Foreign Direct Investment In Services Research Articles

Determinants of foreign direct investment in services

This study uses industry level foreign direct investment (FDI) data from 57 countries 1989–2000, to examine the host country determinants of FDI flows in services as a whole, and in the major service industries. Institutional quality and democracy appear more important for FDI in services than general investment risk or political stability. Democracy influences FDI to developing countries only, suggesting that the absence of democracy is detrimental to investment below a certain threshold. Consistent with the observation that many services are non-tradable, we find that service FDI is market-seeking, and unaffected by trade openness. We find a strong correlation between FDI in manufacturing and FDI in producers' services such as finance and transport.

The multinationalization of the transport sector

According to the World Investment Report 2004, the structure of foreign direct investment (FDI) has shifted towards services. Further, the composition of services FDI is also changing from trade and finance to such industries as electricity, water, telecommunications, storage, and transportation. In the latter sector, the value of FDI stock rose by 1600% between 1990 and 2002. Incorporating a transport sector that is dominated by multinationals and economies of scale in a new trade theory model leads to interesting predictions regarding the volume of trade and income and, hence, to a new set of policy conclusions. It also sheds new light on the de-industrialization debate.

The Impact of Liberalizing Barriers to Foreign Direct Investment in Services: The Case of Russian Accession to the World Trade Organization

AbstractIn this paper a computable general equilibrium model of the Russian economy is used to assess the impact of accession to the World Trade Organization (WTO), which encompasses improved market access, Russian tariff reduction, and reduction of barriers against multinational service providers. It is assumed that foreign direct investment in business services is necessary for multinationals to compete well with Russian business services providers, but cross‐border service provision is also present. The model incorporates productivity effects in both goods and services markets endogenously, through a Dixit–Stiglitz framework. It is estimated that Russia will gain about 7.2% of the value of Russian consumption in the medium term from WTO accession and up to 24% in the long run. It is also estimated that the largest gains to Russia will derive from liberalization of barriers against multinational service providers. Piecemeal and systematic sensitivity analysis shows that the results are robust.

The Determinants of Foreign Direct Investment in Services

This paper has two main objectives: first, to consider country specific determinants that attract services FDI, and second, to compare the importance of these determinants vis-a-vis the traditional determinants that attract manufacturing FDI. Using the OECD countries as our sample, and 1980 to 2003 as our time period, we consider the determinants of inward FDI in a panel setting. Our results provide empirical evidence to support the view that services FDI follow their counterparts in the manufacturing sector.

Beyond Border Barriers: The Liberalisation of Services Trade in Tunisia and Egypt

Tunisia and Egypt have both recently undertaken significant steps toward trade reform. They have committed to a partnership agreement with the European Union. Both countries have also joined the WTO and are participating in Doha Round discussions on the liberalisation of non‐tariff barriers on both goods and services trade. These developments provide an interesting context within which to investigate not only the changes in welfare associated with reforms affecting the trade in goods, but also the impacts of services liberalisation. Using open‐economy computable general equilibrium models for both Tunisia and Egypt, this paper explores the reasons why structural differences in these two economies imply different opportunities and challenges with trade reform and services liberalisation. The gains from eliminating barriers at the border for goods trade are significantly greater for Tunisia than Egypt. Both countries, however, gain substantially from liberalisation of foreign direct investment in services. Furthermore, economic growth is more evenly distributed across sectors than with liberalisation of trade in goods alone. In addition to reporting on the impact of alternative policies on income, output, employment and trade, sector‐level effects are also considered.

International investment in insurance services in the US

The purpose of this study is to analyze and discuss the determinants of foreign direct investment (FDI) in insurance services in the US. This study demonstrates that solid economic fundamentals in the host countries are the major factors which attract FDI in insurance services, while the uncertainty of the international exchange market increases the investment risk and reduces foreign investors’ willingness to invest. The empirical results of this study indicate that national income (NI), the source countries’ insurance market size and financial development (FD) of the host countries contribute to the expansion of FDI in insurance services, while the relatively higher wages and higher cost of capital in the host countries discourage FDI in insurance services. The empirical results also suggest that FDI in insurance services complement FDI in banking as well as total trade in insurance services.

U.S. Foreign Direct Investment in the London Legal Market: An Empirical Analysis

This article examines the nature and timing of U.S. foreign direct investment (FDI) in the London legal market. Evidence from a survey of thirty–eight U.S. subsidiaries suggests that FDI has taken place primarily to serve U.S. clients located within the United Kingdom. The evidence also suggests that early investors (pre–1990) belong to a core group of multinational companies with headquarters located in first–tier U.S. cities (New York, Chicago, Los Angeles). Later investors more typically hail from smaller cities. The evidence reveals a number of important differences between early versus late investors. Specifically, subsidiaries that were established prior to 1990 are more likely to enjoy local decision–making autonomy than are their counterparts that entered the London market more recently. The article concludes with a brief discussion of the implications of the survey findings for future research on FDI in professional services.

