Foreign Direct Investment Promotion Research Articles

Competing for Foreign Direct Investment

This article explores the effects of locally adopted economic development zones and government spending promoting foreign affairs on foreign direct investment (FDI)–related employment in Chinese provinces. While these policies are motivated by a desire for employment growth, empirical evidence supporting their effectiveness has proven elusive. Using data from Chinese provinces covering 1999 to 2012, we explore this relationship using a dynamic system generalized method of moments approach. We find some evidence that trade zones enhance FDI-related employment but find none to support the idea that industrial development zones and spending to promote foreign affairs increase employment. Conversely, regional spillovers are consistently found to increase FDI-related employment in our main results and all robustness checks. We argue this highlights the importance of crowd-out effects and agglomeration spillovers, and that coordinating FDI promotion policy across regions may compare favorably to the current approach, which mainly encourages local competition over a largely fixed pool of aggregate FDI.

China’s Tourism-Led Foreign Direct Investment Inflows: An Empirical Study

Based on the annual data of China from 2000 to 2014, this paper applies the dynamic panel model to study the relationship between inbound tourism and foreign direct investment (FDI). Compared with previous literatures, our analysis is not limited to the study of FDI in single tourism sectors such as hotels and restaurants, but takes general FDI into consideration. The empirical results show that the growth of inbound tourism can not only promote FDI flow into the tourism industries, but also increase the inflows of FDI to other sectors. In other words, the flourished inbound tourism may have spillover impacts of FDI on non-tourism sectors. It’s also indicated that the two policies of inbound tourism improvement and inward FDI promotion are complementary. Therefore, I believe coordination can maximize the effect of policies, because the two policies may coordinate with each other to achieve economic growth targets.

Does Foreign Direct Investment Promote Exports? Evidence from African Countries

AbstractThis paper empirically examines the effect of foreign direct investment (FDI) inflows on exports in Africa. Using the system‐generalised method of moments estimator for linear dynamic panel data on a sample of 53 African countries and five‐year periods from 1970 to 2009, the paper finds that higher FDI inflows are positively and significantly linked with higher exports of goods and services. A large part of the FDI effect is driven by its spillover effects on exports. The paper also finds the lagged value of exports, a competitive currency, as well as increases in domestic investment and physical infrastructure, to be factors stimulating African exports.

No More Free Lunch: Reflections on the Cuban Economic Reform Process and Challenges for Transformation ed. by Claes Brundenius and Ricardo Torres Pérez (review)

Claes Brundenius and Ricardo Torres Perez, eds. No More Free Lunch: Reflections on the Cuban Economic Reform Process and Challenges for Transformation. Heidelberg, Germany: Springer, 2014. 260 pp.Written by distinguished academics from Cuba and from outside the country, and informed by valuable insights and research expertise, No More Free Lunch is an impressive collection of scholarly chapters on the far-reaching economic transformations (officially labeled an update of the socialist model) that are taking place in Cuba under the leadership of Raul Castro. The volume offers fresh perspectives on a number of key subjects related to the reform process under way on the island, in particular the unprecedented changes in agriculture, the opening to small private enterprises and the authorization of nonagricultural cooperatives, the promotion of foreign direct investment, the abolishment of food rationing and the elimination of monetary duality, the massive layoffs of public employees and the overhaul of the business model of state firms, and cutbacks in state subsidies and gratuities. The structural problems of today's Cuban economy and the main challenges facing Havana's policy makers are also analyzed, along with the reform experience of other countries like China and Vietnam, to draw potential lessons for Cuba. The result is a rigorous intellectual project that sheds substantial light on the Cuban government's attempts to devise a new economic model aimed at unleashing productive forces, reducing the notorious inefficiencies of the existing socialist system, improving living standards, and fostering sustainable development.Taken as a whole, Raul Castro's economic reforms are well conceived and quite significant. Some of the structural market-oriented changes recently introduced in Cuba would have been unimaginable just a few years ago when Fidel Castro ruled the country. However, several major problems continue to affect the Cuban economy, above all the overreliance on exports of professional services with very few backward linkages, insufficient agricultural production and the meager performance of the manufacturing industry resulting in high levels of food imports and a persistent trade imbalance, little capital accumu- lation and chronic liquidity shortages, the underutilization of human capital, and a restrictive business environment. The contributors do not shy away from pointing out these problems and suggesting deeper reforms to tackle the shortcomings of Cuba's state-dominated and highly centralized economy.Garcia Alvarez and Nova Gonzalez call for a more decentralized agricultural management model and a greater presence of market forces in driving production and distribution activities. Torres Perez recommends the implementation of policy measures specifically designed to boost higher levels of domestic integration (especially between the agricultural and industrial sectors) and to stimulate more complex and knowledge-intensive productive capacities with the involvement of small private businesses and cooperatives. Monreal also suggests a reorientation of Cuba's highly trained workforce in career paths with increasing technological learning and argues that nonstate entrepreneurs could make a significant contribution to export diversification and development. …

