Foreign Investment Flows Research Articles

Developing Local Entrepreneurship Ecosystems by Foreign Investment

The importance of foreign direct investment in transition economies has significantly increased over the last several decades. Foreign investors are recognized as important drivers shaping the local entrepreneurial ecosystem. This paper aims to explore investors’ satisfaction with the factors previously identified as important for improving entrepreneurial ecosystems, that is, factors that both positively contribute to the development of local businesses as well as generate further foreign investment flow. Empirically we draw upon small case studies with managers of 38-42 key foreign investor companies in Latvia conducted in 2015, 2016, 2017, and 2018. In the first data collection wave, we identify key challenges that foreign investors face in Latvia. In the following data collection waves, we measure the development in the identified areas of concern and thus the overall entrepreneurial ecosystem of Latvia. Given that Latvia is a transition country in the advanced stage of development, the focus is on issues related to productivity and value added, including the availability of high quality labor force, the efficiency of public sector, and favorable tax regimes as well as challenges posed by unethical and illegal behavior, labor shortages, and elements of uncertainty. Our results suggest that foreign investors see a number of challenges within the all afore-mentioned areas that are important parts of the entrepreneurial ecosystem. Moreover, our findings suggest that progress with regards to the improvement of certain areas such as those mentioned previously from the viewpoint of foreign investors, was relatively slow during the period of 2015-2018. Our key contribution is providing with an in- depth analysis of factors shaping the entrepreneurial ecosystem in an advanced transition economy-from the viewpoint of foreign direct investors. We explore investors’ opinions with regard to the investment climate to summarize investors’ suggestions on how the entrepreneurial ecosystem in Latvia could be further developed. Our findings provide a scope for tailor-made, targeted policy recommendations to achieve these goals.

FOREIGN INVESTMENT AND THE POLITICAL ECONOMY OF INDONESIAN CAPITAL MARKET IN 2015-2016

Purpose of the study: This article examines the impact of foreign investment—especially through the capital market—towards the economic stability and strategic policy in Indonesia. Despite being a member of G20, a group of states with the world’s highest Gross Domestic Products, Indonesia is still a developing state whose need for investment to support economic growth is high. On the other side, Indonesia has a low capital accumulation rate due to low people’s savings which inhibits the development projects. Therefore, the government prioritizes the incoming flow of foreign investment.
 Methodology: This study applies the international political economy approach to provide critical analysis of Indonesian contemporary foreign investment, especially in the capital market. The data used is the investment activities through the Indonesia Stock Exchange during 2015-2016.
 Main Findings: It argues that Indonesia’s considerable dependence on investment has enabled foreign investors to play the capital flow to influence the national economic stability for their interests. Such influence was a result of two strategies: (i) the transaction domination in the capital market through the Indonesia Stock Exchange, and (ii) the alliance with financial actors in accessing inside information—which is not commonly owned by domestic investors.
 Implications/Applications: This study suggests that the politics of foreign investors has contributed towards the changes of government policies in the financial sectors to facilitate the process and to ensure the flow of foreign investment to Indonesia. Such policies include the government’s control of interest rates, fiscal policy, as well as currency stability through macroprudential regulation.
 Novelty/Originality: Essentially, the capital market is not politically neutral. It has been used by foreign investors to augment their interests by dominating transactions and building political alliances at the domestic level.

The Progress and Achievement of Top Five Services Sectors through the Foreign Direct Investments in India

Foreign Direct Investment (FDI) plays a very important role in the development of the nation. It is very much vital in the case of underdeveloped and developing countries. A typical characteristic of these developing and underdeveloped economies is the fact that these economies do not have the needed level of savings and income in order to meet the required level of investment needed to sustain the growth of the economy. In such cases, foreign direct investment plays an important role in bridging the gap between the available resources or funds and the required resources or funds. It plays an important role in the long-term development of a country not only as a source of capital, but also for enhancing competitiveness of the domestic economy through transfer of technology, strengthening infrastructure, raising productivity and generating new employment opportunities. In India, FDI is considered as a developmental tool, which helps in achieving self-reliance in various sectors and in the overall development of the economy. India after liberalizing and globalizing the economy to the outside world in 1991, there was a massive increase in the flow of foreign direct investment. The present paper attempts to analyze the significance of the FDI Inflows in Indian service sector since 1991 and relating the growth of service sector FDI in the generation of employment in terms of skilled and unskilled. The services sector is not only the dominant sector in India’s GDP, but has also attracted significant foreign investment flows, contributed significantly to exports as well as provided large-scale employment. India’s services sector covers a wide variety of activities such as trade, hotel and restaurants, transport, storage and communication, financing, insurance, real estate, business services, community, social and personal services, and services associated with construction.

