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61. Economic Sentiment Indicators and Foreign Direct Investment: Empirical Evidence from European Union Countries

Author:
Andrzej Cieślik and Mahdi Ghodsi
Publication Date:
07-2021
Content Type:
Working Paper
Institution:
The Vienna Institute for International Economic Studies (WIIW)
Abstract:
This paper studies the role of business sentiment in the decisions of multinational enterprises (MNEs) to undertake foreign direct investment (FDI) across European Union (EU) member states. Based on the knowledge-capital model, the study employs the Pseudo Poisson Maximum Likelihood (PPML) estimator and panel data to examine empirically the determinants of FDI across EU member states during the period 2003-2017. The empirical evidence suggests that better economic sentiment in an EU Member State induces MNEs to undertake FDI in that country, while worse economic sentiment in an EU member state motivates an MNE in that country to invest abroad.
Topic:
Economics, Markets, Foreign Direct Investment, European Union, Business, and Multinational Corporations
Political Geography:
Europe

62. Interactions Between Global Value Chains and Foreign Direct Investment: A Network Approach

Author:
Amat Adarov
Publication Date:
07-2021
Content Type:
Working Paper
Institution:
The Vienna Institute for International Economic Studies (WIIW)
Abstract:
The world economy is increasingly shaped by cross-border production and investment activity. The paper uses complex network analysis along with panel data econometric techniques to study the structure and interactions between the networks of global value chains (GVC) and foreign direct investment (FDI). The analysis reveals that both FDI and GVC networks have a distinct core-periphery structure dominated by a relatively small number of countries with the USA constituting the global hub interlinked with regional European and Asian clusters, which, in turn, are centered around regional hub countries like China and Germany. Simultaneous equation model regressions using three-stage least squares suggest that FDI centrality facilitates GVC centrality of countries. However, FDI centrality is driven to a large extent by the FDI statutory restrictions and tax offshore regulations, rather than GVC connectivity.
Topic:
International Trade and Finance, Foreign Direct Investment, Borders, Networks, Macroeconomics, and Global Value Chains
Political Geography:
Global Focus

63. Heterogeneous Effects of Non-tariff Measures on Cross-border Investments: Bilateral Firm-level Analysis

Author:
Amat Adarov and Mahdi Ghodsi
Publication Date:
09-2021
Content Type:
Working Paper
Institution:
The Vienna Institute for International Economic Studies (WIIW)
Abstract:
We analyse the heterogeneous effects of technical regulations and safety standards embodied in non-tariff measures on foreign direct investment using global firm-level panel data of bilateral cross-border ownership relationships over the period 2008-2018. To this end, we develop a novel measure of time-varying bilateral ad valorem equivalents of sectoral non-tariff measures, which reveals that technical barriers to trade (TBTs) played a much greater role as a trade-inhibiting factor in comparison with import tariffs and sanitary and phytosanitary (SPS) measures over the period 1996-2018, with their relative importance increasing in the post-Great Recession period. Estimations using the Poisson pseudo-maximum likelihood framework reveal the importance of non-tariff measures as a driver of foreign direct investment, with heterogeneous effects observed for the measures imposed by the host and the home country, as well as across sectors and types of non-tariff measures. Among other results, we find that an increase in the stringency of technical barriers to trade imposed by the host country is associated with higher investment in the foreign subsidiaries operating in this country, pointing to the regulatory barrier-jumping motive of foreign direct investment. The effect is much stronger for the multinational corporations operating in the information and communications technology sector.
Topic:
International Trade and Finance, Foreign Direct Investment, Economy, and Business
Political Geography:
Global Focus