FDI facilitated by agglomeration economies: evidence from manufacturing and services joint ventures in China

The open door policy of China’s economic reform since the 1980s has attracted heavy foreign direct investment (FDI) flows into China and especially to Guangdong (particularly the Pearl River Delta region, PRD) and induced significant economic growth during the past two decades. While there exist various classical theories of FDI in attempting to identify the determinants of FDI inflow and to explain the behavior of FDI flows, limited attention has been given from the perspective of agglomeration effects generated by a core-periphery (CP) relation. This paper intends to study the impacts of agglomerations on FDI inflows in the context of Krugman’s CP relation (1991) by investigating (1) the formation of a CP relation via gravity model analysis; (2) whether different types of industry FDI flows will respond differently in the CP-system, given agglomeration effects; and (3) whether FDI origin and firm scale matter in affecting FDI flows. A database consisting of a population frame of 37,742 firm-level manufacturing and services joint ventures investing in Guangdong in 1998 was used. Empirical results show that the agglomerations of the CP relation have affected FDI flow patterns. While both manufacturing and services FDI and sources of investment responded differently to the impacts, smaller firms were found more responsive to the CP-agglomeration settings regardless of FDI by industry type and by source. The significance and implications of the CP-system to further facilitate FDI in the region are discussed.

The complementarity between U.S. foreign direct investment stock and trade

Within a gravity model framework, this paper will establish that trade and foreign direct investment (FDI) are complementary, using trade and FDI stock data on a bilateral basis between the U.S. and 51 other countries over the period 1982 to 1994. U.S. outward FDI is found to have a larger predicted impact on U.S. exports than does inward FDI. On the other hand, inward FDI is found to have a larger predicted impact on U.S. imports than does U.S. outward FDI. These results are directly linked to patterns of intrafirm trade within the multinational enterprise (MNE), a result consistent with the transactions cost theory of MNEs. In addition, a sectoral analysis indicates that U.S. outward FDI in manufacturing has a large predicted impact on both exports and imports, whereas U.S. outward FDI in services has a large predicted impact on U.S. exports but little or no predicted impact on imports.

Country location choices of service multinationals

This article examines international country location choices for equity investment undertaken by global hotel chains. Why do certain host countries attract more hotel investment than others? A second underlying issue that we tackle in this article is whether the traditional foreign direct investment determinants used in past studies on manufacturing also apply to services—or whether service sector-specific determinants are better explanatory variables for understanding the distribution of service foreign direct investment across countries.

FORUM: Monetary analysis: turning a blind eye on sustainability

We study the effects of foreign direct investment (FDI) on the rate of exhaustion of bioproductive physical land. We test for differential ecological performance of FDI in developed vs. developing countries, as well as in “clean” vs. “dirty” sectors. We examine the impact of six sector-level FDI flows on four ecological footprints (EF): Consumption EF, Production EF, Imports EF, and Exports EF, compiled by the Global Footprint Network. We estimate a dynamic panel model incorporating an Environmental Kuznets Curve (EKC) and differentiating across country development levels. The findings are intriguing. First, High Income countries tend to experience a consumption-related ecological impact of FDI, whereas Low- and Middle-Income countries tend to experience a production-related ecological impact of FDI. Second, the burden of FDI-generated Exports EF is born disproportionately by Middle Income countries; High Income countries bear none (evidence of FDI ecological haven). Third, in High Income countries, financial services FDI reduces the Production EF (evidence of FDI ecological halo). Finally, non-financial services FDI is more ecologically damaging than manufacturing FDI.

The Role of Inward Investment in Urban Economic Development: The Cases of Bristol, Cardiff and Plymouth

This paper examines the role of manufacturing and services foreign direct investment (FDI) in the restructuring of the three large cities in the South West and Wales: Bristol, Plymouth and Cardiff. Key differences in the FDI stock of each city are analysed, with special attention given to location rationale and quality of investments. Bristol is found to be comparatively successful in attracting high-grade manufacturing, regional service centres of manufacturing companies, and financial and computer services firms. Location and policy influences have meant that Cardiff and Plymouth have been more dependent on 'production only' facilities; and Plymouth, in particular, has had difficulty attracting financial and business services investment. Policy and practical ramifications of the study are explained.

Service Industries in the World Economy

1. The Rise of Services: Some Factual and Theoretical Perspectives. Introduction. Services: Definition and Classification. The Recent Expansion of Services. Explanations for Growth. Understatement of Role of Services. 2. The Tradability of Services. TRadable and Non--Tradable Services. Information Technology and Tradability of Services. Transport Technology and the Tradability of Services. Service Multinationals and the Tradability of Services. Case Studies of the Development of Service MNEa S. Retail Internationalisation. Government Influences on the Tradability of Services. Changes in Consumer Requirements and Expectations. 3. International Trade and Foreign Direct Investment in Services. Introduction. Measuring Trade in Services. An Outline of Global Trade in Services. The Role of Comparative Advantage. Foreign Direct Investment in Services. International Trade in Services and the Developing Countries. Developing Country Service MNEa s. Eastern Europe, the Commonwealth of Independent States and International Trade in Services. Liberalizing International Trade in Services. 4. Services and the Global System of Cities. Services and the Global Urban System: Some Explanations. Services and Cities in the Global Urban System. Services and the Global Urban System: Some Examples. 5. Internationalization of Services and Restructuring of Cities. Services and Employment Restructuring in Large Metropolitan Areas: Some Comparisons. Impacts on the Urban Property Market: Offices. Changes in the Location of Services Within Cities. 6. Services in the World Economy: Some Reflections. Services in the 1990s: Victims of the Decade of Optimism?. Service--Dominated Economies: How Desirable?. Is the Globalization of Services inevitable?. Unfulfilled Potential of Telecommunications?. References. Further Reading. Bibliography. Index.

Foreign Direct Investment in Services: The Neglected Dimension in International Service Negotiations

Foreign Direct Investment in Services: The Neglected Dimension in International Service Negotiations