
Political Geography:: China and Middle East

31. Sunny side up: Maximising the European Green Deal’s potential for North Africa and Europe

Author:: Laura El-Katiri
Publication Date:: 01-2023
Content Type:: Policy Brief
Institution:: European Council on Foreign Relations (ECFR)
Abstract:: North African states hold great potential to become important partners in Europe’s energy transition in the medium and long term. The EU and its member states can make stronger use of the European Green Deal to direct investment in North Africa in support of clean energy. Governments in the region are worried about the impact of some EU decarbonisation tools, such as the carbon border adjustment mechanism. Europeans can allay some of these fears by providing political commitment, financial investment, and advice on the energy transition. New partnerships between the EU and North African states also offer the opportunity to make progress on wider environmental considerations, including biodiversity, and to embed a human rights-based approach.
Topic:: Climate Change, Foreign Direct Investment, Partnerships, Solar Power, Green Deal, Energy, and Energy Transition
Political Geography:: Europe and North Africa

32. Impacts of FDI Presence and Product Sophistication on the Demand for Skilled and Unskilled Labour: Evidence from SMEs in Viet Nam

Author:: Quang Hoan Truong and Van Chung Dong
Publication Date:: 02-2023
Content Type:: Working Paper
Institution:: Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:: This study employs data from the Viet Nam Enterprise Survey (VES) for 2007 and 2011) to examine the effect of foreign direct investment (FDI) and product sophistication as well as the interaction between these two factors on the skilled and unskilled labour demand on Viet Nam’s small and medium-sized enterprises (SMEs). It finds that the FDI presence in the same industry but different regions – and FDI in the same region but different industries – has a positive effect on the skilled labour demand and a negative impact on the unskilled labour demand. FDI in the same industry has a negative effect on the skilled labour demand and an advantageous impact on the unskilled labour demand. The product sophistication index is found to positively affect the skilled labour demand but decreases the demand for unskilled labour. When interacting with product sophistication, FDI presence in the same industry and region positively affects the skilled labour demand. The study also finds the opposite impacts of different types of FDI presence as well as the interaction between FDI presence and product sophistication on the demand for highly, medium-, and basic-skilled labour. Thus, it is important to consider the opposite effects of different types of FDI and the interaction between FDI presence and product sophistication on SME labour demand by skills level.
Topic:: Foreign Direct Investment, Skilled Labor, Small Industries, and Unskilled Labor
Political Geography:: Vietnam and Southeast Asia

33. Foreign Direct Investment, Agglomeration, and Production Networks in Indonesian Manufacturing

Author:: Dionisius Narjoko
Publication Date:: 05-2023
Content Type:: Working Paper
Institution:: Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:: This study examines the importance of globalisation – defined by international production networks – in determining foreign direct investment (FDI) flows into Indonesian manufacturing since 2000. It is motivated by the fact that the extent of connection between the Indonesian and the global economy had increased after the 1997–98 Asian financial crisis. Models of FDI are estimated by utilising plant-level data and various trade and tariff data. Production networks or agglomeration are found to play an important role in driving FDI in Indonesia’s manufacturing sector, at least for the period 2000–2015. This study provides the insight that agglomeration could be utilised to increase FDI in Indonesia. This not only improves the productivity of the sector targeted by the investment but also promotes productivity growth. Creating more agglomeration areas could therefore be a policy direction taken by Indonesia to help increase FDI.
Topic:: Foreign Direct Investment, Investment, Manufacturing, and Production
Political Geography:: Indonesia and Southeast Asia

34. Structural Changes and the Impact of FDI on Singapore’s Manufacturing Activities

Author:: Shandre Mugan Thangavelu
Publication Date:: 06-2023
Content Type:: Working Paper
Institution:: Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:: This chapter examines the investment and foreign direct investment (FDI) policy of Singapore’s economy in terms of the structural transformation of the economy from 1998 to 2018. The study also examines the impact of FDI on the productivity of the Singapore manufacturing industries in a panel framework from 2017 to 2019. The results indicate that FDI activities have a positive impact on labour productivity. The export activities of multinational businesses have a positive impact on labour productivity. We also observe agglomeration effects from FDI activities (average FDI activities over 3 years) in Singapore’s manufacturing industries. However, we observe a negative impact of outsourcing labour productivity. The study also derives policy implications for forward-looking policies in terms of the position of Singapore in the global production value chain.
Topic:: Foreign Direct Investment, Manufacturing, and Industry
Political Geography:: Singapore and Southeast Asia