64. How do Corporate Taxes affect International Trade?

Author:
Mario Holzner, Branimir Jovanovic, and Goran Vukšić
Publication Date:
11-2021
Content Type:
Working Paper
Institution:
The Vienna Institute for International Economic Studies (WIIW)
Abstract:
This paper investigates how corporate income taxes affect international trade, and identifies the underlying channel. Using data on 33 NACE sectors, for 34 EU and OECD economies, over the period 2005-2014, we find that corporate income taxes reduce exports and imports only when the stock of foreign direct investment (FDI) is high. The effect is present primarily in the service sector and in countries with low corporate taxes. We interpret these findings as evidence that multinational enterprises reduce their operations in countries that raise their corporate taxes. The effect has been found to be small on aggregate, implying that the expected increase in corporate taxes in the future, arising from the global minimum tax, is unlikely to hurt international trade.
Topic:
International Trade and Finance, Foreign Direct Investment, Tax Systems, Exports, Profit, Imports, and Corporations
Political Geography:
Global Focus

65. Political Instability, FDI and Economic Growth in Sub-Saharan African Countries: Evidence from Modelling Dynamic Simultaneous Equations

Author:
Lewis Landry Gakpa
Publication Date:
01-2020
Content Type:
Research Paper
Institution:
African Economic Research Consortium (AERC)
Abstract:
The aim of this study is to examine the consequences of interaction between political instability and foreign direct investment (FDI) on economic growth of 31 countries in Sub-Saharan Africa in order to analyse one of the channels through which political instability affects economic growth. To achieve this objective, the study relies on a dynamic panel procedure and the Three Stage Least Squares Method to estimate a model of simultaneous equations over the period 1984-2015. The empirical results indicate that political instability affects economic growth directly and indirectly through its impact on foreign direct investment. We also highlight the simultaneous character of the relationship between political instability and the level of economic development in Sub-Saharan African countries. The results of the study then corroborate the idea that political instability hinders growth and thus calls for measures to improve the quality of political climate, which is one of the conditions necessary for a country’s economy to benefit from foreign direct investment.
Topic:
Economics, Foreign Direct Investment, Political stability, Economic Policy, and Macroeconomics
Political Geography:
Africa, South Africa, Angola, Namibia, and Botswana

66. Exporting out of China or out of Africa? Automation versus Relocation in the Global Clothing Industry

Author:
Tilman Altenburg, Xiao Chen, Wilfried Lütkenhorst, Cornelia Staritz, and Lindsay Whitfield
Publication Date:
01-2020
Content Type:
Special Report
Institution:
German Institute of Development and Sustainability (IDOS)
Abstract:
The Discussion Paper examines the opportunities that the rising industrial wages in China will bring for Africa. China has been the industrial workbench of the global economy for decades. However, its competitive advantages are waning, particularly for labour-intensive assembly activities in the clothing, shoe, electronics and toy industries. The Chinese government estimates that up to 81 million low-cost industrial jobs are at risk of relocation to other countries - unless China can keep the companies in the country through automation. Against this background, three complementary studies were carried out. The first examines where the automation technology for clothing and footwear production stands today; the second, how clothing companies in China deal with the cost pressure: to what extent they automate, relocate within China or abroad and how great is the interest in Africa as a production location. The third part is devoted to Africa’s competitiveness in clothing assemly, with empirical findings from Ethiopia and Madagascar. The Discussion Paper shows that the manufacture of clothing can already be robotized today, but that for sewing, robotization will probably remain more expensive than manual labor in the next 15-20 years. China’s companies are investing heavily in the automation of all other production processes and at the same time shifting production to neighbouring Asian countries. In Africa, only Ethiopia is currently competitive in the manufacture of clothing, and here too there are significant institutional difficulties in absorbing large amounts of direct investment.
Topic:
Industrial Policy, Labor Issues, Foreign Direct Investment, Exports, and Automation
Political Geography:
Africa, Europe, Germany, Ethiopia, and Madagascar

67. New Productivity Drivers: Revisiting the Role of Digital Capital, FDI and Integration at Aggregate and Sectoral Levels

