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402. 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 (PIIE)
- 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
403. 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 (PIIE)
- 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
404. Improving the International Investment Regime: priorities for the new U.S. Administration
- Author:
- Pablo M. Pinto, Karl P. Sauvant, Petros C. Mavroidis, Curtis J. Milhaupt, Peter Rosenblum, and Hans Smit
- Publication Date:
- 01-2009
- Content Type:
- Working Paper
- Institution:
- Columbia Center on Sustainable Investment
- Abstract:
- The international investment regime has grown rapidly over the past two decades, along with foreign direct investment (FDI) flows, which reached $1.8 trillion in 2007. Even in the absence of a single comprehensive multilateral investment treaty or institution, that regime is governed by principles and rules enshrined in some 2,600 bilateral investment treaties and another 250 free trade agreements that contain substantial investment provisions. These treaties are supplemented by a number of other relevant multilateral agreements and customary international law, along with complementary principles applied by international financial institutions such as the World Bank and the International Monetary Fund, that cover aspects of the activities of multinational enterprises as well as how states regulate them.
- Topic:
- Economics, International Trade and Finance, Markets, and Foreign Direct Investment
- Political Geography:
- United States
405. Sharing the Pain: The Global Struggle Over Savings
- Author:
- Michael Pettis
- Publication Date:
- 11-2009
- Content Type:
- Policy Brief
- Institution:
- Carnegie Endowment for International Peace
- Abstract:
- In September, the Obama administration imposed tariffs on Chinese tires. In October, the U.S. Department of Commerce announced it would launch an investigation into imports of seamless steel pipes from China. That same month, the U.S. Chamber of Commerce and the U.S.–China Business Council, two groups that in the past have defended Chinese policies, testified to the Office of the U.S. Trade Representative that Chinese contracting rules, technical standards, and licensing requirements were protectionist.
- Topic:
- Economics, Globalization, Foreign Direct Investment, and Financial Crisis
- Political Geography:
- China, Middle East, and Asia
406. Investment Opportuntities in Mekelle, Tigray State, Ethiopia
- Author:
- Bryant Cannon
- Publication Date:
- 12-2009
- Content Type:
- Working Paper
- Institution:
- Columbia Center on Sustainable Investment
- Abstract:
- Mekelle, a rapidly developing city in northern Ethiopia, is located about 780 km from the capital, Addis Ababa. Established nearly 150 years ago by Emperor Yohannes, the city is nestled in Ethiopia's temperate highlands, in the heart of a region that traces its origins back to the ancient Axum Empire that once controlled Red Sea trade (4th century BC – 10th century AD). The city maintains aproud history of many religions, particularly Orthodox Christianity, dating back to the 4th century AD. Mekelle was largely ignored in the latter half of the 20th century by Ethiopia's ruling feudal and socialist governments, but began to experience an economic and cultural rejuvenation with the election of a democratic government in Ethiopia in the early 1990s.
- Topic:
- Development, Economics, International Trade and Finance, and Foreign Direct Investment
- Political Geography:
- Africa and Ethiopia
407. 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 (PIIE)
- 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
408. Does Openness To International Financial Flows Raise Productivity Growth?
- Author:
- Marco E. Terrones, Eswar Prasad, and Ayhan Kose
- Publication Date:
- 01-2009
- Content Type:
- Working Paper
- Institution:
- The Brookings Institution
- Abstract:
- Economic theory has identified a number of channels through which openness to international financial flows could raise productivity growth. However, while there is a vast empirical literature analyzing the impact of financial openness on output growth, far less attention has been paid to its effects on productivity growth. This paper provides a comprehensive analysis of the relationship between financial openness and total factor productivity (TFP) growth using an extensive dataset that includes various measures of productivity and financial openness for a large sample of countries. We find that de jure capital account openness has a robust positive effect on TFP growth. The effect of de facto financial integration on TFP growth is less clear, but this masks an important and novel result. We find strong evidence that FDI and portfolio equity liabilities boost TFP growth while external debt is actually negatively correlated with TFP growth. The negative relationship between external debt liabilities and TFP growth is attenuated in economies with higher levels of financial development and better institutions.
