The political economy of industrial diversification in a resource-rich country: the case of Iran

This paper compared the extent and factors that drive export diversification in resource rich and non-resource rich countries. The three methods of measuring the extent of export diversification: vertical, horizontal and Herfindahl index of export concentration were employed to examine the extent of export diversification. GMM panel analysis was used to estimate the determinants of export diversification. It was found that the non-resource rich countries fared better compared to the resource rich countries in export diversification drive. While foreign direct investment promotes export diversification in the non-resource countries, it however reduces it in the resource rich countries. Domestic investment was found to promote export diversification in all the countries. Per capita income increases export diversification in non-resource countries but does not in resource rich countries. Resource endowment reduces export diversification in non-resource rich countries. Exchange rate decreases export diversification in resource rich countries, while it has no impact in the non-resource rich countries. No evidence is found for the impact of openness on export diversification. Both time to export and cost of export decrease export diversification in both resource rich and non-resource rich countries.

Foreign direct investment is crucial to the construction of a new pattern of development, with the domestic economy and international engagement providing mutual reinforcement, and the former as the mainstay. From the perspective of Marxist political economy theory and the development economics of large countries, this article analyzes the important role of foreign direct investment in unblocking the domestic general circulation and deepening the integration into the international external circulation system. In addition, this article reveals the characteristics of provincial national and international dual value chain linkages based on the decomposition data of the value added of trade in 30 provincial areas from 2007—2017, and further empirically examines the impact and mechanism of action of foreign direct investment on provincial national and international dual value chain embedding, as well as the moderating effects of institutional quality and informatization level. Firstly, the study finds that, overall, there is significant heterogeneity in the degree of embeddedness of provinces in national value chains and global value chains. The entry of foreign direct investment enhances the degree of national and international dual value chain embedding in provincial areas, and the entry of international capital promotes the construction and development of the domestic general cycle and at the same time promotes the value chain division of labor cooperation between domestic provinces and the international external cycle. Secondly, mechanistically, foreign direct investment entry promotes provincial linkages with global value chains mainly through competitive market effects and demonstration-driven effects, as well as enhancing provincial embedding in national value chains through external shock effects. Thirdly, the heterogeneity analysis shows that there are significant geographical differences between the East, Central and West in the impact of foreign capital entry on provincial national and global dual value chain linkages, and the promotion effect of foreign capital on provincial dual value chain linkages has been further enhanced after the “One Belt, One Road” initiative. Fourthly, further expanding the institutional and informational context analysis finds that the improvement of institutional quality and informational level positively moderates the effect of foreign direct investment on the provincial national and global dual value chain linkages. In addition, based on the dichotomy of institutional quality, there is a significant difference in the incentive intensity of the property rights regime and the contractual regime on the dual value chain linkage between foreign capital and the province.

This study examines the individual and interactive impact of foreign direct investment (FDI), domestic production structure, infrastructure, natural resource endowment, and fiscal incentives on export diversification. The econometric estimation is based on a dynamic systems general method of moments (sGMM) analysis using panel data from 44 Sub-Sahara African (SSA) countries. The study finds a positive export-diversifying effect of FDI in SSA suggesting that FDI has an influence on the composition of export baskets in host economies. Furthermore, diversifying production sectors, credible institutions, and macroeconomic stability are essential for promoting export diversification, while landlockedness and natural resource endowments contribute to export concentration. The study finds that the FDI’s impact on export diversification is reinforced by better access to infrastructure and fiscal incentives to foreign investors in special economic zones (SEZs). The latter results compare with findings by Farole and Moberg (2017), while the importance of infrastructure in export diversification is emphasised by Fosu (2021). The findings from this study are particularly important to SSA economies that other than having highly concentrated export baskets have in recent years faced declines in FDI albeit limited domestic capital and government resources needed to propel export diversification. SSA economies must focus on efforts to attract more FDI possibly through regulatory reforms that grant foreign investors fiscal incentives for investing in targeted sectors and operating in SEZs.