Author:
Amat Adarov and Robert Stehrer
Publication Date:
04-2020
Content Type:
Working Paper
Institution:
The Vienna Institute for International Economic Studies (WIIW)
Abstract:
The paper studies the drivers of productivity at country and sectoral levels over the period 2000-2017 with the focus on the impact of capital accumulation and structure. The analysis confirms an especially important role of ICT and intangible digital capital for productivity growth, particularly in the manufacturing sectors. While backward global value chain participation and EU integration are also found to be instrumental for accelerating productivity growth, the impact of inward foreign direct investment is not robustly detected when the data is purged from the effects of special purpose entities and outlier countries.
Topic:
Economics, Foreign Direct Investment, European Union, Digital Economy, Capital Flows, and Trade
Political Geography:
Europe and Global Focus

68. FDI another day: Russian reliance on European investment

Author:
Marta Dominguez-Jimenez and Niclas Poitiers
Publication Date:
02-2020
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
Most foreign direct investment into Russia originates in the European Union: European investors own between 55 percent and 75 percent of Russian FDI stock. This points to a Russian dependence on European investment, making the EU paramount for Russian medium-term growth. Even if we consider ‘phantom’ FDI that transits through Europe, the EU remains the primary investor in Russia. Most phantom FDI into Russia is believed to originate from Russia itself and thus is by construction not foreign.
Topic:
Economics, Energy Policy, Foreign Direct Investment, Governance, Sanctions, European Union, and Global Political Economy
Political Geography:
Russia and Europe

69. ECONOMIC REBALANCING AND GEOECONOMIC CHALLENGES FOR CHINA: THE CASE OF INTRA-BRICS TRADE AND FOREIGN DIRECT INVESTMENTS

Author:
Marcelo Milan and Leandro Teixeira Santos
Publication Date:
01-2020
Content Type:
Journal Article
Journal:
Conjuntura Austral: Journal of the Global South
Institution:
Conjuntura Austral: Journal of the Global South
Abstract:
This article examines the geoeconomic challenges brought to China by the effects of trade and foreign direct investment (FDI) flows, and consequently by the nature and composition of international economic alliances, mainlycooperation among underdeveloped nations(Glosny, 2010), of rebalancing3of its drivers of growth4. It evaluates likely impacts on other BRICS countries, given the economic linkages developed during the past couple of decades, as an example of what may happen to broader geoeconomic arrangements as the process of rebalancing deepens
Topic:
International Political Economy, Foreign Direct Investment, Geopolitics, and Economic Cooperation
Political Geography:
Russia, China, India, South Africa, and Brazil

70. Assessment of Industrial Cluster Policies in Viet Nam: The Role of Special Economic Zones in Attracting Foreign Direct Investment

Author:
Nguyen Quynh Huong
Publication Date:
06-2020
Content Type:
Working Paper
Institution:
Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:
Special economic zones (SEZs) are considered as one of important regional industrial policies to attract foreign investment in developing countries such as Viet Nam. The review of SEZs development in Viet Nam including the comprehensive review of infrastructure and business environment in SEZs are presented in this paper for the first time. Moreover, the paper gives novel non-parametric evidence to indicate the positive causal linkage between the zoning policies and the attraction of foreign investment at district-level in the country during the period 2011–2015.
Topic:
Industrial Policy, Regional Cooperation, Foreign Direct Investment, and Industry
Political Geography:
Asia and Vietnam