- Topic:
- Debt, Development, Economics, and Foreign Direct Investment
409. On the Current Links Capital Markets and Investment in MENA Countries
- Author:
- Randa Alami
- Publication Date:
- 03-2009
- Content Type:
- Working Paper
- Institution:
- School of Oriental and African Studies - University of London
- Abstract:
- This paper considers the current status of some Middle Eastern markets (Arab countries excluding the Gulf countries). These markets have matured significantly over the last six years, and this helped the concurrent strong economic and investment growth. Evidence gathered here indicates the markets have become a minor source of corporate investment, mobilising both domestic and foreign investors. It allowed them to capture both part of the surge in intra-regional capital flows, and part of rising Foreign Direct Investment. A more enhanced economic impact is constrained by their nascent nature, their volatility and illiquidity, and by what remain poor governance structures. Moreover, these Arab stock markets are still the realm of very large corporations: they have only began to address the needs of smaller entreprises, with venture capital and private equity funds at an embryonic stage. They also support a limited number of economic sectors, while governments and top income elites continue to dominate shareholding. They cannot and should not be relied upon to fulfil all the financing needs of the private sector. This message has been reinforced by the current world crisis, which ended the euphoric but unrealistic expectations that regional capital markets will continue to expand as rapidly as they did between 2002 and 2008.
- Topic:
- Markets, Foreign Direct Investment, Capitalism, Economic Growth, Investment, and Corporations
- Political Geography:
- Middle East
410. Is Promoting Foreign Direct Investment Worthwhile? Learning from the East Asian Experience
- Author:
- Dionisius Narjoko
- Publication Date:
- 11-2009
- Content Type:
- Policy Brief
- Institution:
- Economic Research Institute for ASEAN and East Asia (ERIA)
- Abstract:
- East Asia presents a new model of industrialization that aggressively utilizes the dynamics of multinational corporations (MNCs). The model puts networks of production into practice, and such networks improve domestic capability and contribution to national output. Promoting foreign direct investment (FDI) is therefore warranted to ensure the sustainability of the production-network model. For this reason, FDI should always be promoted even when demand is less supportive, such as at this moment during the current global economic crisis.
- Topic:
- Foreign Direct Investment, Economy, Manufacturing, Industrialization, and Sustainability
- Political Geography:
- East Asia and Asia
411. Assessing Infrastructure Constraints on Business Activity in Kisumu, Kenya
- Author:
- Jacob Winiecki
- Publication Date:
- 10-2008
- Content Type:
- Working Paper
- Institution:
- Columbia Center on Sustainable Investment
- Abstract:
- The success of commercial activities in any city depends in great part upon the quality of infrastructure services available to businesses including (but not limited to) reliable electricity and liquid fuel supplies to power engines, sufficient supplies of clean water for irrigation and industrial processes, and reliable roads for obtaining raw materials and transporting finished goods in a timely and cost efficient manner. Poor quality infrastructure can drive up the cost of doing business and constrain economic growth in any city.
- Topic:
- Development, Infrastructure, and Foreign Direct Investment
- Political Geography:
- Kenya and Africa
412. Sugar in Kisumu,kenya
- Publication Date:
- 11-2008
- Content Type:
- Working Paper
- Institution:
- Columbia Center on Sustainable Investment
- Abstract:
- An investor, seeking to financially benefit from producing sugar as a commodity in Kisumu, Kenya, needs to consider the entire investment environment before making a decision. Since Kenya is a net importer of sugar, domestic demand cannot be satisfied by domestic production, which creates a potential opportunity for an investor looking to bridge the gap. As a result, an opportunity may exist for an investor who wants to play a significant role in the future of the industry. Sugar, produced as a commodity within Kisumu, may have the ability to compete on a global scale if time, investment, and governmental support align.