FEATURES OF TAXATION AND ECONOMIC DEVELOPMENT MONACO

Introduction. The prerequisites for the economic development of any country are individual, but the use of benchmarking and the borrowing of positive experiences from other countries is an urgent task for every government, especially the domestic, on the path of active reforms. Monaco, as a world-famous small country, demonstrates the successful dynamics of economic development, GDP growth, and ensuring a high standard of living for the population. One of the prerequisites is a flexible tax system and the promotion of business development, support for economic and innovation initiatives, and improvement of investment attractiveness. Goal. Definition of the dynamics of economic development of Monaco during 2008-2017, structure of economic sectors that form GDP, features of taxation, requirements for starting a business and directions of state support for its development. Results and discussion. The preconditions and indicators of economic development of Monaco, leading branches of the economy, dynamics of foreign economic activity, factors of taxation which promote the investment attractiveness of the country are determined. Conclusions. Characterized by indicators of economic development of Monaco, GDP dynamics, main industry features. Established basic tax preferences that promote the start-up of business and its development in Monaco (requirement to provide more than 75% of the work in the Principality). The creation of a favorable tax climate for foreign investment and the simultaneous harmonization of fiscal policies with France and the European Union have made it possible to attract Monaco's continuous flow of foreign investment, so some elements of Monaco's experience deserve to be used by Ukrainian society in the path of reform.

Interaksi Hubungan antara Foreign Direct Investment dan Pertumbuhan Ekonomi

In ASEAN 5 countries namely Indonesia, Vietnam, Thailand, the Philippines and Malaysia have almost the same culture, in terms of social and economic aspects, the 5 countries have links between one country and another, so it is possible that the flow of foreign investment has a close relationship with economic growth. This study aims to determine the relationship between Foreign Direct Investment (FDI) and Economic Growth in ASEAN 5 Periods 1986-2017. This research is a two-way relationship research between the independent variable and the dependent variable that are reciprocal. The type of data used is the 1986-2017 time series data. Sources of data obtained from the World Bank. Data analysis technique uses Granger Causality analysis to see the 2-way relationship, and VAR (Vector Auto Regression) analysis by looking at the implus response factor for non-stationary data using VECM (Vector Error Correction Model) analysis. The results of the study state that based on the Granger Causality test there is no relationship between FDI and GDP and vice versa between GDP and FDI. Based on the VECM test there is a relationship between FDI and GDP.

The Attitudes of the European Union and China Towards Foreign Direct Investment: Implications for Bilateral Relations

The aim of this paper is to discuss new trends that have occurred in the policies of the EU and China towards foreign direct investment (FDI), to examine some implications of the EU‑China Comprehensive Agreement on Investment (CAI) – which is currently being negotiated – for their bilateral relations, and to assess the role which China’s “One Belt One Road’ (OBOR) initiative might play in its relations with the new EU Member States. The EU established freedom of capital movement with third countries; however, the introduction of the common investment policy has encountered some obstacles. These are related to investor protection and ISDS issues. In turn, China is carrying out an independent state policy towards foreign investment with limited liberalization of FDI flows. The negotiated EU‑China CAI is expected to create conditions conducive to bilateral foreign investment flows, and it might bring positive effects for their economies in the future. However, the progress made thus far in the negotiations is still limited. The relations between China and the new EU Member states (CEE countries) are characterized by common interests in the field of FDI flows. The new EU countries are interested in attracting Chinese FDI and seem not to show the fears that have arisen in the old EU countries.

Foreign Direct Investment, Globalization Challenges and Economic Development: An African Sub-Regional Analysis.