71. A return to Africa: Why North African states are looking south

Author:
Anthony Dworkin
Publication Date:
07-2020
Content Type:
Policy Brief
Institution:
European Council on Foreign Relations (ECFR)
Abstract:
North African countries, each for their own reasons, are increasingly turning their attention towards sub-Saharan Africa. Morocco is pursuing a comprehensive campaign to increase its influence and win support with regard to Western Sahara. Algeria may be showing new flexibility in its response to security threats to its south. Tunisia is beginning to look for new economic opportunities in Africa. Egypt is responding to a series of strategic concerns, particularly over the waters of the Nile. Morocco, Algeria, and Tunisia are also all dealing with increased migration flows, with migrants seeking to work on their territories or pass through it to reach Europe. This North African turn to sub-Saharan Africa offers opportunities for European cooperation. But the EU should be aware of the distinctive agendas of North African countries and the reservations that their initiatives engender in some countries.
Topic:
International Relations, Migration, Regional Cooperation, and Foreign Direct Investment
Political Geography:
Africa, Algeria, North Africa, Egypt, Morocco, and Tunisia

72. Sustainable Energy through Green bonds in India

Author:
Olaf Weber and Vasundhara Saravade
Publication Date:
07-2020
Content Type:
Working Paper
Institution:
Gateway House: Indian Council on Global Relations
Abstract:
India’s energy future needs to be low-carbon, climate-resilient and protected against price fluctuation. It can meet these needs by investing in Canadian oil companies, given the country’s political stability and rule of law. India can also attract greater foreign direct investment at home through the issuance of green bonds, a climate finance debt instrument that addresses environmental and climate-related challenges. This paper explores the regulatory perspective of the green bond market.
Topic:
Climate Change, Energy Policy, Foreign Direct Investment, Rule of Law, and Renewable Energy
Political Geography:
South Asia, Canada, India, and North America

73. Foreign Direct Investment and Labour Market Dynamics in a Developing Country: Evidence from Indonesian Plant-Level Data

Author:
Toshiyuki Matsuura and Hisamitsu Saito
Publication Date:
02-2020
Content Type:
Working Paper
Institution:
Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:
This study examines the impact of inward foreign direct investment on the wages and employment of skilled and unskilled workers in Indonesian manufacturing plants. Entry of multinational enterprises affects local labour markets through spillovers as well as labour and product market competition. Our results show that spillovers increase the labour demand of local plants for unskilled workers, but increased wages due to severe labour market competition reduce the demand for skilled workers. We also find that product market competition causes resource reallocation from low- to high-productivity plants. Thus, attracting inward foreign direct investment effectively enhances aggregate productivity growth, but may retard the transition to skill-intensive production in Indonesian manufacturing.
Topic:
Development, Foreign Direct Investment, Manufacturing, and Labor Market
Political Geography:
Indonesia and Asia

74. Corporate Tax Revenue and Foreign Direct Investment: Potential Trade-Offs and How to Address Them

Author:
Sabine Laudage
Publication Date:
01-2020
Content Type:
Working Paper
Institution:
German Institute of Development and Sustainability (IDOS)
Abstract:
Corporate tax revenue and Foreign Direct Investment (FDI) are two key development finance sources. This paper discusses potential trade-offs faced by developing countries, when mobilizing corporate tax revenue and FDI jointly, and provides policy recommendations how to address these trade-offs.
Topic:
Development, Foreign Direct Investment, Finance, and Corporate Tax
Political Geography:
Global Focus

75. Could a Bridge between the EU and Latin America Boost Innovation “Sovereignty” in a Multipolar World?

Author:
Nicola Bilotta and Alissa Siara
Publication Date:
07-2020
Content Type:
Working Paper
Institution:
Istituto Affari Internazionali
Abstract:
The economic ramifications of COVID-19 will accentuate the technological innovation gap between Latin America and the rest of the world. In a region already suffering from chronic underinvestment in research and development, the strain placed on government budgets by the pandemic-induced economic crisis will push innovation further back down the agenda. The region has compensated for a lack of domestic resources with foreign capital and technology imports from China and the United States. As the US–China relationship becomes more adversarial in the face of COVID, however, Latin America will emerge as a geopolitical battleground whose countries may be forced to choose sides and potentially lose out on capital inflows or technology imports. Navigating this potential storm will involve the region in a search for other options. Public–private partnerships with European Union firms represent one valuable possibility, but Europe and Latin America should first align their innovation agendas.
Topic:
International Relations, Science and Technology, Sovereignty, Foreign Direct Investment, European Union, Institutions, Coronavirus, and Digital Policy
Political Geography:
China, South America, Latin America, North America, and United States of America

76. Determinants of Korean Outward Foreign Direct Investment: How Do Korean Firms Respond to the Labor Costs of Host Countries?

