FDI Liberalization Research Articles

Optimal Ownership and Firm Performance: An Analysis of China's FDI Liberalization

Abstract Seminal theories of the firm posit that firm ownership is allocated to minimize contractual inefficiencies. Yet, it remains unclear how much the optimal ownership choice affects firm performance in practice. This paper provides a first quantification of the gains from optimal ownership within multinational firms, by exploiting a major liberalization of China's policy restrictions on foreign ownership. The liberalization allowed previously restricted firms to become fully foreign owned. We find that these reoptimized ownership choices raise firm output by 40% and productivity by 7.5% on average. An extended property-rights theory of the multinational firm rationalizes these effects and their heterogeneity.

Optimal Ownership and Firm Performance: An Analysis of China's FDI Liberalization

Optimal Ownership and Firm Performance: An Analysis of China's FDI Liberalization

Firm and Labor Adjustments to FDI Liberalization

Firm and Labor Adjustments to FDI Liberalization

The Effects of FDI Liberalization on Occupational Mobility: Evidence from China

The Effects of FDI Liberalization on Occupational Mobility: Evidence from China

The Effects of FDI Liberalization on Structural Transformation and Demographic Change: Evidence from China

The Effects of FDI Liberalization on Structural Transformation and Demographic Change: Evidence from China

The Effect of FDI Liberalization on Manufacturing Firms' Technology Upgrading

The Effect of FDI Liberalization on Manufacturing Firms' Technology Upgrading

The pro‐competitive effects of foreign firm entry: Evidence from the Korean retail sector

AbstractI investigate the effect of foreign entry on host country market competition. Using a firm‐level data set for the Korean retail sector during the process of FDI liberalisation, I find that the increase in the number of foreign stores caused average markups across local firms to fall. I show that the channel through which FDI decreases local firms’ markups increased competition as opposed to productivity spillovers.

FDI, Export Sophistication, and Quality Upgrading: Evidence from China's WTO Accession

This paper identifies a positive effect of FDI liberalization on manufacturing export sophistication, exploiting China’s adjustment of its Catalogue for the Guidance of Foreign Investment Industries upon its accession to WTO. It further investigates the underlying causes in the lines of firm ownership type, trade mode, product type, and intensive vs. extensive margins. The positive effect comes from, e.g., the increase in the export share of foreign-invested enterprises (FIEs) and firms with processing trade, and the increase in the export sophistication of privately-owned enterprises (POEs), of ordinary trade, and of intermediate goods. The intensive margin rather than extensive margin is accountable for the effect. Liberalizing FDI does not seem to have any significant effect on product quality.

90년대 한국 발전국가의 행적 찾기: 국제직접투자(FDI) 개방 정책을 사례로

90년대 한국 발전국가의 행적 찾기: 국제직접투자(FDI) 개방 정책을 사례로

Openness and factor shares: Is globalization always bad for labor?

This paper studies the response of factor shares to the liberalization episode in India during the 1990's, which is characterized by large and unexpected changes in trade and foreign investment policies. We find that access to foreign capital caused an increase in the labor-to-capital relative factor share. As lower tariffs on capital goods and FDI liberalization reduce the cost of foreign capital, firms increase their use of foreign capital relative to domestic capital. This shift in the composition of the capital stock improves capital's productivity per unit of expenditure, which in turn raises wages and the relative labor share. Consistent with this mechanism, firm TFP and the share of firms that import capital both increase in industries with the largest capital cost reductions, while the relatively larger rise of labor payments is observed predominantly for new capital importers. We identify domestic deregulation policies and reallocation to capital-intensive firms as potential determinants of the observed decline in the aggregate labor share. Finally, in a model where domestic and foreign capital are imperfect substitutes, we quantify the effect of a reduction in capital tariffs, and find that it explains a large part of the estimated increase in the labor share found in the reduced form analysis.

