Net Foreign Direct Investment Inflows Research Articles

Impact of Pension Privatization on Foreign Direct Investment

Summary We explore the causal effect of market-oriented pension reform on net foreign direct investment (FDI) inflows in Latin America and among the transitional economies of Eastern Europe and Central Asia, both of which have experienced waves of pension privatization and FDI over the last two decades. With our balanced panel of 42 countries over the 1991–2006 period, we implement fixed effects models, controlling for the decision to enact full or partial privatization of the public pension system and several other covariates whose choice is informed by the rich empirical literature on FDI. Our econometric results indicate that pension privatization triggers a significant increase in net FDI inflows and that the effect does not wane over time. We estimate that full privatization increases FDI as a percentage of GDP by about 57%, ceteris paribus.

Does Foreign Direct Investment Reduce Poverty in Africa and are There Regional Differences?

This paper re-examines the relationship between foreign direct investment (FDI) inflows and welfare (or poverty reduction) in Africa. Using FDI net inflows per capita and the United Nations Development Program’s Human Development Index as the principal variables, our analyses confirm the positive and strongly significant relationship between FDI net inflows and poverty reduction in Africa but find significant differences among African regions. We also find that FDI has a greater impact on welfare in poorer countries than it does in wealthier countries. For instance, while the relationship between FDI and poverty reduction is positive and significant for economic communities in Central and East Africa, it is non-significant in Northern and Southern Africa. Furthermore, the relationship was found to be ambiguous in West Africa. Our results are robust to many model specifications.

Public Governance, Health and Foreign Direct Investment in Sub-Saharan Africa

Using 1985–2004 yearly panel data for 70 developing countries, including 28 from Sub-Saharan Africa (SSA), the paper finds that once market size is accounted for, SSA's foreign direct investment (FDI) deficit with other regions of the world is mainly explained by the insufficient provision of public goods: relatively low human capital accumulation, in terms of education and health in SSA. On the basis of additional cross-sectional data, the paper finds that in the absence of HIV and malaria, net FDI inflows in the median SSA country could have been one-third higher during 2000–2004, with slightly more than one-half of this deficit explained by malaria.

Globalization and the Gender Wage Gap

There are several theoretical reasons why globalization will have a narrowing as well as widening effect on the gender wage gap, but little is known about the actual impact, except for a number of country studies. The author provides a cross-country study of the impact of globalization on the occupational gender wage gap, based on the rarely used but most far-ranging survey of wages around the world, the International Labour Organization's October Inquiry. This annual survey was started in 1924 and contains a wealth of information on wages and the gender wage gap. For the period 1983-99, there is information on the gender wage gap in 161 narrowly defined occupations in more than 80 countries around the world. The author finds the following: (i) The occupational gender wage gap appears to be narrowing with increases in GDP per capita; (ii) There is a significantly narrowing impact of trade and foreign direct investment (FDI) net inflows on the occupational gender wage gap for low-skill occupations, both in poorer and richer countries, and for high-skill occupations in richer countries; (iii) There is no evidence of a narrowing impact of trade, but there is evidence of a widening impact of FDI net inflows on the high-skill occupational gender wage gap in poorer countries; (iv) Wage-setting institutions have a strong impact on the occupational gender wage gap in richer countries.

Foreign direct investment in the MENA region: is there a colonisation memory effect?

Despite efforts to convert from inward-looking economic development strategies to export-promoting alternatives, the Middle East and North African (MENA) region still endures relatively slow growth and high unemployment. Lower trade barriers, privatisation of many industries, and reform of its foreign exchange markets have attracted only modest foreign investment expenditures to the region. Such an outcome may reflect low receptivity levels among MENA members toward investments of multinational enterprises (MNE). Using panel data, this study analyses foreign direct investment (FDI) behaviour in 16 MENA economies over the 2000–2005 period. In particular, the study examines a long-term ‘colonisation memory effect’ on recent foreign investments in the MENA region. Colonisation memory, measured by the temporal proximity of a country's colonised era, may foster anti-MNE sentiments if foreign firms are perceived as exploitative, thus adversely affecting foreign investments in these countries. The statistical results indicate that variations in FDI net inflows and long-term colonisation memory are inversely and significantly correlated. Other important results indicate that variations in real income, international trade openness, and efficiency-seeking investment behaviour show a direct relation with MENA's FDI variations. Variations in hydrocarbon endowment, growth in aggregate output, and the region's foreign exchange markets also have an adverse effect on MENA's net inflows of foreign investments.

Introduction: Globalization–Poverty Channels and Case Studies from Sub-Saharan Africa

In 2004 the United Nations University World Institute for Development Economics Research (UNU-WIDER) embarked on a large-scale research project on the ‘Impact of Globalization on the World’s Poor’ co-directed by Machiko Nissanke and Erik Thorbecke. The first conference was essentially conceptual in nature, meant to understand better the various mechanisms and channels through which globalization affects the poor either directly or indirectly. The other three conferences focused on each of the major regions of the developing world: Asia, Africa and Latin America. Theobjectivesofthisintroductionarethreefold:first,toreviewbrieflyhow the forces of globalization influence poverty in general; second, to describe and discuss the main transmission channels and mechanisms; and third to analyze the impact of globalization on Africa and present an overview of the six Africa case studies included in this issue. 1. The Impact of Globalization on the World’s Poor Globalization provides a strong potential for a major reduction in poverty in the developing world because it creates an environment conducive to fastereconomicgrowthandtransmissionofknowledge. 1 However,structural factors and policies within the world economy and national economies have impeded the full transmission of the benefits of the various channels of globalization for poverty reduction. In particular sub-Saharan Africa (SSA) hasbeenrelativelylessaffectedbytheforcesofglobalizationthanotherparts of the world. World income distribution continues to be very unequal and many poor countries particularly in Africa are stagnating. Moreover, there is much empirical evidence that openness contributes to more within-country