35. How does the level of success of a transition of power impact Foreign Direct Investment in African countries?

Author:: Maria Fossas, Jack Moore, and Alexandra Tomlinson
Publication Date:: 05-2023
Content Type:: Journal Article
Journal:: Journal of Public and International Affairs (JPIA)
Institution:: School of Public and International Affairs (SPIA), Princeton University
Abstract:: Transitions of power mark an inflection point in any society. They come about in all forms—elections, successions, coups, and conflicts—but in each case, it is an instance of a country embarking on a new path. In the field of development economics, it is thus essential to understand how the level of success of these power transitions impact the development of the nation. Specifically, the authors of this paper set out to determine to what extent change in foreign direct investment flows can be explained by the level of success of a transition of power. We conclude that maintaining or increasing good governance practices during a transition of power is a significant explanatory factor for changes in Foreign Direct Investment (FDI) and discuss the potential policy implications.
Topic:: Development, Economics, Foreign Direct Investment, Governance, and Transition of Power
Political Geography:: Africa

36. Foreign Linkages, Innovation & Productivity: Evidence from Enterprise Surveys

Author:: Anmol Kaur Grewal
Publication Date:: 09-2023
Content Type:: Working Paper
Institution:: Centre for Trade and Economic Integration, The Graduate Institute (IHEID)
Abstract:: This paper estimates a three-stage structural model of how foreign linkages affect innovation which in turn affects firm productivity. Using harmonized firm-level data from the World Bank Enterprise Surveys, I construct a panel dataset for 47 developing countries spanning 2003 to 2019. I distinguish between four types of foreign linkages (exports, imports, inward foreign direct investment (FDI) and the use of foreign-licensed technology), and two types of innovation (product innovation and process innovation). To mitigate concerns regarding sample selection and endogeneity biases, I employ advanced panel data methods. In the first stage, I find that being an exporter, using foreign inputs, and using foreign-licensed technology makes firms more likely to invest in R&D, relative to other firms. I also find evidence of sample selection bias which is corrected by using a two-step Heckman selection model. In the second stage, I find that while increases in the R&D intensity increase the probability of product innovation, they have no statistically significant effect on the likelihood of process innovation. In the third stage, I find that product or process innovation is associated with increases in firm-level productivity. These results remain robust across alternative measures of innovation and firm productivity.
Topic:: Development, Foreign Direct Investment, Exports, Innovation, Imports, Productivity, and Foreign Linkages
Political Geography:: Global Focus

37. Securing Foreign Markets: Exports, Relational Specificity and New Investment Locations

Author:: Giorgia Giovannetti, Gianluca Santoni, and Giulio Vannelli
Publication Date:: 02-2023
Content Type:: Working Paper
Institution:: Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:: In this article we examine how the need to secure profit streams from exports has affected the location choice of new foreign investments by French manufacturing firms. Motivated by the observation that most firms entering a new foreign country do not establish a production unit there or decrease their exports, we develop a simple theoretical framework to guide our analysis and provide empirical evidence to support this “market securing” mechanism. Our results confirm that companies tend to locate new investments in countries that account for a larger share of their past exports; allowing for better monitoring of the foreign market, the investment prevents the disruption of the relationship, whose impact on profits would be more detrimental in the case of more important foreign partners. A 10 percent increase in bilateral exports increases the probability of investing by 3.4 percent. Consistent with our mechanism, given the same volume of exports, firms prefer countries that purchase goods with higher relational specificity as finding new buyers for these goods would imply higher costs if the relationship was broken.Exporting at least one good with relational specificity above the 75th percentile increases the probability of investing by 2.2 times compared to exporting more generic goods (below the 50th percentile).
Topic:: Markets, Foreign Direct Investment, Investment, Exports, and Manufacturing
Political Geography:: Europe and France

