Foreign Investment Restrictions Research Articles

FOREIGN AND PRIVATE DOMESTIC INVESTMENTS IN INDONESIA: CROWDING-IN OR CROWDING-OUT?

This study aims to investigate the empirical relationship between Foreign Direct Investment (FDI) to Private Domestic Investment (PDI) in Indonesia by using quarterly data from 1990Q2 to 2020Q2. It tests the crowding-in effect (which suggests complementarity between FDI and PDI) and crowding out effect (which indicates asubstitution effect between FDI and PDI) at the sectoral level. Our results imply the prevalence of the crowding-in effect in the primary and secondary sectors, with the tertiary sector exhibiting a neutral relationship. No rational reason was observed for the restriction of foreign investment. Therefore, it is suggested that Indonesia’s government needs to actively engage in FDI to increase the growth of new investments in the primary and secondary sectors of the domestic economy.

TAX COMPETITION, POLICY COMPETITION AND THE STRATEGIC USE OF POLICY RESTRICTIONS ON FOREIGN DIRECT INVESTMENTS

In a dynamic two-period model of tax competition, where competing countries strategically choose foreign investment restrictions which increases the sunk cost of investments, we show that choosing a higher level of restriction is beneficial for the competing countries. A higher level of restriction reduces competition and increases tax revenue in the later period, which allows the government to offer large tax holidays during the initial period of investment. The result is counter-intuitive as it is widely believed that sunk cost reduces foreign direct investments. Moreover, even though competing countries are ex-ante symmetric, the equilibrium choice of the level of restrictions may not be equal.

Foreign Direct Investment Restrictions: Legal Aspects in the Context of Eurasian Integration

The article outlines current trends in the legal regulation of foreign direct investment; analyzes the current approaches of EAEU member states to the restriction of foreign investment; systematizes the provisions of the Union law, which affect the adoption and application of national measures to restrict and control foreign direct investment; identifies the conceptual differences between EAEU law and EU law in regulating freedom of establishment. The aim of the research is to determine the degree of the EAEU law influence on the introduction by member states of restrictive measures against direct investment from member states. The author concludes that the legal framework for national measures to restrict FDI from member states is predetermined by the norms of the Union law on ensuring freedom of establishment as a form of investment, operated with individual and general exceptions, that allow to take the measures necessary to protect the national priority interests.

The illegality objection in investor–state arbitration

ABSTRACT In the past decade, the number of investment tribunals wrestling with allegations of investor illegality and corrupt conduct has soared. Much has been said and written about corruption in investment arbitration, but the treatment and import of objections on the basis of an investor’s illegal conduct other than corruption has not received equal attention. This article seeks to fill that void through a comprehensive, methodical review of investment awards to date that have grappled with the issue. Allegations of investor misconduct are richly diverse, ranging from the wilful disregard of local foreign investment restrictions to inadvertent administrative omissions a host State knowingly elected not to enforce. Recognizing that the factual matrices giving rise to the illegality objection are highly fact-specific, this article explores the contours of the illegality objection, its typology, the analytical framework tribunals apply, the evolving and competing applicable legal standards, the scenarios when illegality is fatal to jurisdiction or admissibility (or not), and the relevance of the State’s conduct in perhaps overcoming that death knell.

Mekanisme Pembatasan Penanaman Modal Asing Dalam Bidang Perkebunan Menurut Hukum Positif Di Indonesia

Foreign investment in Indonesia in the plantation sector has a positive impact on national development. The need for encouragement and support in the plantation business by creating policies,which one is able to increase foreign investment in the plantation business. The purpose of this research is to analyze from the perspective of the prevailing law in Indonesia and to find out the factors that hinder the restriction of foreign investment in the plantation sector. This study uses a normative juridical method, namely by using a qualitative approach. The conclusion of this study is that the mechanism for limiting foreign investment in the plantation sector is regulated in Law Number 25 of 2007 concerning Foreign Investment and Law Number 39 of 2014 concerning Plantations, where these regulations must be considered by foreign investment in investing in plantation sector in Indonesia. The factors that hinder foreign investment are the usual business actors bribing State officials, the problem of being limited to opening a business entity because the land acquisition process is too long.