National innovation policies for technology upgrading through GVCs: A cross-country comparison

Purpose Over the past two decades, global value chains (GVCs) have emerged as a key mechanism for industrial upgrading and export diversification in developing economies, yet the extent to which foreign direct investment (FDI) promotes GVC integration remains contingent on institutional quality. This study aims to investigate the impact of FDI inflows on backward and forward GVC participation in Asia-Pacific countries from 2008 to 2020, with particular attention to the moderating roles of regulatory quality (REG) and government effectiveness (EFF). Design/methodology/approach Using Organisation for Economic Co-operation and Development's trade in value-added data and employing fixed-effects and two-step system-generalized method of moments estimations to address unobserved heterogeneity and endogeneity, the results reveal an asymmetric effect: FDI enhances forward participation by increasing domestic value-added in partner exports while reducing backward participation through substitution of imported intermediates. Findings Importantly, REG – rather than government EFF – conditions these effects, with stronger regulatory frameworks moderating both the positive and negative impacts of FDI. Subsample analysis further highlights a heterogeneous pattern: Association of Southeast Asian Nations (ASEAN) countries benefit from FDI-driven upstream integration, while non-ASEAN members face crowding-out effects unless institutional quality is high. These findings underscore the need for regionally tailored policy responses, where improving regulatory environments is critical to fully leverage FDI for sustained and balanced GVC integration in the Asia-Pacific. Originality/value The study is novel in revealing the critical role of institutional quality, focussing on REG and government EFF in optimizing FDI spillovers for Asia-Pacific economies, particularly developing economies in the Regional comprehensive economic partnership bloc. Policy recommendations call for targeted reforms to improve regulatory frameworks and governance efficiency, enabling deeper integration into GVCs and greater domestic value addition across the region.

Generally, the conditions and factors that influence investment decisions, shape the investment environment. At the same time, a favorable investment environment is considered significant for economic growth and development. The article discusses the main factors affecting the investment environment of the Republic of Armenia, including political stability, macroeconomic stability, legal and regulatory frameworks, infrastructure, human capital and technological progress. Attracting foreign direct investment (FDI) usually promotes accelerated economic growth, job creation and technological advancement, especially in developing countries. FDI also greatly contributes to the more significant participation of the countries involved in global value chains, and ultimately to the smooth integration of these countries into the global economy. For each of the factors affecting the investment environment, a corresponding set of indicators was selected, including the years 2010-2021, and, in terms of availability, 2010-2022. The analysis of the dynamics of the above-mentioned indicators allowed us to estimate the sensitivity of the investment environment of Armenia to certain factors affecting it.Generally, the conditions and factors that influence investment decisions, shape the investment environment. At the same time, a favorable investment environment is considered significant for economic growth and development. The article discusses the main factors affecting the investment environment of the Republic of Armenia, including political stability, macroeconomic stability, legal and regulatory frameworks, infrastructure, human capital and technological progress. Attracting foreign direct investment (FDI) usually promotes accelerated economic growth, job creation and technological advancement, especially in developing countries. FDI also greatly contributes to the more significant participation of the countries involved in global value chains, and ultimately to the smooth integration of these countries into the global economy. For each of the factors affecting the investment environment, a corresponding set of indicators was selected, including the years 2010-2021, and, in terms of availability, 2010-2022. The analysis of the dynamics of the above-mentioned indicators allowed us to estimate the sensitivity of the investment environment of Armenia to certain factors affecting it.