38. Primer on International Investment Treaties and Investor-State Dispute Settlement

Author:: Columbia Centre on Sustainable Investment
Publication Date:: 01-2022
Content Type:: Policy Brief
Institution:: Columbia Center on Sustainable Investment
Abstract:: What is Foreign Direct Investment (FDI)? FDI occurs when an individual or corporation in one country (“home state”) sets up or buys all or a significant part of a company that is incorporated in a different country (“host state”). Companies invest abroad to access land-based resources including mining, more affordable labour for instance in manufacturing, and new markets, among other reasons. Many countries seek to attract FDI in order to realize benefits in the form of tax revenues, technology transfer, jobs, and other economic linkages. The images below illustrate the concept of FDI, as well as some of the sectors and industries into which it flows.
Topic:: International Cooperation, Foreign Direct Investment, Investment, and Public-Private Partnership
Political Geography:: Global Focus

39. Foreign Firms Investment in Inter-Korean Economic Cooperation

Author:: Jang Ho Choi, Jung Kyun Rhee, Yoojeong Choi, and Dae-Eun Lee
Publication Date:: 04-2022
Content Type:: Policy Brief
Institution:: Korea Institute for International Economic Policy (KIEP)
Abstract:: This paper examines various channels and issues for foreign firms to invest in inter-Korean economic cooperation with the as-sumption that inter-Korean economic cooper-ation can be resumed after sanctions against North Korea have been lifted, and the same treatment is applied to foreign firms. Foreign firms' investment in inter-Korean economic cooperation will provide a new op-portunity for foreign firms to earn stable profits, while also playing a role in further solidifying the establishment of peace on the Korean Peninsula. Now, inter-Korean rela-tions have fallen into difficulties due to sanc-tions against North Korea and the coronavirus pandemic, making it difficult to resume inter-Korean economic cooperation or to expect foreign firms to invest in inter-Korean eco-nomic cooperation. However, if inter-Korean economic cooperation is resumed, foreign firms' investment in inter-Korean economic cooperation will be prioritized.
Topic:: Foreign Direct Investment, Sanctions, Economy, and Economic Cooperation
Political Geography:: Asia, South Korea, and North Korea

40. Impacts of New International Tax System on Multinational Firms’ FDI

Author:: Sangjun Yea
Publication Date:: 04-2022
Content Type:: Policy Brief
Institution:: Korea Institute for International Economic Policy (KIEP)
Abstract:: In this study, I present a theoretical model to quantitatively assess the economics impact of Pillar 1 and Pillar 2, especially focusing on the changes in the FDI patterns of multinational enterprises (MNEs). Pillar 1 offsets the incentives of MNEs' profits-shifting for tax-planning purposes, thereby reducing the inbound FDI into the countries with low corporate income tax rates. Pillar 2 burdens MNEs with 'top-up' taxes attributed from the subsidiaries in low tax countries. As the profits after tax (PAT) of MNEs shrink at the global level, innovation and R&D investment for new products will decrease, and as a result, global FDI flows will hamper.
Topic:: Economics, Foreign Direct Investment, Multinational Corporations, and Tax Systems
Political Geography:: Global Focus

41. FDI Spillover Effects on Innovation Activities of Knowledge-using and Knowledge-creating Firms: Evidence from an Emerging Economy

Author:: Iraj Hashi, Mehtap Hisarciklilar, Slavo Radošević, Nebojša Stojčić, and Nina Vujanović
Publication Date:: 03-2022
Content Type:: Working Paper
Institution:: The Vienna Institute for International Economic Studies (WIIW)
Abstract:: The beneficial effects of innovation for firms’ performance and competitiveness are well documented, but it has been suggested in recent years that innovation regimes differ between advanced and emerging economies. While advanced economies rely on knowledge generation, their emerging counterparts follow mainly a knowledge-use regime through the application of existing knowledge and technology. Climbing up the technological ladder can be helped through spillovers from foreign investors to local firms. We investigate whether FDI spillovers influence different phases of the innovation process (from decision to innovate to productivity) among knowledge-using and knowledge-creating firms in an emerging European economy. The results show that the innovation process in emerging economies is closer to the imitation than the creation of novel products. Local firms benefit from foreign counterparts in the early phase of the innovation process. Stronger FDI effects are found among firms that undertake innovation through knowledge use rather than through knowledge generation.
Topic:: Emerging Markets, International Trade and Finance, Foreign Direct Investment, Economy, Investment, and Knowledge Systems
Political Geography:: Europe