Economic Charter Change: Examining the Pros and Cons

The Philippine House of Representatives commenced plenary debates on possible amendments to the economic provisions of the Philippine Constitution in late August 2014. The charter change proposal envisions adding the phrase “as may be provided by law” to at least 7 sections of the Constitution. This would allow Congress to pass enabling laws that would relax restrictions on foreign ownership in order to boost foreign investments. This policy brief provides an update on the economic charter change (or “Economic Cha-Cha”) discussions and reviews the international and national empirical evidence surrounding this issue. It finds evidence that lifting foreign investment restrictions could improve FDI inflows into the Philippines, particularly in the areas restricted in the Philippine Constitution (e.g. mining, utilities, mass media, and education). At least one international study suggests that efforts to remove ownership restrictions could help boost net FDI inflows by up to 78%. Nevertheless, such an effort should ideally be part of a broader drive to improve on the other factors that investors report are deterring their expansion in the Philippines — including, for example, affordable and stable energy and better transport infrastructure. Economic Cha-Cha opens the door to establish a stronger platform for promoting stronger investments and a more inclusive economic development.

Tüketicilerin Destinasyon Seçim Tutumları ile Etnosentrik Tutumları Arasındaki İlişkinin Değerlendirilmesi

Bu çalışmada tüketicilerin destinasyon seçim tutumları ile etnosentrik tutumları arasındaki ilişkinin araştırılması amaçlanmaktadır. Çalışma tüketicilerin destinasyon seçim tutumlarındaki etnosentrik eğilimlerinin belirlenmesi açısından önemlidir. Araştırmada nicel araştırma yöntemlerinden alan araştırması benimsenmiş, veri toplama aracı olan anket kullanılmıştır. Veriler kolayda örnekleme yöntemiyle İstanbul’da bir vakıf üniversitesinde görev yapan 188 akademisyenden yüz yüze toplanmıştır. Destinasyon seçim tutumları kalite ve imaj önceliği, yurtdışı önceliği ve ülke bağlılığı olarak ele alınmıştır. Etnosentrik tutum boyutları da milliyetçi etnik tutum, yabancı yatırım kısıtlamaları ve liberal etnik tutum olarak incelenmiştir. Çalışmada faktör analizi, t-testi, tek yönlü varyans analizi uygulanmış, tüketicilerin etnosentrik tutumları ile tatile gitme sıklıkları ve destinasyon seçim tutumları arasındaki ilişkiyi belirlemek için korelasyon analizi kullanılmıştır. Analiz sonuçlarına göre; tüketicilerin tatile gitme sıklığı ile etnosentrik tutumları; destinasyon seçim tutumları ile etnosentrik tutumları arasında ilişki olduğu saptanmıştır.

The Health and Competitiveness of the U.S. Semiconductor Manufacturing Equipment Industry

In 1991 the United States International Trade Commission initiated an Industry and Trade Summary series of informational reports on products imported to, and exported from, the United States. As part of this series, analysts from the Office of Industries published a summary of the state of the Semiconductor Manufacturing Equipment (SME) industry in June 2006. This report provides updated information on the health and competitiveness of the U.S. semiconductor manufacturing equipment industry. After discussing the structure of, and relationship between, the semiconductor and semiconductor manufacturing equipment industries, this paper provides an overview of the SME industry’s key characteristics, including supply and demand. The U.S. SME industry and market are then described along with trends in exports, imports and the balance of trade between 2014–18. The paper concludes with analysis of five challenges and opportunities that will affect the health and competitiveness of the U.S. SME industry: China’s rise as a producer and consumer of semiconductors, artificial intelligence, the end of Moore’s Law, the introduction of extreme ultraviolet lithography equipment, and foreign investment restrictions and export control reform.