Foreign direct investment (FDI) inflow is a global phenomenon for Africa and developing economies alike. It is expected that globalisation would foster inflow of foreign capital, technology transfer and consequently economic development. This study aimed at examining the effect of FDI on economic development for developing economies in the SSA sub-region. The study used pooled data for 39 SSA countries for the period within years 2000 and 2018. The analysis method used for the examination was the fixed effect least square dummy variable regression model. The study found that FDI is tangibly significant in relation to economic development for SSA sub-region that depended less on it. The study recommends that, the government of SSA subregion should consider the extent to which they would exploit existing opportunities that globalisation affords vis-a-vis the inherent threats in order to maximise the gains and minimise the losses by guiding carefully the sector that foreign investment flows into.

International Financial US Linkages: Networks Theory and MS-VAR Analyses

This paper aims to examine the impact of the Global Financial Crisis on portfolio investment flows, as well as on stock market activity. Network Theory is used to analyze structural changes of foreign portfolio investment flows (FPI) to a sample of 13 developed countries and 6 emerging Latin American countries. Additionally, using daily data from 2003 to 2015, the dynamics of returns are analyzed to test whether the US market influenced these markets or vice versa; univariate (MS-AR) and multivariate (MS-VAR) regime-switching models are used. The evidence confirms the presence of two different regimes, low volatility and a high volatility for all markets. Findings suggest strengthening local productive and financial institutions in order to anchor FPI. The MS-(V)AR study is limited to stock markets from the Americas and Europe. Previous literature has not applied the innovative and complementary methodologies employed here to analyze financial crisis impacts on FPI flows. We conclude that US financial markets keep a close financial relationship with the most important European and American countries’ stock markets, both by receiving and delivering FPI, and in addition influencing the behavior of stock indexes.

Dynamics of FII flows and stock market returns in a major developing country: How does economic uncertainty matter?

AbstractWe apply the wavelet coherency and phase difference methodology to explore the nature of the relationship and the direction of causality between foreign institutional investment (FII) flows and stock market returns across time and frequency domain for the fast‐growing Indian economy. Since both variables are affected by economic uncertainty, we have estimated the partial wavelet coherency and the phase difference to discern the impact of economic uncertainty on the dynamic relationship and causality between those variables. Both the FII flows and the stock market return move together during the periods of the global financial crisis and the European sovereign debt crisis without any causality in the short run, but the stock market leads the FII inflows in the long run. However, in the bull market the stock market Granger causes the FII inflows both in the short run and in the long run. Nonetheless, economic uncertainty drives the co‐movement and also masks the causality effect between those two variables. Thus, the results require policymakers to set out a transparent economic environment to reap the benefits of FII flows. As far as the FII outflows are concerned, profit booking and economic uncertainty drive the relationship and the causality in the short run. Hence, policymakers and portfolio managers should be concerned about FII outflows in the long run, while in the short run, it is a normal trading activity.

Effects of environmental regulation on the upgrading of Chinese manufacturing industry.

In recent years, China has constantly strengthened environmental regulation (ER) to force the manufacturing industry to upgrade. This study theoretically analyzes interaction mechanism of ER on the upgrading of manufacturing industry through foreign direct investment (FDI) and technological innovation (TI) and carries out empirical verification by using provincial panel data from 2000 to 2016 in China. The results demonstrate that the current ER intensity in China is unable to directly promote the upgrading of manufacturing industry, while through the interaction effects of FDI and TI do boost the upgrading of the industry. The above mechanisms are also robust even if we take the regional heterogeneity into consideration. Basic education and urbanization are favorable for the upgrading of the manufacturing industry. However, the increase in dependence on foreign trade is not conducive to upgrading manufacturing industry. Chinese government should further strengthen ER and give full play of the interaction mechanism of ER to guide the flow of foreign investment and force enterprises to carry out TI. In the meanwhile, Chinese government also needs to ensure balanced regional development, thus better promoting the upgrading of manufacturing industry.