42. FDI in Azerbaijan in 2021: Developments and Challenges

Author:: CESD Research Team
Publication Date:: 04-2022
Content Type:: Working Paper
Institution:: Center for Economic and Social Development (CESD)
Abstract:: Attracting foreign direct investment is now more important for Azerbaijan than ever before. Against the background of global uncertainty, the development of the non-oil sector and the diversification of the economy have become even more priority. On the other hand, there has been a decline in oil production in recent years, and even though high oil prices, the country's revenue from energy sales is lower than compared to the period before 2014.
Topic:: Oil, Foreign Direct Investment, Economy, and Diversification
Political Geography:: Azerbaijan

43. Economic Effects of FDI: How Important is Rising Market Concentration?

Author:: Kasper Vrolijk
Publication Date:: 01-2022
Content Type:: Policy Brief
Institution:: German Institute of Development and Sustainability (IDOS)
Abstract:: Many governments adopt policies and actively compete to attract foreign direct investment (FDI). Particularly for lower-income countries, attracting FDI – and with it the benefits of cooperating with multi-national enterprises (MNEs) – is a promising strategy for participating in global supply chains and increasing local firm productivity. However, empirical findings show contrasting effects and there is heated debate over FDI’s advantages and drawbacks. The current trend to rising market concentration also begs the question: Have FDI effects changed in recent years? This Policy Brief aims to address these questions by studying FDI and what the apparent growth in market concentration implies. Although foreign investment theoretically raises productivity, creates employment and offers many other benefits, the empirical evidence is not unequivocal. Initial coarse country-level data found that receptivity to FDI raises the host country’s economic growth. But later research used more detailed sector data and showed ambiguous effects (Görg & Greenaway, 2004). New microdata confirm that FDI effects are differential: Not all workers and households benefit equally. They also showcase the different ways in which MNEs and FDI benefit firms, workers and households in host countries. Recently, superstar firms, which capture large shares of industries and thereby increase market con-centration, have emerged. Linked to reduced national economic dynamism and evident in global markets, the rise of superstar firms could negatively impact on FDI effects. They differ from MNE competition effects and confer market power so that MNEs can determine prices and wages. This trend toward rising market concentration is observed across multiple sectors and has several possible causes, such as technological and legal factors. A literature survey reveals a lack of evidence about how rising concentration in global markets is affecting FDI gains. However, other evidence suggests that the positive spillovers to domestic firms may well be lower, with higher market concentration negatively affecting wages and employment. The following takeaways can be derived for policy-making: 1. Integrate competition policy: Competition effects should be considered when evaluating FDI and policies should be introduced to ensure competitive practises after FDI entry. 2. Improve monitoring: Collect data on competi-tive forces and how they change when MNEs enter host economies. 3. Absorb regressive effects: Introduce social benefits to counter the potential mixed effects of FDI and MNE market power.
Topic:: Development, Markets, Foreign Direct Investment, and Economy
Political Geography:: Global Focus

44. FDI Spillover Effects: Evidence from the Philippines

Author:: Rafaelita Aldaba and Angel Derrickvhel Quejada
Publication Date:: 08-2022
Content Type:: Working Paper
Institution:: Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:: Using firm-level data in manufacturing, this chapter examines the impact of foreign direct investment (FDI) spillover effects on domestic firm performance. Through knowledge spillovers, FDI inflows affect the performance of domestic firms. Overall, there is some evidence to show that horizontal and forward spillovers from FDI have a significant positive impact on the performance of domestic firms. However, in terms of backward spillovers, the impact of FDI on the performance of domestic firms is negative and significant. The diffusion of backward spillover effects to domestic firms has remained limited due to the weak competitiveness of domestic firms and their inability to absorb the technology or knowledge being transferred. To strengthen the absorptive capacity and productivity of domestic firms, the chapter suggests a more comprehensive approach that would combine industrial policy to improve and develop domestic parts and supplier firms with measures to create an environment conducive to the creation and expansion of FDI backward spillovers. These include upgrading industry participation towards higher segments of global value chains, innovation, human resource development, upskilling and reskilling the workforce, and liberalising ecozone regulations affecting the transactions between multinational corporations and companies outside the economic zones.
Topic:: Economics, International Trade and Finance, Foreign Direct Investment, and Investment
Political Geography:: Philippines and Oceania

