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41. 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

42. 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

43. 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

44. 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

45. 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

46. 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

47. 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

48. 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

49. Corruption, FDI, and Trade Freedom Relationship Between Turkey and Latin American Countries

Author:
Alexander Camacho Murcia and E. Murat Özgür
Publication Date:
05-2022
Content Type:
Journal Article
Journal:
Bilgi
Institution:
Sakarya University (SAU)
Abstract:
Foreign Direct Investment (FDI) has been always associated with a high level of trade openness and freedom environment, and with a lower incidence of institutional corruption. Because it is assumed that a high level of international capital mobility makes foreign investors more cautious when there is a fluctuation in political stability and institutional transparency. Most American countries (except Canada and the USA) have been always related to a lack of transparency in their institutional and bureaucratic procedures, which conduct to important levels of corruption and in consequence, to other serious issues such as prominent level of violence, or even the inequality phenomena. This study investigates whether the variables of corruption indices, trade openness and inflation rates have positive or negative effects on FDI between Turkey and American countries. For analyzing this econometric model, it was gathered information from OECD, COMTRADE, TUIK, Heritage Foundation, UNCTAD, and the World Bank Database. The observed data correspond to a decade (2005-2014) and were only taken a sample of 14 American countries. The empirical results of the present study revealed that there is a positive correlation between the trade openness index and FDI; and, it was found a positive correlation between corruption index, inflation, and FDI. The increase in the corruption index causes a 41% increase in FDI inflow.
Topic:
International Relations, Corruption, Foreign Direct Investment, Economy, Free Trade, and Transparency
Political Geography:
Turkey and Latin America

50. A Narrative of Debt Trap Vs Connectivity under CPEC: A Case of Gwadar Port

Author:
Rizwan Naseer, Qiubin Wang, and Ahmad Ali
Publication Date:
01-2022
Content Type:
Journal Article
Journal:
South Asian Studies
Institution:
Department of Political Science, University of the Punjab
Abstract:
Gwadar has been an underdeveloped city in Baluchistan but CPEC has addressed problems of education, health and electricity for local populace. The vision to convert Gwadar into a hub of trade is reaping benefits for Pakistan. China‟s investment and loans in Gwadar under the CPEC are termed as Debt Trap by the India and U.S. media outlets. Majority of the Western media, academia and policy making circles deliberately established the narrative of Debt Trap Diplomacy (DTD). Gwadar port is likely to unlock potential of connectivity with regional trade partners in West Asia-Central Asia and South Asia. This project is a win-win situation for China and Pakistan. China‟s investment in Gwadar port will improve Pakistan‟s economy, uplift Baluchistan‟s living standards by offering attractive opportunity to potential investors in Gwadar‟s free zone. China‟s investment in Gwadar is promising to bring real change in Gwadar and Pakistan in particular. Due to massive propaganda against Gwadar, desired results have not been achieved yet. This paper is based on primary as well as secondary data. Primary data has been collected from Planning Commission of Pakistan on the condition of anonymity. The main argument of the paper is that the narrative of debt trap diplomacy is false. Connectivity of Gwadar with regional countries will be a game changer in the region.
Topic:
Debt, Foreign Direct Investment, and Prosperity
Political Geography:
Pakistan and South Asia

51. The US–Italy Economic Relations in a Divided World

Author:
Adriana Castagnoli
Publication Date:
05-2022
Content Type:
Working Paper
Institution:
Istituto Affari Internazionali
Abstract:
In 2021, bilateral trade returned to the sustained pace it had prior to the Covid pandemic. Direct investment also grew – crucially, not just Italian investment in the United States but the other way round too. While Italy’s economic ties with Russia and China remain potential hotspots, Rome has never questioned its Atlantic orientation. Nevertheless, possible austerity policies following sanctions against Russia could spread social discontent that populist parties can exploit for consensus purposes in the 2023 general election, rekindling anti-Americanism rooted in different segments of Italian society.
Topic:
Foreign Policy, Foreign Direct Investment, Economic Policy, Trade, and Energy
Political Geography:
Russia, China, Italy, and United States of America

52. 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

53. 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

54. 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

55. 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

56. 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

57. China’s FDI in Europe and Europe’s Policy Response

Author:
Pyoung Seob Yang, Cheol-Won Lee, Suyeob Na, Taehyn Oh, Young Sun Kim, Hyung Jun Yoon, and Yoo-Duk Ga
Publication Date:
04-2021
Content Type:
Policy Brief
Institution:
Korea Institute for International Economic Policy (KIEP)
Abstract:
China’s investment in the European Union (EU) increased significantly during the European financial crisis, but has been on the decline in recent years. The surge of Chinese investment has raised concerns and demands for analysis on the negative effects it could have on the EU companies and industries. In this context, the present study aims to analyze the main characteristics of Chinese investment and M&A in Europe, major policy issues between the two sides, the EU’s policy responses, and prospects of Chinese future investment in Eu-rope, going on to draw important lessons for Korea. To summarize the main characteristics of China's investment in Europe, the study found that the EU's share of China's overseas direct investment has continued to increase until recently. Second, investment in the Central and Eastern European Countries (CEECs) is gradually increasing, although it is still insignificant compared to the top five destinations in the EU: Netherlands, Sweden, Germany, Luxembourg and France. Third, China's investment in the EU is being made in pursuit of innovation in manufacturing and to acquire high-tech technologies. When it comes to China's M&A in Europe, the study found that the proportion of indirect China's M&As (via third countries (e.g. Hong Kong) or Chinese subsidiaries already established in Europe) was relatively higher than direct ones. Empirical factor analysis of investment also shows that China's investment in the EU is strongly motivated by the pursuit of strategic assets. Other factors such as institutional-level and regulatory variables are found to have no significant impact, or have an effect contrary to expectations. This suggests that China's investment in the EU is based on the Chinese government's growth strategy, and accompanies an element of national capitalism Today, It is highly expected that the COVID-19 pandemic will have a reorganizing effect on the global value chain (GVC) and Foreign investment regulation in the high-tech sector motivated by national security is emerging as a global issue as the US and the EU are tightening their control. As Korean companies are not free from the risk of falling under such regulations, a thorough and careful response is required. And for the Korean government, it is necessary to prepare legal and institutional measures regulating foreign investment in reference to the US and the EU.
Topic:
Foreign Direct Investment, Financial Crisis, European Union, Economy, Economic Growth, Global Value Chains, and COVID-19
Political Geography:
China, Europe, Asia, Korea, and United States of America

