Search

Begin New Search Topic Foreign Direct Investment

1. The European Screening Mechanism and Its Implications for Chinese FDI

Author:
Emanuele Ballestracci
Publication Date:
02-2025
Content Type:
Commentary and Analysis
Institution:
Istituto Affari Internazionali
Abstract:
The European Commission has recently proposed a revision of the EU foreign direct investment (FDI) screening mechanism, originally established in 2020. The aim is to further strengthen the EU’s economic security within the framework of its “de-risking” policy, which aims to manage risks coming from the economic and technological engagement with China.[1] The new proposal aims to address major shortcomings in the current screening mechanism, expanding its scope to greenfield investments and European outward FDI. However, this could conflict with the EU’s goal of encouraging Chinese greenfield investment and joint ventures, particularly in the electric vehicle (EV) sector.
Topic:
Science and Technology, Foreign Direct Investment, European Union, and Economic Security
Political Geography:
China, Europe, and Asia

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

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

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

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

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

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

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

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

6. Can Multinationals Withstand Growing Trade Barriers?

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

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

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

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

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

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

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

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

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