45. Entry Mode Choice and Performance of Foreign Direct Investment Firms in Emerging Economies: Micro-evidence from Viet Nam

Author:: Linh Bui, Huyen Hoang, and Hang Bui
Publication Date:: 03-2022
Content Type:: Working Paper
Institution:: Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:: Does the right entry mode choice help foreign direct investment (FDI) firms to perform efficiently in emerging economies? This study attempts to answer this question by examining the impact of the entry mode choice made by FDI firms on their post-entry performance in emerging markets. Using a dataset derived from specific firms for the period 2002–2016, this study accounts for the selection biases and inherent differences of FDI firms that affect their selection of entry strategies. The study found that, with regard to the manufacturing sector, the ownership type with a wholly owned subsidiary (WOS) had negative impacts on either the technical efficiency or the total factor productivity (TFP) of firms. Conversely, regarding all sectors in the economy, the WOS is likely to have a positive role on technical efficiency and TFP. It is also interesting to see that for firms with an equity joint venture (EJV) type, the higher proportion of capital contribution from domestic firms might lead to lower technical efficiency and TFP. It implies that the higher degree of management and control by the domestic firms compared with foreign firms would have negative impacts on the EJV firms’ performance.
Topic:: Economics, Foreign Aid, Foreign Direct Investment, and Emerging Powers
Political Geography:: Asia and Vietnam

46. Determinants and Effects of Foreign Direct Investment in Austria: Spillovers to Novel Innovative Environmental Technologies

Author:: Mahdi Ghodsi and Branimir Jovanovic
Publication Date:: 10-2022
Content Type:: Working Paper
Institution:: The Vienna Institute for International Economic Studies (WIIW)
Abstract:: This study investigates the determinants of FDI in Austria, as well as their spillovers to innovating technologies, productivity, and employment, using firm-level data, for the period 2008-2018. The findings point out that a decrease in the costs of trade increases investment in foreign-owned subsidiaries in Austria, and that FDI is pre-dominantly carried out in industries characterised by greater capital-intensity, higher wages, more agglomeration and regional concentration. Furthermore, FDI is higher in regions with a larger GDP and with a larger share of the population with upper secondary and post-secondary non-tertiary education. The study also finds that there are positive spillovers of FDI to the domestic economy, which are strongest and most positive for innovative activities in environmental technologies. In other words, FDI helps Austrian firms to become more innovative in major environmental technologies. Such innovative efforts are best supported at the firm-level by supporting the total assets and investment of domestic firms, and at the regional level by increasing the share of the population with higher levels of education and employing more R&D personnel. The active presence of innovative foreign MNEs that enjoy extensive technological capacities, high-skilled labour, experienced management, and large-scale resources are also conducive to innovative activities.
Topic:: Environment, Science and Technology, Foreign Direct Investment, Innovation, and Trade
Political Geography:: Europe and Austria