- Topic:
- Agriculture, Development, Globalization, Markets, and Foreign Direct Investment
- Political Geography:
- Kenya and Africa
413. Post-Conflict Countries and Foreign Investment
- Author:
- Vesselin Popovski, Nicholas Turner, and Obijiofor Aginam
- Publication Date:
- 11-2008
- Content Type:
- Policy Brief
- Institution:
- United Nations University
- Abstract:
- It has become increasingly clear that economic development and poverty reduction can significantly reduce the incidence of conflict. This is of particular importance for countries recovering from violent conflicts, considering they are often among the poorest even compared with other developing countries, and are extremely vulnerable to slipping back into violence.
- Topic:
- Conflict Prevention, Development, Third World, Foreign Aid, Infrastructure, and Foreign Direct Investment
414. The FDI recession has begun
- Author:
- Karl P. Sauvant
- Publication Date:
- 11-2008
- Content Type:
- Policy Brief
- Institution:
- Columbia Center on Sustainable Investment
- Abstract:
- With $1.8 trillion (according to UNCTAD), world foreign direct investment (FDI) flows reached an all-time high last year. All major regions benefitted from increased flows. But that was then. What is, and will be, the impact of the financial crisis and the recession on FDI flows this year and next?
- Topic:
- Development, Economics, International Trade and Finance, Foreign Direct Investment, and Financial Crisis
415. Uncovering Dynamics in the Accumulation of Technological Capabilities and Skills in the Mozambican Manufacturing Sector
- Author:
- Alex Warren-Rodriguez
- Publication Date:
- 03-2008
- Content Type:
- Working Paper
- Institution:
- School of Oriental and African Studies - University of London
- Abstract:
- This paper examines the formation and accumulation of skills and technological capabilities in the Mozambican manufacturing sector. To this effect, it deploys Sanjaya Lall’s technology capabilities conceptual and methodological framework to examine these issues for the Mozambican metalworking and light chemical sectors in the context of historical dynamics taking place in Mozambique in the economic and industrial policy spheres. This analysis shows that these two industries are experiencing a process of gradual technological obsolescence, combined with a progressive simplification of production processes that is leading to a weakening of their technology capability and skill base. In this context, neither foreign direct investment, nor other mechanisms of technology transfer identified in the literature as contributing to the process of technological and skills accumulation, appear to have been able to reverse these trends. In light of available evidence on recent industrial (policy) developments, this paper argues that this process can be seen as a response to a deteriorating policy and economic environment that in the past two decades has undermined investments in industrial technological development in Mozambique.
- Topic:
- Science and Technology, Foreign Direct Investment, Manufacturing, and Industrialization
- Political Geography:
- Africa, Mozambique, and Sub-Saharan Africa
416. Growth and the Quality of Foreign Direct Investment: Is All FDI Equal?
- Author:
- Laura Alfaro and Andrew Charlton
- Publication Date:
- 05-2007
- Content Type:
- Working Paper
- Institution:
- Weatherhead Center for International Affairs, Harvard University
- Abstract:
- In this paper we distinguish different “qualities” of FDI to re-examine the relationship between FDI and growth. We use ‘quality’ to mean the effect of a unit of FDI on economic growth. However, this is difficult to establish because it is a function of many different country and project characteristics which are often hard to measure. Hence, we differentiate “quality FDI” in several different ways. First, we look at the possibility that the effects of FDI differ by sector. Second, we differentiate FDI based on objective qualitative industry characteristics including the average skill intensity and reliance on external capital. Third, we use a new dataset on industry-level targeting to analyze quality FDI based on the subjective preferences expressed by the receiving countries themselves. Finally, we use a two-stage least squares methodology to control for measurement error and endogeneity. Exploiting a new comprehensive industry level data set of 29 countries between 1985 and 2000, we find that the growth effects of FDI increase when we account for the quality of FDI.