Japan's tourism-led foreign direct investment inflows: An empirical study

This study analyzes international tourism–inward foreign direct investment (FDI) relationships by applying dynamic panel models to Japanese data for the 1996–2011 period. A growing number of studies have examined this topic following the publication of the UNCTAD (2007) report; however, the current literature is inadequate. Our analysis is not restricted to tourism-related FDI such as hotels and restaurants, as in the literature, but covers general FDI in the framework of FDI dynamics, because tourism–FDI interactions are not in reality restricted to typical tourism-related FDI. The analysis results reveal that enhanced inbound foreign tourism exhibits spillovers of inward FDI beyond tourism-related sectors. Hence, although policies related to FDI promotion and tourism enhancement are often planned, executed, and evaluated independently under different government jurisdictions, coordination is recommended, because these policies interact with each other in efforts to attain economic development goals.

Attracting Foreign Direct Investment and Benefiting from it: Challenges for the Least Developed Countries

All the least developed countries (LDCs) need to attract foreign direct investment (FDI) and benefit from it as much as possible in order to advance their development. In fact, LDCs as a group are not doing that badly in terms of FDI inflows. The US$25 billion they attracted on average during 2011-2013 constituted about 2% of world FDI flows. But these US$25 billion amounted to about 13% of these countries’ gross fixed capital formation. And that is a higher percentage than for any other country group. In other words, the FDI that LDCs received is more important for them than the FDI that other country groups received – although it is quite unevenly distributed among LDCs. And while it is also true that most FDI in LDCs is in natural resources, an increasing share goes into manufacturing and services. Transnational corporations (TNCs) from all parts of the world, including those headquartered in such rising emerging markets as China, India, Malaysia, and South Africa, invest in the continent. Interestingly, outward FDI from African LDCs is rising as well, having reached US$4 billion last year. This indicates that some firms in a number of these countries have reached the international competitiveness that is needed to flourish in the world FDI market. These are encouraging trends. The international community needs to support them, precisely because FDI can make an important contribution to economic growth and development. The challenge is twofold: to help increase FDI flows to LDCs; and to increase the contribution that the FDI flows that LDCs receive make to the development of host economies. To turn to the first challenge: as we know, FDI is undertaken by private firms (although state-owned enterprises are also becoming important) that have the capabilities to compete abroad and find it advantageous to do so through international production. Understanding where their FDI flows are directed requires that we look at the locational determinants of FDI. Three sets of determinants at the host-country end are particularly important: the economic determinants; the regulatory framework; and FDI promotion. The most important factor for enterprises to undertake FDI in a country is the nature of the economic determinants: quality of infrastructure, size of the market, growth of the market, availability of skills, technological infrastructure, etc. If the economic determinants are not favourable for firms to make a profit, FDI will not take place. To put it differently: while the economic determinants are not everything, everything is nothing if the economic determinants in a potential host country are not favourable. The economic determinants are the key for attracting FDI. As we know, however, the economic determinants in LDCs are not favourable. They need to be strengthened, and official development assistance (ODA) is critical for that purpose.

Sharing Global Responsibility: The Role of the Middle Classes on the Way to a Just and Sustainable Global Economy

The world is changing fast. When in the 1970s the East and Southeast Asian ‘Tiger Economies’, that is, South Korea, Taiwan, Hong Kong and Singapore, followed by Thailand, Malaysia and Indonesia, embarked on their ‘Great Leap Forward’, this seemed to be a unique development with little chance of being copied by other developing countries. Yet, in the 1980s and 1990s, even the dormant giants India and China changed their course from import substitution to world market integration, promotion of foreign direct investment and active industrial policies. Thus, both giants geared up the industrialization process and achieved historically unprecedented growth rates over two and even three decades. At the same time, economic growth in the ‘old industrial countries’ declined and even became negative during the global financial and economic crisis since 2008. Thus, the dynamic emerging economies have been reducing the gap with the OECD countries, and they may, in the not too distant future, even catch up with the old industrial countries: convergence is the new magic word (Spence, 2011; Mahbubani, 2013).