Relevance. Foreign investment is likely to be attracted to resource-rich countries because of their wealth of natural resources. However, the fact that foreign direct investment (FDI) contributes less than 10% of these countries’ GDP indicates that FDI has a non-proportional impact when compared to the size of the natural resources. Hence, it is critical to identify the missing link impeding resource optimization through FDI. Research objective. Given the significance of FDI, the study seeks to ascertain whether the quality of institutions in resource-rich countries influences FDI inflows. This is significant because resource-rich countries may have other factors that encourage FDI but do not result in resource optimization. Data and methods. The study employed panel data analysis to analyze the impact of FDI on economic growth in resource-rich countries and the role of institutions in attracting FDI. The study relies on the Augmented Mean Group Estimator and on the annual data from the World Bank's World Development Indicator and the World Bank's World Governance Indicator for the top ten resource-rich countries. Results. Our preliminary evidence indicated that FDI had a positive and significant effect on economic growth in resource-rich countries. The extent of the influence, on the other hand, is minimal for all categories of countries. Our main results revealed that institutional quality has a significant pull effect on FDI, with trade openness playing a key role, particularly in resource-rich nations with well-developed institutions. Conclusions. We found that institutional quality plays a critical role in attracting FDI, which could have hampered natural resource optimization. Furthermore, countries with high institutional quality and less restrictive investment policies attract more foreign direct investment (FDI) than countries with low institutional quality and with investment policies ranging from moderate to restrictive. In general, resource-rich countries, particularly those with weak institutional qualities, should address the gap in institutional quality to attract more inward investment.

No AccessPolicy Research Working Papers25 May 2021Understanding FDI Spillovers in the Presence of GVCsAuthors/Editors: Valerie Mercer-Blackman, Wei Xiang, Fahad KhanValerie Mercer-Blackman, Wei Xiang, Fahad Khanhttps://doi.org/10.1596/1813-9450-9645SectionsAboutPDF (0.9 MB) ToolsAdd to favoritesDownload CitationsTrack Citations ShareFacebookTwitterLinked In Abstract: Does a global value chain framework provide additional insights into the question of whether foreign direct investment is beneficial to host countries? The literature has found mixed results on whether foreign direct investment provides positive spillovers over and above mere financing. But the studies have focused on one country, or studies with an international focus tend to abstract from intersectoral linkages. By examining this question in the context of global value chains, this paper provides a much better understanding of the association as well as general validity. It harmonizes three major panel data sets: 1) the Multi-Regional Input-Output table for international input-output linkages, 2) the FDI Markets reports for greenfield foreign direct investment, and 3) the World Bank Enterprise Surveys for firm performance measures. The paper produces a rich panel data set from 2011 to 2017. The findings show that foreign direct investment has a positive effect on labor productivity in sectors and firms within those sectors. Moreover, global value chain participation plays a key role in shaping the foreign direct investment effects. Sectors with lower global value chain participation benefit more from foreign direct investment: doubling the foreign direct investment in those sectors results in an 8 percent productivity gain. The positive effect seems to be due to the increased competition created by foreign direct investment. Foreign direct investment spillovers also take place through domestic and foreign backward linkages, which means that foreign direct investment also has positive inter-sector and cross-border spillovers. Previous bookNext book FiguresreferencesRecommendeddetails View Published: April 2021 Copyright & Permissions KeywordsFOREIGN DIRECT INVESTMENTFDIGLOBAL VALUE CHAINLABOR PRODUCTIVITYSPILLOVERSINPUT-OUTPUT LINKAGESENTERPRISE SURVEYFIRM PERFORMANCE PDF DownloadLoading ...