Política industrial e setor automotivo: uma comparação entre as políticas lançadas pelo Brasil e China na década de 1990

Significativas transformações ocorreram no setor automotivo mundial a partir da década de 1970, afetando sobremaneira a realização das políticas. Neste trabalho, voltamo-nos para o desenvolvimento e a comparação das políticas destinadas ao setor automotivo no Brasil e na China. Para o caso brasileiro, ressaltamos as políticas engendradas entre os governos de Fernando Collor e Fernando Henrique Cardoso, entre 1990 e 2002, que incidiram sobre um setor internacionalizado, num contexto de forte fluxo de investimentos estrangeiros, e que tiveram resultados limitados na promoção das empresas fornecedoras de capital nacional. Já no caso chinês, destacamos a opção pelas joint ventures em 1979 e as políticas de 1988 e 1994 e suas consequências até 2001. Por fim, evidenciamos os dilemas deixados para os governos e as políticas posteriores e para o desenvolvimento das empresas. Ao comparar ambos os casos, observamos que no Brasil houve o descumprimento das metas das políticas e a desnacionalização do setor fornecedor, enquanto a China, aprendendo com seus erros e mesmo num contexto de forte fluxo de capital externo, fortaleceu o desenvolvimento do setor fornecedor de capital nacional, refletindo, sobretudo, na ampliação da produção e do desenvolvimento tecnológico.

FEATURES OF TAXATION AND ECONOMIC DEVELOPMENT MONACO

Introduction. The prerequisites for the economic development of any country are individual, but the use of benchmarking and the borrowing of positive experiences from other countries is an urgent task for every government, especially the domestic, on the path of active reforms. Monaco, as a world-famous small country, demonstrates the successful dynamics of economic development, GDP growth, and ensuring a high standard of living for the population. One of the prerequisites is a flexible tax system and the promotion of business development, support for economic and innovation initiatives, and improvement of investment attractiveness. Goal. Definition of the dynamics of economic development of Monaco during 2008-2017, structure of economic sectors that form GDP, features of taxation, requirements for starting a business and directions of state support for its development. Results and discussion. The preconditions and indicators of economic development of Monaco, leading branches of the economy, dynamics of foreign economic activity, factors of taxation which promote the investment attractiveness of the country are determined. Conclusions. Characterized by indicators of economic development of Monaco, GDP dynamics, main industry features. Established basic tax preferences that promote the start-up of business and its development in Monaco (requirement to provide more than 75% of the work in the Principality). The creation of a favorable tax climate for foreign investment and the simultaneous harmonization of fiscal policies with France and the European Union have made it possible to attract Monaco's continuous flow of foreign investment, so some elements of Monaco's experience deserve to be used by Ukrainian society in the path of reform.

Country Risk, Corporate Strategy and Profitability: A System GMM Estimation for Multinational Banks in Sub Saharan Africa

Over the past 2 decades, foreign investment flows in Africa have steadily increased due to; high growth in GDP, economic liberalization, improved business climate (political and socioeconomic), the fast growth and continuous shifts in customer needs, improved general infrastructure development, technological advancement and the formation of free trade zones. However, political instability, government interference through deregulation, corruption, sharp practices, stiff competition, inadequate demand, cultural barriers and failing public infrastructures are factors to worry about. The dynamic environment in the region provides both opportunities and threats for businesses. This research examines the effect of country risk as a whole, and corporate strategy (diversification, debt and equity financing) on performance of multinational banks within sub Saharan Africa. To accomplish this, a panel dataset (2007-2017) on best performing multinational banks in the region is used. Accounting for the dynamic nature and persistent country risk, corporate strategy and bank profitability, a two-step system GMM estimator is used in the analysis. Results indicate country risk negatively and significantly affecting multinational bank performance. Corporate strategies: diversification and equity financing indicate a positive and significant effect on multinational banks’ profitability in terms of return on assets. The effect however, is higher for diversification than equity financing. Debt financing indicates a negative and significant effect on profitability of these banks. Also, the study finds no performance difference between the local indigenous, and overseas multinational banks. The resultant Arellano-Bond AR(1&2) test for zero autocorrelation, the Hansen test of overidentifying restrictions and the difference-in-Hansen test for the validity of the additional moment restriction necessary for system GMM; all, suggest that the underlying assumptions under the two-step system GMM estimator, are not violated since their p-values are very high. The implication of these tests is that the results obtained are robust, efficient and reliable.