THE ROLE OF INVESTMENT PROMOTION AGENCIES IN ATTRACTING FOREIGN DIRECT INVESTMENT

Establishing an investment promotion agency (IPA) has become a very popular institutional approach in the strategic promotion of foreign direct investment (FDI) across nations and regions worldwide. In this article, we examine the role of IPAs in improving the FDI environment and promoting inward FDI. The task of the article is, with the help of qualitative methods of research, to determine the promotion techniques and tools that lead to a better FDI performance and verify them in the cases of such investment promotion agencies as Invest Lithuania and Invest in Lviv Region (Ukraine).

Tax Treaties and Developing Countries

In today's discussion concerning tax treaties and tax treaty policy the implications in particular for LDCs are seldom addressed. There is a lack of analysis of which arguments might apply to this group of very poor countries but not for other developing countries. Based on a study of the tax treaty network of East African LDCs, the author contributes to this discussion by analysing two issues: What importance do tax treaties have for LDCs and what role does the UN Model play in the negotiation of tax treaties of LDCs. After considering a tax treaty's functions (the elimination of double taxation, the allocation of taxing rights, the prevention of tax avoidance and fiscal evasion, and the promotion of foreign direct investment), the author comes to the conclusion that an LDC can indeed benefit from entering into tax treaties. However, since a tax treaty can also have negative effects for LDCs, it is crucial for such countries to carefully evaluate all factors before entering into tax treaties. If an LDC decides to negotiate tax treaties, the UN Model is a good choice because it does indeed take into account certain particularities of capital importing countries. The treaty network of East African LDCs also shows that the UN Model already had a rather important impact on the treaty negotiations of these countries. Nonetheless, there are certain particularities in these tax treaties which might need to be considered for inclusion into the UN Model or in its Commentary in order to make this model convention even more relevant for East African LDCs.

Investment Protection and Sustainable Development: Key Issues

The subject matter of this paper is a central issue of growing concern in the area of legal regulation of international investments, namely how to ensure through treaty making and treaty application that the promotion and protection of foreign (direct) investment be beneficial for the recipient host countries, especially developing countries, and indeed does not hamper their development efforts. Seen form the point of view of those in charge of promoting development in “developing” host countries – the other side of the coin – the issue is how to ensure that those instruments effectively promote the contribution of foreign investment to the development goals of the recipient countries. My expose and analysis is a legal one: it is beyond my scope to address the economic policy issues concerning specific economic instruments (such as financial or tax incentive) that in a given situation or in respect to a given country may stimulate the flow of FDI in general or specifically according to certain policy choices. Thus, in order to promote investment in preferred sectors (such as mining or manufacturing), in certain part of the territory of that country, or in certain forms (such as joint-ventures), while possibly discouraging or prohibiting FDI which does not conform with those choices. Institutions such as UNCTAD and the World Bank have done great work in this area, studying the implication of such policies, which goes beyond my qualification. Still this remark may be of some interest also for us lawyers pointing out to the limits that legal instruments and legal analysis inherently have when addressing policy issues. In this respect one could note that while the first term of my theme “investment protection” is essentially legal, the second term “sustainable development” is essentially economic or policy-based. I just put to the readers a reflection on the issue of “balancing” such diverse, somehow heterogeneous concepts: it seems to imply an equation where the greatest the protection, the lesser will be the development, and vice-versa, something that cannot be accepted a priori. The interrelation between international legal instruments of protection and the promotion of sustainable development in a host country should consider that such instruments, though potentially significant, have a limited role compared with more sophisticated domestic instruments and policies. Traditionally IIAs, especially BITs, have been rather restricted in scope and generic in content. As I will underline further on, they have not been conceived as policy instruments but rather as a framework of minimum standards expressing in general but at the same time generic terms a pro-investment liberalisation approach.