Smart Machines and Smarter Policy: Foreign Investment Regulation, National Security, and Technology Transfer in the Age of Artificial Intelligence

The Foreign Risk Review Modernization Act, a bill introduced to Congress in 2017 that seeks to strengthen the Committee on Foreign Investment in the United States (CFIUS), has the potential to increase restrictions on Chinese companies investing in the U.S. artificial intelligence (AI) industry. Although the bill addresses legitimate national security concerns related to the military applications of AI, it also has the potential to negatively impact the U.S. AI industry and the U.S. economy as a whole. Currently, the combination of a Chinese government focused on strategic technology acquisitions, the open and diffuse nature of AI systems, the off-the-shelf nature of defense technology procurement, the integrated Chinese and U.S. AI industries, and the connection of Chinese tech companies to the Chinese Communist Party create a pipeline for technology transfer from U.S. companies to Chinese government entities. Given the vague nature of what constitutes a national security threat according to CFIUS, past high profile CFIUS action against Chinese companies investing in the U.S. technology sector and an emerging bipartisan consensus that CFIUS needs to be strengthened, there is a strong potential for new foreign investment restrictions. Restricting Chinese investment in the U.S. AI industry, however, may be counterproductive, because it may negatively impact U.S. economic competitiveness by reducing the venture capital pool for AI, potentially driving away top talent and causing AI research and development centers to relocate elsewhere. Instead of increasing restrictions, a smarter policy would be to continue utilizing CFIUS risk mitigation measures in a non-discriminatory manner, while increasing government funding for AI research and development and increasing visas for science and technology graduate students who are foreign nationals.

At the core of airline foreign investment restrictions: A study of 121 countries

There is a growing discrepancy between the success of economic liberalization in international air services and the remaining limits to trans-border airline investment, especially the constraints embedded in national airline establishment regimes. The discussion on this problem should be backed with adequate legal research concerning the actual state of regulations and government actions regarding airline investment. The aim of this article is, therefore, to deliver practical information on these limitations worldwide, along with careful annotations. The paper portrays the world-wide scale and extent of the discussed restrictions by presenting regulations on airline ownership and control in 121 states and territories. Normative characteristics of the airline nationality requirements are discussed based on the above material, key rulings and literature. This includes an analysis of legal construction of the limitations, their sources and addressees, relations of the ownership and control tests and the role of discretionary regulatory policy. The study shows that airline investment rules worldwide generally remain restrictive and that the potential for reform is outside the ownership and control-based system rather than within it.

Pension fund regulation: Unintended consequences of foreign investment restrictions in an emerging market economy

Retirement savings allow investors to earn income after retirement by saving while being part of the workforce. Retirement savings comprise the largest portion of retirement savings and should be safeguarded by effective regulation. To safeguard retirement savings, exposure to foreign asset investments is limited. However, in an emerging economy, limiting foreign asset investments, especially investment in developed markets, could hamper the potential investment returns due to the translation risk. To assess the effect of translation risk, a preservation provident fund was used in the present study to determine whether the returns of this preservation provident fund would be adversely affected by investment allocation regulation. The findings indicated how the translation effect affected the preservation provident fund, illustrating the adverse unintended consequences of investment regulation in emerging market economies. Consequently, regulators should reconsider the maximum allowed foreign asset investment in pension fund regulations to enhance investment returns from foreign asset investments

The Impact of Foreign Investment Restrictions on the Stock Returns of Oil Sands Companies

The Impact of Foreign Investment Restrictions on the Stock Returns of Oil Sands Companies

Indonesia's Investment Negative List: an evaluation for selected services sectors

In March 2007, Indonesia's parliament approved a landmark new law on investment. Law 25/2007 replaces separate laws on foreign and domestic investment from 1967 and 1968, and provides a single legislative framework for domestic and foreign investment. The law states that all business sectors are open to investment, including foreign investment, unless specified in a presidential regulation containing Indonesia's Investment Negative List (DNI). This paper summarises the results of four sector studies undertaken to review implementation of the investment law. The purpose of the DNI is to provide certainty to investors by documenting restrictions in a single list, thereby eliminating the power of ministries to set their own rules. This paper finds that, in practice, considerable uncertainty remains, arising particularly from the law's implementing regulations. Furthermore, new ministerial decrees and laws appear to bypass the list and may reflect a trend towards greater restriction of foreign investment in Indonesia.