- Topic:
- Foreign Direct Investment, Economic Growth, and Capital
- Political Geography:
- Global Focus
417. When Does Domestic Saving Matter for Economic Growth?
- Author:
- Philippe Aghion, Diego Comin, and Peter Howitt
- Publication Date:
- 08-2006
- Content Type:
- Working Paper
- Institution:
- Weatherhead Center for International Affairs, Harvard University
- Abstract:
- Can a country grow faster by saving more? We address this question both theoretically and empirically. In our model, growth results from innovations that allow local sectors to catch up with the frontier technology. In relatively poor countries, catching up with the frontier requires the involvement of a foreign investor, who is familiar with the frontier technology, together with effort on the part of a local bank, who can directly monitor local projects to which the technology must be adapted. In such a country, local saving matters for innovation, and therefore growth, because it allows the domestic bank to cofinance projects and thus to attract foreign investment. But in countries close to the frontier, local firms are familiar with the frontier technology, and therefore do not need to attract foreign investment to undertake an innovation project, so local saving does not matter for growth. In our empirical exploration we show that lagged savings is significantly associated with productivity growth for poor but not for rich countries. This effect operates entirely through TFP rather than through capital accumulation. Further, we show that savings is significantly associated with higher levels of FDI inflows and equipment imports and that the effect that these have on growth is significantly larger for poor countries than rich.
- Topic:
- Science and Technology, Foreign Direct Investment, Economic Growth, Investment, and Savings
- Political Geography:
- Global Focus
418. Speed of Convergence and Relocation: New EU Member Countries Catching up with the Old
- Author:
- Kari E. O. Alho, Ville Kaitili, and Mike Widgrén
- Publication Date:
- 04-2005
- Content Type:
- Working Paper
- Institution:
- Centre for European Policy Studies (CEPS)
- Abstract:
- Economic convergence of the EU's new member countries (NMCs) towards the incumbent EU countries (EU-15) is of paramount importance for both partners, not only in terms of real income but also in nominal terms. In this study we build a dynamic, computable general equilibrium model, starting from the Balassa-Samuelson two-sector framework, then modify and enlarge it (with, among other things, endogenous capital formation, consumption behaviour and labour mobility) to address several other issues such as uncertainty, welfare and sustainability in terms of foreign indebtedness. At the same time we make flows of foreign direct investment (FDI) endogenous in order to evaluate the impact convergence has on the EU-15 and the inter action between the two regions through FDI. We find that in a general equilibrium setting, fears of adverse effects resulting from a relocation of EU-15 manufacturing to the NMCs are not well founded.
- Topic:
- International Relations, Development, Economics, and Foreign Direct Investment
- Political Geography:
- Europe
419. Trade, FDI, Growth and Poverty in Bolivia
- Author:
- Lykke E. Andersen, Osvaldo Nina, and Dirk Willem te Velde
- Publication Date:
- 07-2004
- Content Type:
- Working Paper
- Institution:
- Institute for Advanced Development Studies (INESAD)
- Abstract:
- After several decades of “state-capitalism” characterized by import substitution policies, Bolivia implemented in 1985 a New Economic Policy (NEP) following neo-liberal ideas of free trade, privatization, and liberalization of capital flows. It was hoped that the opening up of the economy would attract foreign direct investment (FDI) which in turn would help modernize Bolivian industry, improve productivity, increase exports, stimulate growth, and reduce poverty. This paper investigates to what extent this actually happened.
- Topic:
- Development, Poverty, Foreign Direct Investment, Inequality, and Trade
- Political Geography:
- South America and Bolivia
420. Transforming Competitiveness in European Transition Economies: The Role of Foreign Direct Investment
- Author:
- Jasminka Sohinger
- Publication Date:
- 05-2004
- Content Type:
- Working Paper
- Institution:
- Institute of European Studies (IES), UC Berkeley
- Abstract:
- Foreign direct investment (FDI) has become one of the main drivers of globalization and integration of the European transition economies into the world economy, especially the European Union. Its growth enhancing capacity has played a significant role in transforming their competitiveness, both locally and on international markets, and its propensity to stimulate institution buliding is changing both economic and political landscapes in the region. The economic conditionality of FDI and the EU access-driven reforms are working hand in hand in helping the goals of transition and the convergence process. The achievement of both goals is seen as the best guarantor of peace and security in the region.
- Topic:
- Security, Economics, Emerging Markets, Globalization, International Trade and Finance, and Foreign Direct Investment
- Political Geography:
- Europe