Author:
Hanbyul Ryu and Young Sik Jeong
Publication Date:
09-2020
Content Type:
Working Paper
Institution:
Korea Institute for International Economic Policy (KIEP)
Abstract:
Low cost of labor has been one of the major incentives that foreign firms invest in many developing countries. Yet, many developing countries including China and ASEAN have recently experienced a rapid increase in labor costs. Using the wage information provided by JETRO, this study examines how Korean FDI outflow is affected by the increase in labor costs of the manufacturing industry in host countries. The results indicate that the worker’s and engineer’s wages in Asian developing countries, who accumulated at least 3 and 5 years of work experience, have generally a negative impact on Korean FDI outflow. However, there exist positive relationships between the wages and FDI when the wages stay at very low levels. We do not find evidence that labor costs make a significant impact on Korean FDI outflow to European or Developed countries.
Topic:
Development, Foreign Direct Investment, and Labor Market
Political Geography:
China, Asia, and Korea

77. How Chinese Local Governments are Expanding Foreign Economic Cooperation

Author:
Sanghun Lee, Hongwon Kim, Joohye Kim, Jiwon Choi, and Jaehee Choi
Publication Date:
10-2020
Content Type:
Policy Brief
Institution:
Korea Institute for International Economic Policy (KIEP)
Abstract:
As the Chinese economy becomes more advanced and the internal and external economic environment surrounding China changes, so too does China’s strategy for external openness and economic cooperation. Accordingly, specific policies are diversifying from the past focus on manufacturing and foreign direct investment to services, overseas investment, bilateral and multilateral FTAs, and bilateral investment treaties (BITs). As the central government’s policy stance changes, China’s local governments are also promoting external openness and cooperation based on regional development stages, industrial structure, and regional development policies, reflecting the central government’s strategy. In particular, after the 19th Party Congress, the central government showed a strategic stance expanding external openness. In response, local governments have moved away from the traditional method of cooperation in the manufacturing sector centered on industrial complexes, and in recent years various cooperative methods have been promoted, including regional economic integration, service and investment, the use of FTAs, and innovations in institutions to expand external openness. Along with the shift in China’s foreign economic strategy, the economic cooperation environment surrounding Korea and China is changing as well, including the strengthening of protectionism, structural changes in the Chinese economy, the Korea-China FTA coming into effect, and the launch of follow-up negotiations. Therefore Korea needs to find new strategies and measures for economic cooperation with China, making it time to find new ways to expand cooperation with China’s central and local governments. Against this backdrop, this study aims to analyze the strategies, detailed policies and major cases of China’s central and local governments’ external openness and economic cooperation, and to draw policy implications for strengthening economic cooperation between Korea and China in the future.
Topic:
Government, Foreign Direct Investment, Economy, and Economic Cooperation
Political Geography:
China and Asia

