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31. 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

32. 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

33. 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

34. 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

35. 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

36. 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

37. 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

38. 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

39. 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

40. 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