Examining the Impact of Information and Communication Technologies on Female Economic Participation in Pakistan

This study is an attempt to investigate the impact of information and communication technologies (ICTs) development on the participation of women in economic activities in Pakistan. Data for the period 1991-2017 was used for this research work and regressed on female economic involvement and ICTs development and another set of control variables like GDP, FDI and trade liberalization. Data sources are the WDI, IFS, and ESP. Johansen cointegration test, VECM and Granger causality tests were used to estimate data. Estimation techniques were applied after checking the properties of time series data. Results indicate the positive and significant relationship of dependent variable female economic participation and independent variables ICTs development and macro-economic variables in the long run. The study findings indicate that female economic participation has increased with the increase in ICTs in Pakistan. However, the rate of women's economic participation was not found as increasing as in other developed countries, and it is not as rapid as technology developed in the last decade.

A Literature Review on Imported Intermediate Inputs and Gains from Trade

Purpose This paper provides a literature review on imported intermediate inputs and gains from trade. With the expansion in global value chains, intermediate input trade has substantially grown to become a major source of gains from trade. Design/Methodology/Approach This paper reviews the theoretical background for gains from trade due to the use of imported intermediate inputs, and surveys a selected number of empirical studies that find substantial gains from trade through access to imported intermediate inputs. Findings Imported intermediate inputs can increase productivity via variety, quality and learning effects. A large body of empirical studies show that the new access to foreign inputs has increased firm-level productivity in several small open developing countries. Furthermore, the use of imported intermediate inputs do not only promote R&D investment and quality upgrading, but also contribute to a drop in consumer prices or an increase in real consumption. Research Implications The review emphasizes the importance of comprehensive research at the firm-level including within-firm extensive margin and identification of channels that raise productivity. In addition, it is worth noting that higher FDI liberalization and deregulation can increase gains from trade through access to new imported inputs.

Industry Relatedness, FDI Liberalization and the Indigenous Innovation Process in China

This paper employs a structural innovation model to study the process of indigenous innovation in China and the role of industry relatedness. To better take into account China’s transitioning economy context, I further test to what extent the relationship between relatedness and firms’ innovation process is influenced by the relaxation of foreign ownership controls, an arguably exogenous shock. Controlling for selection, simultaneity and unobserved heterogeneity, the results show that firm RD (ii) recombine knowledge from related industries in order to bring forth new, proprietary ideas, processes or concepts; and (iii) help solve process or organizational problems faced in related industries.

Small and Large Firm Performance Gaps in Indonesia: Evidences from the 1981–2008 Indonesian Manufacturing

This study aims to examine the impacts of globalization on the performance gap between small and large firms in Indonesia, specifically in the manufacturing sector. First, the study addresses whether there are performance differentials between small and large firms, and if so, whether such gap is increasing while controlling for firm characteristics such as age, finance, export orientation, industry, and macroeconomic indicators. Second, the study discusses whether the opening of domestic market through trade and FDI liberalization affect firms disproportionately with respect to firm size. The study highlights such impacts amid successive economic reforms from 1986 to 1994. The empirical results suggest that opening the economy through market liberalization increased the productivity and wages gaps between large and small firms before it stabilized. Factors such as industrial agglomeration, financial access, export orientation have minimal impact on firms. The findings also suggest that while empirically, small firms benefit from more open trade regime after Asian financial crisis, the medium and large firms have more chance to benefit from the liberalization of the economy in general. Policy implications are also further explored.

Quantifying the USMCA

This study develops a quantitative analysis of the impact of the United States-Mexico-Canada Agreement (USMCA), originally signed on 30 November 2018, and amended by the Protocol of Amendment signed in Mexico City on 10 December 2019. The USMCA provides a major overhaul of the North American Free Trade Agreement (NAFTA) based largely on the Trans-Pacific Partnership (TPP) text. It introduces only minor changes to market access, intensifies trade and investment diversion, increases uncertainty by weakening the institutional framework of the NAFTA, and seeks to shift the net benefits of the NAFTA towards the United States. The evaluation of the USMCA is developed using simulations on a computable general equilibrium (CGE) model, based on a dynamic specification of the Global Trade Analysis Project (GTAP) model, modified to directly represent goods and services trade conducted through foreign affiliates, as well as on a cross-border basis, and to reflect the impact of liberalization of FDI. The impact of the USMCA is assessed against a baseline that reflects an in-force NAFTA. These results are compared to the impacts of NAFTA lapsing to infer the difference between the USMCA and a “hard” NAFTA exit scenario.