Technological upgrading constitutes a critical element of the development process. Member countries of the Association of Southeast Asian Nations (ASEAN) have placed a strong emphasis on attracting direct foreign investment (DFI) flows as a means of promoting technology transfer. This article explores the relationship between DFI and technological upgrading in a developing-country context, with an emphasis on ASEAN. It begins with a review of the theoretical literature on DFI and real-world applications in the ASEAN countries. Next, it develops a simple model of technological upgrading in ASEAN, which underscores the importance of national policies in the process. Finally, it considers how multinational enterprises and DFI are contributing to regional economic integration in ASEAN. I. Introductionl It is probably accurate to claim that most of what has been learnt about the relationship between direct foreign investment (DFI) and technological upgrading in the process of development has been learned in the thirty years coinciding with the existence of ASEAN. It is probably not immodest to claim that much of this learning came from the experiences of the ASEAN member countries themselves. These countries received a significant proportion of the worldwide DFI flows during this period; over 1961-80, the original five ASEAN countries received US$11.9 billion in net foreign investment flows and US$47 billion over 1981-90 (Chia 1993, p. 73). Moreover, these countries, coming from diverse starting points and resource constraints but sharing the same development ambitions, engaged in much policy experimentation with regard to DFI during the period (Chia 1993). These experiences have the potential to shed light on the relationship between DFI and economic development. There have been a variety of treatments of this topic in the literature (see, for example, Ramstteter 1991), but the issue of the role of DFI in the technological upgrading of developing countries has proven to be illusive.2 The objective of this article is to identify key features of the ASEAN experience with respect to DFI and technological upgrading, as well as to highlight the theoretical meaning of these features. Section II provides an inventory of these key areas, followed in Section III by an analytical interpretation of this experience. Section IV discusses the implications of the ASEAN experience its regional integration efforts. Finally, Section V gives some concluding remarks. II. FDI and Technological Upgrading in the ASEAN Experience Countries acquire technology in five ways, namely through: (1) licensing agreements and outright purchase, (2) purchasing foreign capital goods, (3) DFI inflows, (4) turnkey projects, and (5) various forms of international technical assistance. In its development process, Japan relied heavily on licensing, turnkey projects, and the reverse engineering of imported goods; Korea has relied heavily on machinery imports and turnkey projects (Kakazu 1990). The acquisition of technology through DFI relies on the interaction between the absorptive capacity and policies of the host country and the objectives and the character of the domestic operations of the foreign enterprise which owns the technology. The transfer of technology through DFI does stimulate competing firms in the domestic market to carry out technological upgrading; employees can also learn the technology while working for the firm and there are many instances of local employees starting their own ventures using the acquired technology.3 Since the hardware is more easily purchased, the component is the most essential element of any technology; DFI ensures that the technology will be operational in the host location. But in order to assimilate the technology into the host economy, the multinational enterprise (MNE) must deem it advantageous to share its software component. An overwhelming proportion of research and development that provides the basis for technology development is found within MNE operations, perhaps as much as 75 to 80 per cent of global civilian expenditures (Dunning 1993). …

This study integrates Sraffian and Keynesian perspectives to analyze the manufacturing sector growth in India and China, focusing on production capabilities, technological advancements, and demand-side factors. It employs a mixed-methods approach, combining quantitative data analysis and qualitative case studies, to understand the factors driving each country's manufacturing success and to identify policy interventions for enhancing their roles in the global value chain (GVC). China's manufacturing dominance is attributed to strategic state-led industrial policies, significant infrastructure investments, and production efficiencies, exemplified by the "Made in China 2025" initiative and extensive foreign direct investment (FDI). Conversely, India's manufacturing sector shows potential for rapid growth with effective implementation of Keynesian demand-side policies and infrastructure improvements, supported by initiatives like "Make in India." Both countries can benefit from integrating Sraffian and Keynesian insights in policy-making, with China focusing on technological upgrades and domestic demand stimulation, and India targeting fiscal policies and regulatory reforms to enhance manufacturing capabilities and labor market flexibility. The study concludes with policy recommendations aimed at fostering sustainable manufacturing growth, enhancing global competitiveness, and achieving balanced economic development in This study integrates Sraffian and Keynesian perspectives to analyze the manufacturing sector growth in India and China, focusing on production capabilities, technological advancements, and demand-side factors. It employs a mixed-methods approach, combining quantitative data analysis and qualitative case studies, to understand the factors driving each country's manufacturing success and to identify policy interventions for enhancing their roles in the global value chain (GVC). China's manufacturing dominance is attributed to strategic state-led industrial policies, significant infrastructure investments, and production efficiencies, exemplified by the "Made in China 2025" initiative and extensive foreign direct investment (FDI). Conversely, India's manufacturing sector shows potential for rapid growth by effectively implementing Keynesian demand-side policies and infrastructure improvements, supported by initiatives like "Make in India." Both countries can benefit from integrating Sraffian and Keynesian insights in policymaking. China focuses on technological upgrades and domestic demand stimulation, and India targets fiscal policies and regulatory reforms to enhance manufacturing capabilities and labor market flexibility. The study concludes with policy recommendations to foster sustainable manufacturing growth, enhance global competitiveness, and achieve balanced economic development in India and China.both India and China.

