Foreign Direct Investment Market Research Articles

FDI and Financial Market Development in Africa

The literature on the relationship between foreign direct investment (FDI), financial market development (FMD) and economic growth focuses mainly on two aspects: the relationship between FDI and economic growth, and the role played by FMD in that linkage. The literature is almost silent on the relationship and the direction of causality between FDI and FMD. Although it has been established that FDI contributes more to growth in countries with a more developed financial market, it is not clear how FDI and FMD interact with each other. The aim of this paper is to fill this gap in the African context. Particularly, in Africa, where stock markets experience low liquidity and less transparency, FDI can be an impetus for financial market reforms and serve as a mechanism to improve the transparency and the depth of the financial markets. Also, well‐functioning financial markets can help channel foreign investments more efficiently into productive sectors, and therefore create more value for investors, hence making the countries more attractive to FDI. In short, both FDI and FMD will impact each other simultaneously, which is confirmed by our findings. We document a bidirectional causality between FDI and FMD. Furthermore, the multivariate regression results of the system of simultaneous equations also confirm the positive relationship between FDI and FMD in Africa. We also find that FDI contributes to economic growth in Africa after controlling for endogeneity between FDI, FMD and economic growth.

Causality between FDI and Financial Market Development: Evidence from Emerging Markets

This paper studies the causal relationship between foreign direct investment (FDI) and financial market development (FMD) using panel data from emerging markets. Most studies of the relationship between FDI and FMD have focused on the role of FMD in the link between FDI and economic growth, with no deep understanding of direct causality between FDI and FMD, especially in emerging markets, where financial markets are in the development stage. We document bidirectional causality between FDI and stock market development indicators. For banking sector development indicators, the relationship is ambiguous and inconclusive. Care is therefore needed when analysing the relationship between FMD and FDI, as results may depend on whether the FMD variables used to evaluate causality are stock market or banking sector development indicators.

The Relationship between Financial Market Development and Foreign Direct Investment in Latin American Countries

The main purpose of this paper is to assess the impact of financial market development on Foreign Direct Investment (FDI) in Latin American countries. Financial market development and FDI are two important sources of efficient economic resource allocation in the region. We use banking sector and stock market indicators to capture financial market development. By giving greater consideration to the short-run and long-run effects of financial market development on FDI, this paper presents empirical results from a time series model of 14 Latin American countries. We find financial market development link is both short-run and long-run phenomena in majority of countries. Furthermore, our result of the causality test shows that link between FDI and banking sector development is uni-directional and the link between FDI and stock market development is bi-directional.

Exchange Rate Movement and Foreign Direct Investment in Asean Economies

The inflows of foreign direct investment (FDI) are important for a country's economic development, but the world market for FDI has become more competitive. This paper empirically analyses the exchange rate movements and foreign direct investment (FDI) relationship using annual data on ASEAN economies, that is, Malaysia, the Philippines, Thailand, and Singapore. By employing ARDL bounds test approach, the empirical results show the existence of significant long-run cointegration between exchange rate and FDI for the case of Singapore, Malaysia, and the Philippines with all countries recording negative coefficient implying that the appreciation of Singapore dollar, Malaysian ringgit, and the Philippine peso has a positive impact on FDI inflows. Using the ECM based ARDL approach for causality test, both Singapore and the Philippines show long-run bidirectional causality between exchange rate and FDI whereas long-run unidirectional causality running from the exchange rate to FDI in Malaysia. Furthermore, this study also found that short-run unidirectional causality running from the exchange rate to FDI exists in Singapore.

The Global FDI Market in 2012

As demonstrated by preliminary data released by the United Nations Conference on Trade and Development (UNCTAD), in 2012, global foreign direct investment (FDI) inflows declined by 18.3% - to as low as $ 1.3 trillion, which is practically the same as the level recorded over the crisis period. This situation has arisen as a result of turbulences across the world economy and the uncertainty of prospects for strategic investors.

State-Controlled Entities Are Important Outward Direct Investors

This article reveals that developing country sovereign wealth funds (SWFs) as players in the world foreign direct investment (FDI) market have received considerable attention. On the other hand, state-owned enterprises (SOEs) - another class of state-controlled entities (SCEs) - are serious players in the world FDI market. UNCTAD identified more than 650 SOEs that are multinational enterprises (MNEs). They hail from both emerging markets and developed countries.

Causality between FDI and Financial Market Development: Evidence from Emerging Markets

This paper studies the causal relationship between foreign direct investment (FDI) and financial market development (FMD) using panel data from emerging markets. Most studies of the relationship between FDI and FMD have focused on the role of FMD in the link between FDI and economic growth, with no deep understanding of direct causality between FDI and FMD, especially in emerging markets, where financial markets are in the development stage. We document bidirectional causality between FDI and stock market development indicators. For banking sector development indicators, the relationship is ambiguous and inconclusive. Care is therefore needed when analysing the relationship between FMD and FDI, as results may depend on whether the FMD variables used to evaluate causality are stock market or banking sector development indicators.

Assessing and controlling business risks in China

Evaluating business risks becomes especially precarious in volatile information-poor emerging markets where issue-based isolated models of risk assessment no longer seem to apply. In particular, multinational corporations (referred to as “multinationals”) seem not to use more established models for evaluating business risks in the second largest market for foreign direct investment (FDI), China. First, this article notes how an integrated framework of business risks may pertain to multinationals' operations in emerging markets. Next, it applies aspects of this framework to appraising business risks in China and highlights some strategies that multinationals are implementing to control risks. Finally, it offers recommendations on an effective integrated framework for business risk analysis.