China's FDI Net Inflow and Deterioration of Terms of Trade: Paradox and Explanation

AbstractStarting from the contradiction between China's sustained growth in foreign direct investment (FDI) net inflow and deterioration of the terms of trade, this paper analyzes the characteristics of FDI sectoral structure since the 1990. Moreover, considering the international market competitive environment, this paper gives a concrete analysis of the influence mechanism and concludes that the flowing of FDI into labor‐intensive export sectors caused the deterioration of China's terms of trade. To improve its terms of trade, China needs to direct FDI inflow into capital‐ and technology‐intensive sectors and service sectors.(Edited by Xiaoming Feng)

The effect of foreign capital and imports on economic growth: further evidence from four Asian countries (1970–1998)

We measure and analyze the impact of foreign direct investment (FDI) and imports on the economic growth and productivity of four individual countries which were among the founding members of the Association of Southeast Asian Nations (ASEAN). These four countries are Indonesia, Malaysia, the Philippines, and Thailand. After briefly reviewing their economic patterns, we estimate, for each of the four countries, a separate production functions by using foreign capital and imports as two distinct factors among the factors of production. Our analysis is based on time series annual data from early 1970s to 1998. The estimated production elasticities of foreign capital range from 0.044 for Thailand to 0.086 for Malaysia. About one-fifth to one-fourth of the productivity of total capital stock is generated by growth in FDI: 24.5% in Indonesia, 25.8% in Malaysia, 21.4% in the Philippines, and 20.3% in Thailand. Similarly, the production elasticities of imports range from 0.226 for Indonesia to 0.428 for Thailand. Our results show that openness measured by FDI net-inflows and total imports jointly generates 0.292 of each growth point in Indonesia, 0.529 in Malaysia, 0.353 in the Philippines, and 0.472 in Thailand.

Foreign direct investment as a factor of growth: The experience of European Union countries

The empirical literature on the growth impact of foreign direct investment (FDI) suggests a strong positive relationship between the two. Yet, the lack of evidence of a clear causality from FDI to growth impedes our ability to firmly conclude that FDI inflows are a driver and not just a consequence of higher economic growth. Just as a higher return on investment typically attracts more fixed investment, it should be no surprise that it also attracts more foreign investors. Having said that, we need to acknowledge that the difficulty of finding unambiguous evidence of causality from FDI to growth does not refute the notion that such a relationship nevertheless exists. As the growth literature suggests, many different factors combine to create an environment conducive to higher economic growth. Proper policies and institutions have been found to be particularly important over longer periods of time. In this context, we need to view FDI from a broader perspective than its direct and immediate impact on growth itself. Could it not be the case, for example, that foreign investors are more demanding than indigenous firms as regards a stable and favourable policy environment, good infrastructure and an appropriate human capital stock? If governments introduce policies and create institutions with the purpose of attracting FDI, they may create an environment more generally favourable to growth even though some of this growth is not the result of FDI per se. The evidence is stronger that FDI has been boosting growth directly in Central and Eastern European countries (CEE) than in the 15 countries of the European Union (EU-15). The reason, as we have argued, is that while these countries needed to bridge the technology gap to the more advanced countries, they nevertheless met some key conditions - especially in terms of human capital - which helped them bridge this gap more quickly with the help of FDI. In addition, the sheer magnitude of net FDI inflows helped sustain a higher level of domestic investment than would have been possible on the basis of domestic saving and debt-creating capital inflows alone. While FDI is expected to continue to contribute to economic growth in the CEE countries that have joined the EU, it is less clear whether the economic gains from FDI will be as high as during the transition from plan to market. The more the new EU members come to resemble EU-15 countries in terms of inward FDI stocks as a share of GDP, productivity, efficiency and level of technology, the less likely it is that FDI will have a positive influence on economic growth beyond what is observed in more advanced market economies. That said, FDI and the associated activities of transnational corporations will undoubtedly remain an important welfare-enhancing force - both inside and outside an enlarged European Union.

Trade and foreign direct investment in Latin America and Southeast Asia: temporal causality analysis

This paper examines the relationship between foreign trade and foreign direct investment (FDI) in selected Latin American and Southeast Asian economies in the period 1970 – 94. The hypothesis of complementarity/substitution between FDI and foreign trade is tested using bivariate VECM models and temporal causality analysis. The impact of FDI on the trade balance is also assessed and weak exogeneity tests are performed. It is found that the impact of FDI on the trade balance is stronger in trade-oriented economies, and that net FDI inflows are more sensitive to changes in exports in Southeast Asian countries, than in their Latin American counterparts, given the export-orientation of foreign investment in the former region. Copyright © 2000 John Wiley & Sons, Ltd.