The Case for Nation Branding as an Investment Promotion Methodology for African Nations: A Literature-Based Perspective

This paper discusses the contribution of nation branding theory and practice to the promotion of foreign direct investment. This discussion is in particular reference to Africa as an investment location and the image challenges that individual African nations face as a result of being associated with the African brand. The paper is qualitative in nature and is based on secondary data. As a result of this review of literature, it emerged that Africa suffers from a negative image challenge and that the stereotypes that exist of Africa as a continent have a negative causal effect on FDI inflows into African economies. Significantly, this paper posits that nation branding can make a significant contribution in the image-building aspect of the investment promotion process. This paper concludes that African nations need to manage the perceptions of foreign investors by proactively managing their images before embarking on investment generation activities. This entails the establishment and management of the nation brand images of individual countries as investment destinations as the initial step in traditional investment promotion practice. However, more importantly this paper advocates for empirical research to establish a theoretical framework that links nation branding theory with image-building practice in investment promotion. DOI: 10.5901/mjss.2014.v5n3p262

FDI, the Crisis and Competitiveness of Transition Economies

We evaluate the impact of the crisis on foreign direct investment (FDI) and differences between selected transition and Western economies regarding their policies and attitudes towards FDI. Transition economies have been affected by the crisis more than Western countries, but remain more optimistic about the current and future role of FDI's influence on competitiveness, and also see FDI as a relatively more important instrument for enhancing competitiveness than their Western counterparts. In addition, the investment promotion agencies seemingly have a completely different set of excelling factors in transition economies in comparison to their Western counterparts. Transition and Western countries differ in terms of their need, environments and attitudes when it comes to FDI. Thus, one of the crisis-related implications is the need to tailor the FDI policy and promotion approach to each group's specific needs.

Foreign Direct Investment and Trade Openness in Sub‐Saharan Economies: A Panel Data Granger Causality Analysis

AbstractThis study uses annual balanced panel data for 25 sub‐Saharan African economies over the period 1977‐2009 to investigate the Granger causality relationship between trade openness and foreign direct investment (FDI) for the region. We took advantage of recent developments in econometric testing techniques for Granger noncausality heterogeneous panels that takes into consideration the effects of cross section dependence across the units of the panel data set to analyse the trade–FDI nexus in the region. The empirical result of this study reveals a bidirectional causal relationship between trade openness and foreign direct investment in sub‐Saharan economies. Concurrently, African countries should devote more emphasis for the promotion and attraction of FDI in order to expand their productive capacity to produce and export; in this way, by addressing supply‐side constraints, FDI will have positive multiplier effects on trade.

Does FDI Promote MENA Region’s Environment Quality? Pollution Halo or Pollution Haven Hypothesis

In the context of increasing globalisation of capital flows, the impact of foreign direct investment (FDI) on the environment is a topic of hot debate. Environmentalists have argued that gaps in national environmental standards draw the developed countries' dirtiest industries to developing countries, creating havens in environmental standards. Free marketers counter with claims that global market forces diffuse best management practices and those foreign companies, typically from the developed countries, create halos in developing countries. This paper examines which hypothesis is valid in MENA selected region. The results indicate the validity of pollution Halo hypothesis in the region.

Does Causal Relationships Exist between External Trade and Foreign Direct Investment Flow to Agriculture in Ghana?

The paper investigated the short-run and long-run relationship between external merchandise Agricultural tradeand Foreign Direct Investment (FDI) inflows into the Agricultural sector of Ghana. The study employedGranger’s instantaneous causality to assess the short-run relationship and feedback model to investigate thelong-run relationships. Following the existence of unit-roots for the variables as well as cointegration, theToda-Yamamoto procedure was followed for the estimation of the Vector Autoregressive (VAR) models. In theshort-run, the coefficient for FDI inflows and imports were statistically significant. The negative sign pointed toa substitution or replacing relationship between the two variables. The coefficients between exports and FDIthough negative, were not statistically significant. In the long-run, there was a feedback between imports andFDI. Exports caused FDI but not the reverse. Notwithstanding the transitory substitution effect of imports andFDI, in the long-run, imports and FDI complemented each other. Trade and FDI promotion should be pursuedtogether.