Selected MENA countries' attractiveness to G7 investors

The objective of this paper is to evaluate the relative attractiveness of seven MENA countries (Algeria, Egypt, Iran, Saudi Arabia, Morocco, Tunisia and Turkey) as a location for foreign portfolio investment (FPI) from the G7 investors' viewpoints over the period 2001–2005. We suggest a methodology based on the combination of the gravity model, the analytic hierarchy process (AHP) and the goal programming model (GP). The gravity model is used to determine the attractiveness factors of a country with respect to FPI for 30 investing and 43 receiving countries. Results show the importance of information costs and bilateral trade in the determination of the bilateral asset holdings. The AHP method is applied to prioritize the set of FPI location alternatives according to variables' significance in the gravity model outcome; information costs, bilateral trade, GDP, investment freedom, institutional quality, and geographic distance. Results show that in general Saudi Arabia is the best destination for Japanese and US investors, Turkey is the favorite location for French, German, Italian and British investors and Algeria is the preferred country for Canadian investors. A combined AHP–GP model has been used to determine the degree of portfolio investment in each MENA country from the viewpoint of G7 investors. The relative attractiveness of MENA countries varies over time and across investors. In general, over the period 2001–2005, the most attractive country is Iran for Canadian, French and Italian investors, Turkey for German and British investors and Saudi Arabia for Japanese and US investors. For a MENA country to attract more FPI it should especially improve bilateral trade and institutional quality and reduce foreign investment restrictions and information costs.

Volatility Spillovers between Chinese and World Equity Markets

We propose measures of the total volatility spillover, the regional volatility spillovers of 11 countries, and the directional volatility spillovers between Chinese and world equity markets from February 1996 to December 2009, based on forecast-error variance decompositions in a generalized vector autoregressive framework given by Diebold and Yilmaz (2010). It is found that: 1) The Chinese stock market was little affected by other equity markets in the sample period. After 2005, the volatility of the Chinese market had a significantly positive impact on other markets; 2) The volatility interactions among the Chinese, Hong Kong and Taiwan markets are more prominent than those among the Chinese, Western and other Asian markets. The volatility spillovers among the Chinese, Japanese and Indian markets are more distinctive than those among the Chinese, US and UK markets; 3) The US market had dominant volatility impacts on other markets during the subprime mortgage crisis. While the other markets were very volatile, driven by the bad news, their huge volatility has been transmitted back to the US market; 4) The major correction of Chinese stock market between February and July 2007 significantly contributed to the volatility surges of other markets. Due to the restriction of foreign investment, the Chinese stock market has not been greatly affected in terms of market volatility during the crisis.

Business With China: A Critical Evaluation Of Lure And Challenges

This paper examines the significant historical and socio economic development in China over the past quarter century and summarizes the main features of the pre-reform economy and the main strategies adopted by china as it began its quest for economic progress. The paper also evaluates the consequences of Chinas market reform and the challenges to this new economic power. The objective of the paper is to discuss both opportunities and risks in doing business in China and to provide and understanding of what compels so many firms to so boldly seek to establish a presence in China while taking substantial risks in doing so. The research concludes that, investment and business opportunities in China would outweigh the risk and challenges faced by potential investors. The paper examines the elements contributing to Chinas reform, including pro market reform, economic growth, and the rate and significance of FDI in china. Investment challenges include: corruption, mostly unfree economy, low ranking in ease of doing business, undervalued Yuan, and lack of proper intellectual property rights. The research points to positive indicators such as: Chinas economic development growth (i.e. GDP growth at 9.9% in mainland and 12.4% in Zhejiang); Chinas entry in WTO relaxing foreign investment restrictions; infrastructure development transit, energy, telecommunications, etc.; and the impact of the market reform - Chinas economic growth rate among the highest recorded during the past three decades. The examination of risks and challenges, reveals (1) the Driving Forces for business investment in China which include: rapidly expanding economy; growth in Chinese consumer purchasing power; and economic Power & other Indicators; and (2) the issues of concern such as: excess capacity in industrial sector, export dependence economy, problem with banking sector, and potential unemployment problem. The paper concludes that despite potential and clear risks there are good and legitimate business and investment potential in China and among many factors to consider are: many incentives to consider business opportunities and potential benefits; rising personal income and spending power in China; and increase in per capita income at steady rate of 8% since 1980, currently estimated at $3000.