78. Determinants of FDI in Transition Economies and Implications for North Korea

Author:
Cheol-won Lee, Hyung-gon Jeong, and Min-suk Park
Publication Date:
11-2020
Content Type:
Policy Brief
Institution:
Korea Institute for International Economic Policy (KIEP)
Abstract:
North Korean authorities have been seeking changes in North Korea’s economic policy since the Kim Jong Un regime took power. Along with decentralization, the government is trying to increase efficiency and productivity within the socialist economic system, and as part of this policy it has designated 27 economic development zones to attract foreign investment. Foreign direct investment plays a crucial role in economic growth for low-income countries such as North Korea, which lacks capital and technology. This study discusses North Korea's foreign investment policy and tasks ahead of its government to revitalize the economy, based on the premise that nuclear negotiations between North Korea and the US proceed smoothly. First of all, in order to derive policy tasks, we compared and analyzed the achievements and policies of transition countries in Asia and Eastern Europe in terms of attracting FDI, also analyzing the determinants of FDI inflows, after which we present policy tasks for North Korean authorities. As South Korea may very well become the largest investor in North Korea, our study also discusses tasks for the Korean government to pursue in order for Korean companies to successfully invest in North Korea.
Topic:
Foreign Direct Investment, Economy, and Transition
Political Geography:
Asia and North Korea

79. Cross-border Investments and Uncertainty Firm-level Evidence

Author:
Rafael Cezar, Timothée Gigout, and Fabien Tripier
Publication Date:
03-2020
Content Type:
Working Paper
Institution:
Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:
This paper studies the impact of uncertainty on cross-border investments. We build a data-set of firm-level outward Foreign Direct Investments between 2000 and 2015. We create a time and country varying measure of uncertainty based on the dispersion of idiosyncratic investment returns. An increase in uncertainty delays cross-border flows to the affected country. Yet, this average effect hides strong heterogeneity. Firms with low ex-ante performance durably reduce their foreign investments. Meanwhile high-performing firms increase their investments after the initial shock. We interpret these results as the evidence of a cleansing effect of uncertainty shocks among multinational firms in the presence of financial frictions.
Topic:
Economics, International Political Economy, Foreign Direct Investment, Borders, and Investment
Political Geography:
Global Focus

80. The FDI-led Growth Regimes of the East-Central and South-Eastern European Periphery

Author:
Dragos Adascalitei and Cornel Ban
Publication Date:
06-2020
Content Type:
Working Paper
Institution:
Centre for Business and Development Studies (CBDS), Copenhagen Business School
Abstract:
The East-Central European countries that joined the EU in the 2000s are the unsung success of economic development. This paper discusses the consolidation of an export-led growth model in this region by drawing on an alternative school of thought to Varieties of Capitalism: growth regimes. By focusing on three distinct time periods (2000-2008, 2008-2012 and 2012-2019), it shows that despite marginal shifts towards consumption-led growth through personal debt or wage increases, the core of the region’s economic model continues to be heavily dependent on exports. Combining IPE and CPE analytical frameworks, we show that the consolidation of the CEE export-led model has both systemic and national roots. Specifically, we argue that growing international competition from Asia in the beginning of 2000s has forced firms in Western economies to seek alternative sources of competitiveness that involved a mix of wage moderation at home and expansion towards the East. The internationalization of Western firms met capital hungry Eastern governments, which were all too happy to use FDI to restore the competitiveness of their outdated SOEs. Backed by a social bloc that involved domestic and foreign capital as well as workers in the tradeable sectors, the export-led growth model took off and generated growth rates well above those in core countries. The 2000s also saw an increase in debt fueled consumption, that partially compensated for the lack of wage growth in the region. The crisis provided an opportunity to put an end to hybridization and to reinforce the export-led component of growth through short-term austerity measures and deeper labor market reforms. These changes consolidated the export-led model that remained in place even amidst political reconfigurations that, at least rhetorically, aimed to fight the economic dependency of the region on FDI. After the crisis ended, however, the closing of the debt-finance consumption channel combined with the German export boom to the rest of the world and local demographic decline to put upwards pressure on wage-financed consumption increases without inflationary or external balance problems. Yet despite historically low spreads in the region’s bond markets, this did not count as a full Kaleckian turn, however, with the region’s contribution of consumption to GDP growth remaining far below both consumption-led growth regimes and balanced ones.
Topic:
Economics, International Political Economy, Foreign Direct Investment, Economic Growth, Exports, State-Owned Enterprises, and Consumerism
Political Geography:
Eastern Europe and Central Europe