58. Snakes, rats and drug addicts used to dwell here – analysis of the narrative utilised to capture the state

Author:
Luka Steric
Publication Date:
03-2021
Content Type:
Commentary and Analysis
Institution:
Belgrade Centre for Security Policy (BCSP)
Abstract:
Foreign direct investments are the cornerstone of the current government’s economic policy. In their statements, the officials call them drivers of development, saying that they have enabled the revival of the economy and turned Serbia into the “economic tiger of Southeast Europe.”1 The fact that the value of the investments Serbia has managed to attract is greater “than what was achieved by all the countries of the Western Balkans put together” 2 is often mentioned as the key measure of success. However, the story of brilliant success quickly loses its lustre when one considers the long-term effects and all-encompassing consequences of this policy. Due to the way they are contracted and implemented, foreign direct investments represent one of the key mechanisms for capturing the state. Hiding behind the stories of a better future and new jobs, the government is breaking down the system of legal regulations and statutory procedures, promoting private interest to the detriment of the public one, and using foreign investments as propaganda ammunition to legitimise unlimited power. The results of such policy are a number of negative consequences for the state and the citizens, such as the increase of public debt, dramatic violation of workers’ rights and alarming problems with environmental pollution. In order to mask the negative consequences and legitimise the policy of attracting foreign investors based on the above described pattern, a complex narrative has been developed presenting foreign investments as a successful, and the only possible, model for state development. This meta-narrative about progress, which media are building up every day, is based on four basic component narratives: on the economic revival, on the efficiency of personal rule, on transparent contracts and on the opponents of Serbia’s development who ‘unfoundedly’ criticise the government’s economic success. In the analysis of the narrative we will focus on the statements of officials made since 2012, which is when the regime led by the Serbian Progressive Party came to power. Many of the described mechanisms, such as non-transparent, harmful contracts and unjustifiably high subsidies, also existed during the previous government.3 However, the capture of the state, carried out - among other things - with the help of foreign direct investments, has reached completely new dimensions under the current regime, while the narratives that accompany it have been significantly ‘improved’.
Topic:
Development, Economics, Foreign Direct Investment, and Drugs
Political Geography:
Europe and Serbia

59. Jagged Sphere: China’s quest for infrastructure and influence in mainland Southeast Asia

Author:
Greg Raymond
Publication Date:
06-2021
Content Type:
Commentary and Analysis
Institution:
Lowy Institute for International Policy
Abstract:
China has land borders with mainland Southeast Asia and strong strategic imperatives to develop land routes to the sea. It has both potential and motivation to pursue an infrastructural sphere of influence in the Mekong subregion through Belt and Road Initiative (BRI) projects joining southern China and mainland Southeast Asia. The poorer states, especially Laos and Cambodia, have been receptive to the BRI and infrastructure investment, but Thailand and Vietnam, strong states and protective of sovereignty, have been more cautious. This means China’s impact is significantly varied across the subregion. China’s Special Economic Zones (SEZs) in Cambodia, Laos, and Myanmar are in some cases dissolving borders and in others carving out Chinese-controlled enclaves, all increasing the People’s Republic of China (PRC) presence and influence.
Topic:
Infrastructure, Foreign Direct Investment, Regional Integration, Borders, and Belt and Road Initiative (BRI)
Political Geography:
China, Asia, Vietnam, Cambodia, Thailand, Southeast Asia, Laos, and Myanmar

60. Global Environmental, Social and Governance (ESG) Capital Allocation Strategies Between Impact Ambitions and Measurement Challenges

Author:
Sara Lovisolo
Publication Date:
08-2021
Content Type:
Working Paper
Institution:
Istituto Affari Internazionali
Abstract:
Responsible investment as a capital allocation strategy has evolved from its ethical and political origins to embrace science-based considerations and outcome-based approaches in the context of the urgent action required in response to climate change and the Sustainable Development Goals. This shift can pose both threats and opportunities to companies seeking to get access to a diversified investor base. The investment environment companies are faced with varies depending on the geographical context and the investment style of investors. In particular, the rise of passive investment – that is the replication of financial indices in the construction of fund portfolios – is an important tool for the integration of sophisticated environmental, social and governance (ESG) factors in investment strategies. The US, Europe, Asia-Pacific and Africa present different levels of maturity and strengths in the space of responsible investment, calling for ad-hoc responses from investee companies. Across all jurisdictions the challenge of effectively measuring the impact of responsible investment is one investors and policymakers alike are still grappling with. Paper prepared in the framework of the IAI-Eni Strategic Partnership, July 2021.
Topic:
Climate Change, International Political Economy, Foreign Direct Investment, and Sustainable Development Goals
Political Geography:
Global Focus