The Economic Decolonisation of Indonesia: a Bird�s-eye View

An oft-quoted statement by the Indonesian nationalist leader Haji Agus Salim runs as follows: The economic side of the Indonesian Revolution has yet to begin. (Higgins, 1957: 102, cited in Lindblad, 2008: 2). The statement was made shortly before or shortly after the transition of sovereignty from Dutch colonial rule on 27 December 1949. At long last, the Netherlands had acknowledged that Indonesia was independent, which brought the Indonesian Revolution to its logical conclusion. But, by the conditions laid down at the Round Table Conference in The Hague in late 1949, the interests of Dutch private capital were still omnipresent in the Indonesian economy. In addition, the Indonesian government was obliged to consult the Netherlands government in matters affecting the economy until the debt of the former colony to the metropolitan mother country had been repaid in full. As Haji Agus Salim rightly stressed, economic and political decolonisation did not coincide but followed different historical trajectories.This contribution offers an abridged account of the process of economic decolonisation as it unfolded between 1945 and 1959, from the proclamation of independence until the nationalisation of the vast majority of Dutch-owned companies that had retained operations in Indonesia after independence.1 Four themes serve as devices tofurther our understanding of the process of economic decolonisation. These four themes, in order of appearance, are below: the new spirit in Indonesian economic life following the transfer of sovereignty; the changing climate of economic policy-making during the 1950s; the response and accommodation by remaining Dutch companies; and, finally, the concluding phase of expropriation and nationalisation.A couple of points of departure need to be spelled out. The ideological basis of the thrust towards economic decolonisation in Indonesia was provided by a small booklet, Ekonomi Indonesia, which made a very timely appearance in 1949. Its subtitle, Dari ekonomi kolonial ke ekonomi nasional, carried an immediate appeal to contemporary public discourse, offering the briefest possible summary of what economic decolonisation in Indonesia was all about. For the remainder, the book offered very little concrete guidance (Hadinoto, 1949). A second point of departure may be traced in the international historiography on Indonesian decolonisation, notably John Sutters voluminous PhD dissertation on domestic developments up to the general election in 1955 (Sutter, 1959). Although providing a wealth of information from government sources and press material, Sutters survey offers little on the fate of private business enterprises; in addition, he did not consult Dutch-language sources. Yet another point of departure in our quest to better understand economic decolonisation in Indonesia is, of course, the wider international context of the Cold War. Decolonisation in Indonesia, whether political or economic, did not take place in a vacuum but was intrinsically linked to Indonesias efforts to position itself in the tension between the Western powers and the Soviet bloc. Just as Sukarnos young republic secured American support against the returning Dutch by heavy-handedly crushing the Communist uprising in Madiun in 1948; did increasing flirtation with the Soviet bloc during the Guided Democracy period alienate Indonesia from the internationalcommunity and bring flows of incoming foreign investment to a virtual standstill?

The Hermit Kingdom's Chinese Reforms: The North Korean Foreign Investment Regime

North Korea reveals a surprising openness to capitalism in its foreign investment laws. This understudied aspect of the country could carry decisive policy implications for sustainably ending the Korean War and the Korean nuclear crisis. There are nevertheless doubts on whether these laws truly signal that the “hermit kingdom” wants to integrate the “global village.” This is where a comparison with the pioneer in communist opening-up, China, can provide key insights into North Korean legal and economic strategy. The paper compares how the two countries designed the general conditions for investment, the framework of their special economic zones, the property rights they promise investors, and the options for settling disputes. It demonstrates that North Korea has closely followed the Chinese model on all of these issues. A neoliberal model would have aimed to maximize inbound foreign investment flows by removing barriers to investment as quickly as possible. China’s developmental model, by contrast, only lifts those barriers incrementally in a bid to nurture local industries and to protect the country’s economic, legislative, territorial and judicial sovereignty. The paper demonstrates that North Korea’s current reluctance to remove certain barriers to investment is not conclusive evidence that it does not intend to further open up. On the contrary, the parallels with China suggest the North Korean foreign investment regime can be leveraged for integration into the global economy. This would give North Korea a stake in the current world order and hence an incentive to follow its rules.