The study attempts to explore the dynamic interlinkages among foreign direct investment (FDI) inflows, informational globalisation (ING) and global value chain (GVC) empirically in the G20 nations from 1990 to 2019. The trade and growth effects of FDI are widely discussed in theoretical and empirical literature in the context of globalisation in different countries and regions. The noteworthy progress of information and communication technologies (ICT) has also been a substantial factor in the FDI-trade-growth relationship, as observed in various contemporary studies. However, the existing studies cannot provide a suitable answer with explicit scenarios regarding the relationship between FDI and GVC in the context of the latest form of global trade in the era of ING, which encompasses both globalisation and digitalisation. To conduct the empirical exercises examining the dynamic relationships among FDI, ING and GVC, the study chooses G20 nations, which represent around 85% of the global gross domestic product (GDP), over 75% of the global trade and FDI flows, and about two-thirds of the world’s population ( OECD, 2022 , Twenty-eighth report on G20 investment measures ). World Bank (2022 , World Development Indicators (WDI) ) provides country-wise annual data on FDI. The year-wise quantitative measures of the ING for selected countries are obtained from the KOF Globalisation Index (2022 , KOF Globalisation Index 2020 ). The study collects country-wise yearly data on GVC from the UNCTAD-Eora (2023 , UNCTAD-Eora global value chain database ) GVC database. In the panel cointegration and vector error correction mechanism (VECM) framework, the empirical estimations applying the panel fully modified ordinary least squares (FMOLS) and dynamic ordinary least squares (DOLS) methods reveal the bidirectional causality between FDI and GVC and FDI and ING, and unidirectional causality between ING and GVC in G20 economies. JEL Codes: F01, F20, F41

The thesis analyses the impact of new automation tendencies on the Visegrad-Four countries. One of the critical sectors affected is manufacturing, where robotisation is already quite advanced and has relatively long traditions. The Visegrad countries are particularly interesting for research due to their “catching-up” status. Therefore, the analysis explores robotisation's impact on the Visegrad region's manufacturing sector. This potential influence was analysed in four ways: foreign direct investment, technological upgrading, upgrading in global value chains, and employment. A complex methodological framework supported the investigation: the potential effect was scrutinised at macro- and micro-levels. Quantitative and qualitative analyses were carried out by building on field and desk research. My findings are the followings: 1. In terms of foreign direct investment, my point of departure was that leading industrial countries are gaining more economic advantages with the recent technological developments than the less developed ones, like the V4. However, during the research, no evidence was found for the negative impact of robotisation on foreign direct investment in manufacturing. Accordingly, the manufacturing sectors of the V4 countries are still attractive destinations for investments from the major FDI-sending countries. 2. Regarding technological upgrading, I revealed a related development in the Visegrad Four region. The robotisation of the local subsidiaries of large multinational companies is a primary source of this progress. 3. However, technological upgrading does not go hand in hand with upgrading global value chains. I did not observe related evidence in the statistics for the region. The reason behind this is the still dominantly assembly and production-oriented focus of activities in the local subsidiaries of large multinationals. Such activities usually possess a lower added value in global cooperation. 4. Finally, I did not unveil a negative impact of robotisation on employment in the V4. On the contrary, this relationship is positive, as the increase in robotisation and automation supports the establishment of new workplaces. Consequently, although the analysis shows a mixed picture, the current economic landscape of the V4 economies in regard to robotisation is promising.