ATTRACTING FOREIGN DIRECT INVESTMENT IN BANGLADESH

This study seeks to depict the needs of Foreign Direct Investment (FDI) in Bangladesh along with the required determinants of congenial investment environments. In terms of the identified determinants of FDI, this study delineates the competitive and inductive factors other FDI recipient countries have in comparison to that of Bangladesh. The study also identifies the determinants of FDI that Bangladesh have. Reasons of why Bangladesh could not attract enough FDI have also been sought. The feasible attractive measures required in attracting the much-needed investment in the competitive FDI market have also been shown. In doing this, international competitors of FDI have been traced to locate the position of Bangladesh. Secondary published data from governments and other significant agencies have been comprehensively studied to get the required data in completing the study.

Tax Incentives in the Philippines: A Regional Perspective

The Philippines is faced with a policy dilemma in the area of corporate taxation. On the one hand, the country has, over the past few years, witnessed a decline in revenue as a share of output. On the other, it is operating in an increasingly competitive regional market for foreign direct investment. In order to remain competitive, the Philippines offers a broad array of fiscal incentives to entice inward investment and pursue the country's development goals. This paper looks at the fiscal incentives available in the Philippines, compares them with those available in the ASEAN region, and with the evidence on the efficacy of tax incentives in a global context. The paper provides some broad conclusions on the use of the various forms of tax incentives in the Philippines and on their administration.

Tax Incentives in the Philippines: A Regional Perspective

The Philippines is faced with a policy dilemma in the area of corporate taxation. On the one hand, the country has, over the past few years, witnessed a decline in revenue as a share of output. On the other, it is operating in an increasingly competitive regional market for foreign direct investment. In order to remain competitive, the Philippines offers a broad array of fiscal incentives to entice inward investment and pursue the country's development goals. This paper looks at the fiscal incentives available in the Philippines, compares them with those available in the ASEAN region, and with the evidence on the efficacy of tax incentives in a global context. The paper provides some broad conclusions on the use of the various forms of tax incentives in the Philippines and on their administration.

Tax policy on foreign direct investment in the presence of cross-hauling

Tax Policy on Foreign Direct Investment in the Presence of Cross-Hauling. — The authors develop a partial equilibrium model of foreign direct investment (FDI) in which identical foreign firms locate themselves in a host country to compete with internationally mobile domestic firms in non-tradeable oligopolistic markets for two differentiated commodities. The host country, which is small in the market for FDI, uses lumpsum subsidy (tax) to encourage (discourage) FDI. There is unemployment in the host country. Under this framework, the authors analyse the effect of discriminatory and uniform subsidies on the inflow/outflow of domestic and foreign firms and on employment. They also derive some properties of optimal subsidies.

Foreign Direct Investment, Local Content Requirement, and Profit Taxation

We develop a partial equilibrium model of foreign direct investment (FDI) in which identical foreign firms locate themselves in a host country to compete in an oligopolistic market for a non-tradeable commodity. The host country, assumed to be small in the market for FDI, makes use of two instruments, viz., a profit tax and a local content requirement, to compete for FDI in the international market. We assume the existence of unemployment in the host country. The structure of optimal instruments and their relationship to the number, and the relative efficiency levels, of the domestic firms, are established

Designing a Country Marketing Function:

Most governments of developing and industrialized countries are in the market for foreign direct investment. Indeed, in the case of developing countries, new entrants to this market are constantly emerging. This paper reports on a study that examines the generic structures governments have adopted in their efforts to promote their countries as sites for foreign direct investment. It pays special attention to the question of whether promotional functions do, or should, differ in structural form based upon the size of the country seeking to attract additional investment. The study concludes that, contrary to existing research, country size does have an impact on the type of generic promotional structure adopted. Larger countries tend to adopt decentralized or coordinated promotional structures, whereas smaller countries tend to rely on centralized promotional structures. Although centralized structures tend to be more efficient, larger countries are forced by regional pressures to include multiple organizations in their promotional activities. The study argues that given the type of investment likely to be attracted to larger countries, diffusion of the promotional function is an appropriate structural response. But, when this diffused function is coordinated countries are likely to gain the benefits of promotional efficiency while allowing for the involvement of regional entities.

The United States export and foreign direct investment linkage in Canadian manufacturing industries

The objectives of this article are to: 1) explore the linkage between export penetration of a host country's markets and foreign direct investment activity in those markets, and 2) provide a possible rationale for the direct investment-cum-export penetration linkage. Results indicate that the U.S. originating foreign direct investment market share and U.S. export market share in Canada are mutually good “predictors” of each other. Results also support the arguments that the direct investment-export profile may be dependent to some degree upon: the amount of processing intensity that characterizes a particular industry's production systems; the occupational orientation of its research and development staff; the advertising media usage profile that characterizes the industry; and the size of the firms that typify the given industry.

IDENTIFYING TARGET SEGMENTS FOR FOREIGN DIRECT INVESTMENT (FDI) ATTRACTION: AN APPLICATION OF CONJOINT METHODOLOGY

This paper illustrates how conjoint methodology can be used by recipient countries to segment the donor market for foreign direct investment (FDI), thereby enhancing the effectiveness of their FDI attraction efforts. The study results indicate that FDI donors can be clustered into segments based on the FDI benefits they seek. The article concludes with normative and practical implications of the methodology for investment policy makers in recipient countries.