47. Economic and Social Impacts of FDI in Central, East and Southeast Europe

Author:: Doris Hanzl-Weiss and Branimir Jovanovic
Publication Date:: 11-2022
Content Type:: Special Report
Institution:: The Vienna Institute for International Economic Studies (WIIW)
Abstract:: This study assesses the economic and social impacts of foreign direct investment (FDI) in 17 economies in Central, East and Southeast Europe (CESEE). More precisely, we investigate how different FDI inflows have affected various economic and social indicators, such as GDP growth, labour market outcomes, and poverty and inequality, for the period since the fall of communism until 2020. We pay particular attention to FDI that originates from the EU, as well as FDI from Germany and Austria, in order to evaluate whether their effects are different from the effects of FDI from other places of origin. We also examine whether there are differences in the impacts of different types of FDI – equity capital, reinvested earnings and intra-company debt, as well as of FDI that goes to different sectors of the economy – the primary, secondary and tertiary sectors. We find that FDI inflows have had, in general, a positive effect on economic growth in CESEE, and that this effect has been particularly strong for German and Austrian FDI. For total FDI, higher inflows of 1 percentage point (pp) of GDP are associated with 0.19 pp higher GDP growth. For FDI from Germany and Austria, this effect is five times higher – FDI inflows of 1 pp of GDP have led to 0.9 pp higher GDP growth. The positive GDP effects have come from the higher consumption and exports that the FDI has induced. FDI inflows have also reduced unemployment and increased wages, but have had no effects on labour productivity. Total FDI has had only limited effects on inequality and poverty, but FDI from Germany and Austria has been found to reduce both inequality and poverty, likely because they have benefitted mainly lower-income persons. There are differences in the effects of the different types of FDI, with reinvested earnings and equity capital having in general more beneficial effects than intra-company loans. Also, FDI in different sectors of the economy has had different effects, with inflows to the secondary and tertiary sectors having greater effects than inflows to the primary sector. The policy implications of these results are that CESEE economies should not give up on their efforts to attract more FDI, but also that their endeavours should be more targeted, focusing on investments that have greater economic and social impacts. Moreover, foreign investment should not be criticised for the perhaps unsatisfactory economic and social performances of the economies from this region. Instead, the reasons for this should be sought in domestic factors and in the modest growth of the European Union during the past two decades.
Topic:: Development, International Trade and Finance, Poverty, Foreign Direct Investment, Inequality, Economic Growth, and Unemployment
Political Geography:: Europe, Eastern Europe, Germany, and Austria

48. Is Foreign Direct Investment Losing Clout in Development?

Author:: Axel Berger and Alexandros Ragoussis
Publication Date:: 01-2022
Content Type:: Policy Brief
Institution:: German Institute of Development and Sustainability (IDOS)
Abstract:: Over the last decade, only a single projection of foreign direct investment (FDI) flows by the United Nations influential “World Investment Report” has proposed a negative outlook in the medium term. Based partly on surveys of business executives, these forecasts reflect ex¬pecta¬tions of investment growth which, however, have repeated¬ly failed to materialise. In fact, FDI flows to develop¬ing countries have remained stagnant over the past decade. Such wishful thinking is nurtured by a long series of positive narratives and facts about foreign investment. FDI has been one of the pillars of international development efforts for over 70 years. Its promise has not been limited to critical finance, but extends to longer term competitiveness through access to better technology, managerial know-how and, above all, prosperity through more and better paid jobs in the formal sector. From the old prescriptions of the so-called Washington Consensus to the hopeful Addis Ababa Action Agenda, the dominant development narrative has therefore favoured a rather indiscriminate pursuit of investment volume. This brief calls for rethinking of narratives and policies that help to improve the impact of FDI, based on secular trends that challenge our expectations. Four such trends stand out: First, while other sources of finance for development have grown considerably over the last decades, foreign invest¬ment has not followed the trend. Second, the kind of investment that is associated with stronger gains and longer term commitment in host economies – greenfield FDI – has also been in consistent decline as a share of total invest¬ment, while mergers and acquisitions and project finance have gained in importance. Third, the top 100 multinational enterprises (MNEs), accounting for nearly a quarter of global FDI stock, rely less on employment today than they used to in order to grow their foreign presence. Job creation, knowledge transfer and spillovers are therefore less likely to materialise through the presence of mega-firms and their corresponding investment at scale. Fourth, the growth of Chinese outward FDI within a strategic expan¬sionary political agenda stands to change rules and attitudes towards foreign investment moving forwards. We argue that, collectively, these trends invite a renewed conversation around the kind of foreign investment we want and expectations of this source of finance for develop¬ment. These facts obscure neither the broad benefits of FDI to developing countries, nor the value proposition of FDI attraction. Rather, they raise questions about expectations, priorities and the alignment of investment policy with the realities experienced across develop¬ing countries. To that end, we propose four priorities that stand to make a difference in the current context. We call for policy-makers to: 1) Place additional emphasis on retention of investment and linkages with the domestic economy. 2) Try new approaches for FDI attraction that focus on improving domestic investment facilitation frameworks. 3) Be selective as to investment sources and activities in order to mitigate political risks and align inward investment better with sustainable development. 4) Add evidence to improve our understanding of invest¬ment and inform decision-making. Overall, it is critical to engage in a serious multi-stakeholder conversation around expectations, actors and solutions that respond to the investment reality of today.
Topic:: Development, United Nations, Foreign Direct Investment, and Economy
Political Geography:: Global Focus