Openness and Factor Shares: Is Globalization Always Bad for Labor?

The secular decline in the labor share since the 1980's is a global phenomenon, and a trend that is concurrent with large liberalization episodes worldwide. In this paper we investigate the liberalization episode in India during the 1990's, which has been characterized by large and unexpected changes in trade and foreign investment policies. Contrary to what might be expected given the reduction in the aggregate data, we uncover a trade channel that raises the labor-to-capital relative factor shares in India. A reduction in capital tariffs and liberalization of FDI raise the share of income paid to labor relative to capital. Our results reveal access to foreign capital as a new mechanism through which openness affects factor shares. An increasing share of foreign capital in the total capital stock provides a capital-augmenting technical change and potentially reduces rental rates, both of which raises the relative labor share. We find capital and R&D intensities, and the borrowing capacity of the firm, to be important determinants of the factor share response to openness. Finally, we identify domestic deregulation policies and credit expansion as potential determinants of the observed decline in the labor share.

Reassessing the productivity gains from trade liberalization

AbstractThis paper reassesses the impact of trade liberalization on productivity. We build a new, unique database of effective tariff rates at the country‐industry level for a broad range of countries over the past two decades. We then explore both the direct effect of liberalization in the sector considered, as well as its indirect impact in downstream industries via input linkages. Our findings point to a dominant role of the indirect input market channel in fostering productivity gains. A 1 percentage point decline in input tariffs is estimated to increase total factor productivity by about 2 percent in the sector considered. For advanced economies, the implied potential productivity gains from fully eliminating remaining tariffs are estimated at around 1 percent, on average, which do not factor in the presumably larger gains from removing existing non‐tariff barriers. Finally, we find suggestive evidence of complementarities between trade and FDI liberalization in boosting productivity. This calls for a broad liberalization agenda that cuts across different areas.

Policy of foreign direct investment liberalisation in India: implications for retail sector

This study has analysed the impact of liberalisation of Indian economy and FDI policy on the retail sector since its implementation in the 1990s. It also further analyses sub-categories by investigating its impact on the unorganised retail sector and the flow of FDI in single-brand retail and multi-brand retail sectors. A comprehensive and critical review of the existing evidence on the subject was carried out, and descriptive statistical analysis of data from 1991 to 2013 was performed which leads to conclude that the policy of FDI liberalisation has proved to provide diversification and sustainable development to the Indian economy and specifically retail sector which is considered to be one of the significant pillars of economy. Furthermore, for continuous growth of the economy, it seems vital to encourage more investment in other sectors by liberalising the restrictive policies.

Deep Integration in the Eurasian Economic Union: What are the Benefits of Successful Implementation or Wider Liberalization?

We assess deep integration in the Eurasian Economic Union (EAEU) through the reduction of time in trade costs, the reduction of non-tariff barriers in goods and the liberalization of barriers against foreign suppliers of services. We develop an innovative multi-region model of trade and FDI for preferential trade analysis where we incorporate Dixit-Stiglitz endogenous productivity effects from trade and FDI liberalization. This model produces important differences compared with a perfect competition model. We build on numerous surveys and econometric estimates of the trade and FDI barriers in our focus countries that we helped develop. We show that if the EAEU effectively implements its objectives for trade cost reduction, it would lead to significant welfare gains of between 0.8 to 4.8 percent of consumption, depending on the country. If these deep integration measures are extended to third countries, either by a wider liberalization effort or by spillovers, then the estimated welfare gains increase between 2.5 and 4.5 times for Belarus, Kazakhstan and the Russian Federation. Using the neoclassical model of labor migration, we estimate that the right to legally work in the Russian Federation is approximately of equal value to Armenia as the combined aspects of the reduction of trade costs, including FDI liberalization. Our estimates show that all the spillovers are beneficial to all the EAEU countries. But, we identify the different reforms and the different external region that are most important for each member country regarding spillovers, which may inform lobbying positions of the member governments.