Rise of BRICS and Global Investment from the GVCs' Perspective

The objective of this research is to provide empirical evidence regarding the nature of the relationship between natural resource rents and economic welfare. Firstly, this relationship is examined in 144 countries from 1996 to 2016; then the relationship is analysed for different groupings of these countries, based on their level of natural resource revenue as a share of total fiscal revenue and in terms of per capita income. Employing fixed-effect regression for panel data, three major auxiliary variables are included in the analysis—institutional quality, foreign direct investment (FDI) and industry value added (IVA). Due to their potential significance for the relationship between natural resource rents and economic welfare, these are analysed as both independent and moderator variables. The study is then extended to focus on one resource-rich country (RRC): Indonesia. Not only is Indonesia endowed with abundant natural resources, but it has also been posited as an example of a country that has overcome the ‘resource curse’—the failure of many RRCs to benefit fully from their natural resource wealth (Hanif & Bria, 2016; Rosser, 2004, 2007). Conversely, some studies claim that the resource curse does exist in Indonesia (see Hanafi & Martawardaya, 2015; Putra & Widodo, 2013). The analysis presented in this thesis comprises a time series regression analysis and a qualitative analysis based on primary data from key informant interviews. The results from the broad sample of countries suggest that, although rents generated from natural resource sectors have contributed positively to economic welfare, as measured by adjusted net saving (ANS), these rents have a conditional link to economic welfare. A focus on RRCs further demonstrates this ambiguous relationship; several models demonstrate no significant association. Following segregation of the RRCs according to per capita income levels, it became evident that a negative association between rents and economic welfare appears to exist in low and lower-middle income RRCs. In upper-middle income RRCs, natural resource rents are likely to have no association; and, in high-income RRCs, they appear to have a positive association with economic welfare. This study also found that IVA and some dimensions of institutional quality have significant positive effects on economic welfare and moderating effects on the relationship between natural resource rents and economic welfare. FDI was found to be significant only when treated as a moderator variable for the whole sample group and in the high-income RRCs; it had no effect in the remaining groups. These findings suggest that FDI, institutional quality and IVA do have an effect on the resource-welfare relationship. However, it is necessary to consider the particular characteristics of each country, such as natural resource productivity and income level. For Indonesia, the quantitative results indicate that it is difficult to determine the role of natural resource rents in relation to economic welfare; the estimated coefficient signs in the regression equations exhibited inconsistency. This ambivalent finding is supported by the qualitative results; interviewees suggested that the contribution of natural resources was beneficial in supporting economic growth, but not yet able to increase economic welfare. When treated as a moderator variable, FDI in Indonesia exhibits a weakening effect on the resource rents–economic welfare relationship. The qualitative results support this finding; some interviewees suggest that FDI generally favours only an exclusive group of people. The qualitative aspect of the research, comprising interviews with both government and non-government officials, suggests that strengthening the quality of institutions and encouraging the creation of increased IVA should be two key foci, if the Indonesian government is to guarantee that rent generated from the natural resource sector contributes to economic welfare. The key relevant dimensions of institutional quality are accountability, rule of law, control of corruption and regulatory quality, particularly in relation to contract transparency. In terms of creating increased IVA, current government policy regarding adding value to industry products must be maintained and improved, because this has a significant positive effect on the contribution of natural resource rents to economic welfare. This study also recommends that regulation relating to natural resources revenue-sharing must be improved, particularly in terms of the revenue-sharing allocation in the regional budget. This study recommends the formulation of new regulation to mandate natural resource revenue allocation for conservation and poverty alleviation activities, for those communities closest to resource exploitation source areas. Improvement in the natural resource revenue-sharing formula is also required to favour such areas.

This study delves into the effects of outward foreign direct investment (FDI) on global value chain (GVC) participation from 2000 to 2014. The utilization of traditional panel models, the spatial Durbin model (SDM), and the threshold model provides a comprehensive understanding of the heterogeneous spillover effects of outward FDI. The results show that increased outward FDI not only facilitates the GVC participation of parent countries but also has a profound impact on that of other countries. The spillover effects of outward FDI play a vital role in the GVC participation of low total factor productivity (TFP) countries. However, for developed countries with high TFP levels, outward FDI has positive impacts on deep GVC participation while not influencing shallow participation. These findings serve as an extension to the relevant theories and suggest a way for developing countries to capture gains from outward FDI and participate further in GVCs.