Adoption of One Belt and One Road initiative by Oman: lessons from the East

This paper uses the experience of Kazakhstan, East Asian economies and Southeast Asian countries in economic development to provide suggestions for Oman on its participation in the One Belt One Road project by China. From the experience of Kazakhstan, the paper recommends that Oman actively draws in China's massive resources and knowhow to help Oman in economic development and diversification led growth. From the examples of South Korea, Taiwan, Hong Kong and Singapore, the paper suggests that Oman encourages economic exchanges with China and transfer of technology and knowhow and flows of foreign investments from China to upgrade the Omani economy. From the experience of Southeast Asia nations, the paper advises that Oman makes good use of its strategic location and membership in the Gulf Cooperation Council in its dealings and bargaining with China to get the best deals.

ИНОСТРАННЫЕ ИНВЕСТИЦИИ В НЕФТЕГАЗОВЫЙ КОМПЛЕКС РОССИИ

Foreign investment is the driving force behind the development of the Russian oil and gas complex and the economy as a whole. This was the case until 2014; the current situation has changed somewhat: the inflow of foreign investment in the Russian energy sector is complicated not only by the imposed sanctions, but also by the main obstacle - instability of world energy prices. The current price conjuncture, as well as the situation with supply and demand, is pushing foreign investors to reduce investment proposals. The article analyzes the dynamics, species and sectoral structure of annual flows of foreign investment in the Russian economy, which allows to identify the main trends in attracting foreign capital in the past few years. In the Russian economy, at the moment, the most attractive areas for foreign investors are mining, manufacturing, wholesale and retail trade. These economic activities account for more than 60% of the total foreign investment.

Nigeria’s economic growth and The Sisyphus Odyssey: a theoretical retrospect

We posit in the paper that getting out of Dutch disease or resource curse in Nigeria will be a mirage if the more potent disease of institutional decay, ethnicity and religious bigotry are not settled. Those who have opportunity to advice the country has over the years wrongly fixated on the rise or fall of GDP and foreign investment flows as  attention is now centered on extraction industry. We recognize institutional factors as major determinants of growth in Nigeria. From our analysis it is observed that Nigeria has indeed fallen into the trap of Dutch disease and resource curse phenomenon. We also observe that Nigeria is ethnic bias and highly religious in virtually everything. And every policy of the government (economic, social or political) is weighed on the scale of religion or ethnic benefit. It is equally sad to note the quantum of resources engaged to curtail ethnic clashes as well deaths and IDPs. As Nigeria is governed by ethnic sentiments and religious bigotry , it increases the tendency for corruption and its attendant negative economic consequences. These constitute serious impediments and make the task of growth Sisyphean.

Capital flows and exchange rate volatility: experience of emerging economies

In the recent past, there has been a significant rise in the cross-border capital flows and a large chunk of it is being attracted by emerging economies. This poses an important question, whether the capital flows, especially foreign portfolio flows, are responsible for the increasing volatility of exchange rate in emerging economies. This study is an attempt to answer this question. To this end, we estimated a Panel Vector Autoregression model using quarterly data of ten emerging economies for the period 1997Q1–2017Q1. The evidence from impulse response indicates that exchange rate volatility significantly increases in response to the shocks in portfolio capital flows than to shocks in foreign direct inflows. The forecast error variance decomposition also suggests that shocks to foreign portfolio investment flows exert significant impact on the exchange rate volatility. The foreign portfolio flows are responsible for more than 7% of the variations in exchange rate volatility, while current account balance, stock prices and interest rate together explain only around 4% of the variations in exchange rate volatility.

Belt Road Initiative in Oman: Lessons from the East

This paper uses the experience of Kazakhstan, East Asian economies and Southeast Asian countries in economic development to provide suggestions for Oman on her participation in the One Belt One Road project by China. From the experience of Kazakhstan, the paper recommends that Oman actively draw China’s massive resources and knowhow in to help Oman in economic development and diversification led growth. From the examples of South Korea, Taiwan, Hong Kong and Singapore, the paper suggests that Oman encourages economic exchanges with China and transfer of technology and knowhow and flows of foreign investments from China to upgrade the Omani economy. From the experience of Southeast Asia nations, the paper advises that Oman makes good use of its strategic location and membership in the Gulf Cooperation Council in her dealings and bargaining with China to get the best deals.