ECONOMIC LIBERALIZATION AND THE ENVIRONMENTAL KUZNETS CURVE: SOME EMPIRICAL EVIDENCE

(ProQuest: ... denotes formulae omitted.)1. INTRODUCTIONEconomic liberalization and environment are two major issues defining today's political agenda (Baek et al., 2009; Copeland, 2005; Copeland and Taylor, 2004). Although the theoretical backgrounds of economic liberalization on emission levels are not clear, studies in this area garner much interest (Jayanthakumaran and Liu, 2012) and much controversy exists on its impact on the environment.While it is widely agreed that economic liberalization is a major stimulus to environmental effects (Baek et al., 2009) its negative impacts have been highlighted by many studies (Cole, 2004; Daly, 1993; Greenpeace, 1997; Lang and Hines, 1993; Tisdell, 1999; World Wide Fund for Nature International, 1999).Previous studies have much expanded understanding on the environmental consequences of economic liberalization. However, earlier investigations mostly used the much-criticized Environmental Kuznets Curve (EKC) in its simplest form (Arrow et al., 1995; Ekins, 1997; Stern et al., 1996; Stern and Common, 2001). A specific criticism leveled at the EKC is that it does not account for the patterns of the different dimensions of economic liberalization simultaneously and in a coherent framework. Such dimensions that include trade, foreign direct investment liberalization, and the decreasing role of the state could potentially have significant impacts on the environment. Further, the earlier studies paid little attention to the issue of endogeneity in evaluating the relationship among trade liberalization, FDI, income growth, and environment quality (Chintrakarn and Millimet, 2006; Coondoo and Dinda, 2002).Although a number of papers have examined the separate impact of different dimensions of economic liberalization (Birdsall and Wheeler, 1993; Frankel and Rose, 2005; He, 2010; Jaffe et al., 1995; Janicke et al., 1997; Mani and Wheeler, 1997; Tisdell, 2001), a clear simultaneous indication of the extent to which economic liberalization may be responsible for the emission level while controlling for other variables such as energy consumption and urbanization yet to be provided. That is the contribution of this paper which appraises the impact of different features of economic liberalization in a simultaneous and coherent framework, using the GMM to take into account issues of endogeneity.This study uses different GMM estimators and detailed data on 166 countries comprising 36 developed economies, 83 developing economies and economies in transition, 47 least developed economies, and a combination of all the countries irrespective of their development stages. Apart from examining the validity of the EKC for each group of countries, this paper estimates the average turning point incomes for individual groups, and assesses the impact of trade liberalization, foreign direct investment liberalization, the decreasing role of the state on emissions. Further, the study ascertains whether patterns of urbanization and energy consumption could significantly impact pollution levels.The remainder of the paper is structured in the following manner: Section 2 addresses the way that economic liberalization is measured and the linkages between different aspects of economic liberalization and the environment; Section 3 contains the econometric analysis, and finally, Section 4 concludes the paper.2. ECONOMIC LIBERALIZATION AND THE ENVIRONMENT2.1.Measuring Economic LiberalizationAlthough economic liberalization is a complex process encompassing many facets and effects (Frankel, 2009), this paper, like in Santareli and Figini (2002), characterizes it based on three different aspects: trade liberalization, FDI liberalization, and the decreasing role of the state. A commonly used measure of the structural dimension of economic liberalization is the degree of openness usually measured as the ratio of trade over GDP ((Exp o r ts + I mp o r ts)/ G D P ). …