The Emerging Market for Corporate Control in India: Assessing (and Devising) Shark Repellants for India's Regulatory Environment

Inbound and domestic hostile takeover activity in India have failed to make a dent in the corporate vocabulary, for historical, cultural and regulatory reasons. Conversely, the scale of negotiated “friendly” deals in India has been on the rise. At the regulatory level, Indian promoters are permitted to hold large stakes in their corporations, and are warned in advance when potentially hostile acquirers gain toeholds in their corporations, enabling them to consequently consolidate their holdings. Severe restrictions imposed by India’s central bank on financing acquisitions tend to multiply these difficulties. Historically, the loyalty of domestic institutional investors to established promoter houses, made it difficult to unseat the interests of entrenched Indian promoters. Culturally, “nationalist sentiment” has formed an “invisible barrier” to hostile takeover activity in India, as regulators continue to side with India’s “national champions”. Restrictive foreign investment regulations have long precluded the agility of the inbound raider. However, in recent times the regulatory and historical landscape in India has metamorphosed dramatically. Shareholding patterns in Indian corporations have undergone significant change with the inflow of foreign strategic and institutional investors, even as foreign investment restrictions have been relaxed. Further, the market for corporate control in India has seen interesting movement in the past few years. This paper addresses two questions. As its first and primary question, this paper analyzes whether there is a legitimate possibility that the market for corporate control will gain a greater foothold in India, and whether “invisible barriers” still preclude hostile acquisitions in India. Second, assuming that the answer to the first question is in the affirmative, this paper seeks to address the question of whether the most widely known conventional “shark repellant” deal defense mechanism, viz. the poison pill, is possible under the Indian regulatory regime, although it has been ruled out in previous academic writings.

Multi-market trading and arbitrage

We measure arbitrage opportunities by comparing the intraday prices and quotes of American Depositary Receipts (ADRs) and other types of cross-listed shares in U.S. markets with synchronous prices of their home-market shares on a currency-adjusted basis for a sample of 506 U.S. cross-listed stocks from 35 different countries. Deviations from price parity average an economically small 4.9 basis points, but they are volatile and can reach large extremes. Price parity deviations and their daily changes are positively related to proxies for holding costs that can impede arbitrage, even after controlling for transactions costs and foreign investment restrictions.

Globalization of Equity Policy Portfolios, October 2009

Globalization has brought about a major rethinking of the equity investment. Thought leaders in the industry are questioning the merit of the existing equity allocation practices and are increasingly looking towards an integrated global equity investment process. The partitioned domestic/non-domestic approach to equity investing may have been built on the grounds of segmented economies, high levels of foreign investment restrictions, and heavily domestically-focused companies but its validity is being challenged by a changing and more integrated global equity landscape. Traditional arguments supporting a home bias equity allocation are less defensible and certain leading institutional investors are realizing that the segmentation between domestic and international equities at a strategic level is a legacy that may come with important market timing risks and opportunity costs. A more integrated approach to equity investing may be the next stage in the evolution of investment processes and a natural consequence of globalization. A broad and investable global equity benchmark is an integral part of such a process.

Capital Control Premium and Investable Risk in Emerging Capital Markets

This article surmises the presence of an investable premium in emerging equity markets segmented by foreign investment restrictions and validates its existence in 26 emerging markets. Principal Component Analysis and stepwise regression are employed in tandem to whittle down from 22 political, economic, and financial country risk factors, to the one factor that best explains the investable premium. The political, economic, and financial risk measures that load on this factor are determined. We use a multifactor CAPM model to investigate whether country investable risk drives cross-sectional expected returns in investable emerging market stocks in addition to established firm-specific risk components such as beta, size, and price-to-book-value ratio. We document a significant positive investable premium for the aggregate sample. This finding supports our research hypotheses that investable risk is priced. We also find a significant positive relationship between risk premium and size at the aggregate level. Our findings suggest that these two risk metrics, investable premium and size, are important to price emerging market firms.