Trade, Investment and Risk

Since the North American Free Trade Agreement (hereinafter NAFTA) was successfully negotiated in 1993, the provisions for investor-state arbitration under its Chapter 11 have put pressure on the regulatory spaces of the State Parties. Under Chapter 11, any investor alleging a breach of the treaty norms by a host State can file an arbitration claim. This diagonal dispute settlement mechanism has determined a growing stream of arbitrations, focusing inter alia on the interplay between the regulation of toxic chemicals by the host State and the substantive provisions of Chapter 11. The arbitration claims filed by investors against host States regarding the regulation of toxic chemicals by the latter include those related to the adoption of discriminatory policies, the expropriation of investments and the violation of the fair and equitable standard (FET). In a nutshell, the question is how to reconcile environmental protection with the promotion of foreign direct investment (FDI). Can the host State adopt precautionary policies? To what extent can and should policy influence risk regulation? Should investors be compensated if their toxic chemicals are banned from the market? Which standard of review should arbitral tribunals adopt to assess scientific evidence? This note explores all of these issues through an analysis of the Chemtura award.

Does Foreign Direct Investment Promote Economic Stability in Developing Countries?

Does foreign direct investment aid or hinder economic recovery ensuing a financial crisis? The paper tests the hypothesis that foreign direct investors are less affected by volatility (uncertainty) on their investment decisions. The data comes from the Business Enterprise and Economic Performance Surveys (BEEPS) collected by the World Bank. The investment data is applied using a Q model specification and sales growth data using a simple SCP model. The main finding is that foreign held firms are different from domestically held firms and especially domestically export active firms because of lower adjustment cost (which makes them continue to invest) during episodes of uncertainty.

Valstybinės politikos taikymo tiesioginėms užsienio investicijoms pritraukti teorinės įžvalgos

This article critically examines the concepts of public policy in respect of foreign direct investment. The analysis of the concepts of public policy identifies two main theoretical approaches to the promotion of foreign direct investment, namely – the liberal, and the regulatory one. A regulatory policy is a matter of fierce dispute, which in some cases creates a negative perception of a country. Thus, the intensity of investment of a host country is declined. This article also introduces some specific attitudes towards the intervention of a state. A liberal government policy on foreign direct investment is widely applied all over the world. However, nowadays more and more countries tend to switch from the liberal government policy to the regulatory one. Therefore, this article discusses the main causes of this phenomenon. The benefit of the regulatory policy towards FDI is emphasized.

Location Intelligence: An Innovative Approach to Business Location Decision‐making

AbstractAs one of the leading ‘world cities’, London is particularly reliant on sources of foreign direct investment (FDI). In the face of increasing global competition and a difficult economic climate, the capital must compete effectively to encourage and support such investors. Through a collaborative study with London's official FDI promotion agency, Think London, the need for a coherent framework for data, methodologies and tools to inform business location decision‐making became apparent. This article discusses the development of a rich environment to explore, compare and rank London's business neighbourhoods. This is achieved through the development and evaluation of a model for location‐based decision support. First, we discuss the development of a geo‐business classification for London which draws upon methods and practices common in geodemographic neighbourhood classification. A geo‐business classification is developed, encapsulating relevant location variables using Principal Components Analysis into a set of composite area profiles. Second, we discuss the implementation of an appropriate Multi‐Criteria Decision Making methodology, in this case Analytical Hierarchy Process (AHP), enabling the aggregation of the geo‐business classification and decision‐makers' preferences into discrete decision alternatives. Finally, we present the results of the integration of both data and model through the development and evaluation of a web‐based prototype.

Foreign Direct Investment in Times of Crisis

This paper compares the current foreign direct investment (FDI) recession with responses to past economic crises. The authors find that although developed country outflows have taken an equally big hit as major developed countries have after past crises, outflows seem to be bouncing back more slowly this time. By contrast with the overall decline in recent years, inflows to emerging markets often remained stable during their past economic crises. Both patterns indicate that the global scale of the current crisis has led to a greater response than after individual country crises in the past. Compared with global economic downturns since the 1970s, the current recession has also been greater in magnitude. The exception is the plunge in the early 2000s, despite the much smaller economic crisis at the time. The authors conclude by recommending that policymakers not just further liberalize regimes - as they find was the typical pattern during earlier crises - but rather use the downturn to rethink their policies with an enhanced focus on sustainable FDI promotion.