49. Vietnam’s Global Value Chains Participation and Policy Implications for South Korea-Vietnam Economic Cooperation

Author:: Quang Hoan Truong
Publication Date:: 09-2022
Content Type:: Policy Brief
Institution:: Korea Institute for International Economic Policy (KIEP)
Abstract:: The term “value chain” refers to the whole production process of a good or service from the design and raw material processing to manufacturing and market services for the final customers. A global value chain (GVC) indicates production across multiple countries (Simola 2021). Wang et al. (2017) distinguish between simple and complex GVC activities and classify GVC participation in the following four activities: (i) export its domestic value added in intermediate exports used by a direct importing country to produce products for the importing country’s final consumption (simple GVC); (ii) export its domestic value added in intermediate exports used by a direct importing country to produce products for importing countries’ exports to third countries (complex GVC forward participation); (iii) importing foreign value added in intermediate imports to produce products for domestic use (simple GVC); (iv) importing foreign value-added in intermediate imports to produce products for its gross exports (complex GVC backward participation). Trade and foreign direct investment (FDI) are considered to be the main driving factors of Vietnam’s economic growth. However, Vietnam’s growth rates became substantially lower in the first decade of the 21st century and even lower after 2008, putting the country in high danger of falling into a middle-income trap (Nguyen and Truong 2022). Overcoming this huge challenge will require Vietnam to make greater progress in GVC participation, which can only be obtained by implementing the appropriate policy reforms and adjustments, particularly in FDI, trade, and industrial and institutional areas. In this regard, assistance and cooperation from Korea – an advanced economy, especially a top trade and FDI partner of Vietnam – would play a significant role in improving Vietnam’s GVCs participation. Against this backdrop, this study aims to examine Vietnam’s GVC participation. It then assesses the major challenges faced by Vietnam’s GVC participation. Based on this, the research draws relevant policy implications for Vietnam–South Korea (hereafter Korea) economic cooperation to improve Vietnam’s GVC participation in the following years.
Topic:: Foreign Direct Investment, Trade, Economic Cooperation, and Global Value Chains
Political Geography:: Vietnam and Southeast Asia

50. What Will It Take for Jordan to Grow?

Author:: Tim O'Brien, Thảo-Nguyên Bùi, Ermal Frasheri, Fernando Garcia, Eric Protzer, Ricardo Villasmil, and Ricardo Hausmann
Publication Date:: 03-2022
Content Type:: Working Paper
Institution:: The John F. Kennedy School of Government at Harvard University
Abstract:: This report aims to answer the critical but difficult question: "What will it take for Jordan to grow?" Though Jordan has numerous active growth and reform strategies in place, they do not clearly answer this fundamental question. The Jordanian economy has experienced more than a decade of slow growth. Per capita income today is lower than it was prior to the Global Financial Crisis as Jordan has experienced a refugee-driven population increase. Jordan’s comparative advantages have narrowed over time as external shocks and responses to these shocks have changed the productive structure of Jordan’s economy. This was a problem well before the country faced the COVID-19 pandemic. The Jordanian economy has lost productivity, market access, and, critically, the ability to afford high levels of imports as a share of GDP. Significant efforts toward fiscal consolidation have further constrained aggregate demand, which has slowed non-tradable activity and the ability of the economy to create jobs. Labor market outcomes have worsened over time and are especially bad for women and youth. Looking ahead, this report identifies clear and significant opportunities for Jordan to strengthen new engines of export growth that would enable better overall job creation and resilience, even amidst the continued unpredictability of the pandemic. This report argues that there is need for a paradigm shift in Jordan’s growth strategy to focus more direct attention and resources on activating “agents of change” to accelerate the emergence of key growth opportunities, and that there are novel roles that donor countries can play in support of this.
Topic:: Foreign Direct Investment, Economy, Economic Growth, Trade, COVID-19, Labor Market, Inclusion, and Green Jobs
Political Geography:: Middle East and Jordan

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COLUMBIA UNIVERSITY PRESS