On the Determinants of Surges and Stops in Foreign Loans: An Empirical Investigation

This paper examines the determinants of surge and stop episodes in foreign loans using quarterly data from 55 countries covering 1990Q1 to 2011Q4. The estimation results show that, first, global, contagion and domestic factors are all significantly associated with both loan-led surge and stop episodes. Second, domestic factors are more relevant to stops than to surges and are associated more strongly with episodes in emerging countries than with those in advanced countries. Third, global risk and domestic growth shock are most consistent and important in predicting both types of episodes. Fourth, financial linkage is the most important contagion channel in the occurrence of loan-led episodes. Fifth, capital control is not a useful tool for avoiding either type of episode and may actually increase their likelihood. Finally, stops in emerging countries are strongly related to macroeconomic fundamentals such as inflation, current account balance, net foreign assets, real exchange rate, and previous occurrence of surge episodes. Our results strongly suggest that emerging countries with lower institutional quality levels are more likely to experience both surges and stops.     

The Effect of Inflation Targeting on Foreign Direct Investment Flows to Developing Countries

Due to the many benefits that come with foreign direct investment (FDI), such as greater economic growth and technology spillovers, developing countries strive to attract this type of investment. Although the amount of FDI in developing countries has increased greatly over the past several years, not all developing countries have been successful at attracting it. A credible monetary policy, such as inflation targeting (IT), might make countries that implement it more attractive destinations for FDI flows due to the reliable macroeconomic environment created. This paper estimates the effect of IT on FDI flows to developing countries using a difference-in-differences approach and panel data for 71 countries for the period 1985 to 2013. This paper also looks at the difference between targeting and non-targeting countries in terms of FDI inflows during times of high instability. The results indicate that the adoption of IT leads to increased FDI flows to developing countries overall and, most importantly, during times of distress.

     

The Surge of Asian NIC Investment into Indonesia 1

Since 1987 a dramatic increase in both domestic and foreign investment in Indonesia, most of it in export-oriented activities, has occurred in response to improvements in a previously unattractive investment climate and in the country's trade regime. Most striking has been the rise in investment by Asia's four ‘newly-industrialising countries’ (NICs): Korea, Taiwan, Hong Kong and Singapore. This paper analyses the factors contributing to this increase and the investment patterns of the four countries. It then focuses on investment in the manufacturing sector, where most of the NIC investments have taken place. The relative importance of each country as a source of investment in individual sectors and industries is examined. The paper concludes that this recent investment surge may yield net social benefits for Indonesia, provided the country continues to adhere to sound macroeconomic and export-promoting policies.     

Measuring the Benefits and Costs of Foreign Direct Investment – With Reference to Malaysia

The effects of foreign direct investment in developing countries can be studied by using the with/without investment scenario. Many of the effects are quantifiable and can be measured using cost benefit technique. A sample of foreign projects was analysed in this paper. Important benefits of foreign direct investment to a home country are income tax payments by foreign specialists, corporate tax on the project after the tax holiday period, cheaper high quality locally manufactured import substitutes and the backward linkages to domestic industries. These positive benefits are measured using the Little-Mirrlees method, and are weighted against the negative ones, including losses suffered by the local entrepreneurs because of greater competition for labour and potential increased market concentration. The research concluded that the positive benefits of foreign direct investment are far higher than the negative ones, and similar investment should be strongly encouraged.     

Official Development Assistance and Foreign Direct Investment Flows to Sub‐Saharan Africa

Abstract: Foreign direct investment is believed to have a positive impact on the economies of the developing countries but its determinants are not yet fully established. This paper empirically investigates the relationship between official development assistances and foreign direct investment flows using panel data from 11 sub‐Saharan African countries for the period 1990–2003. The results show that bilateral official development assistance has a significant and positive influence on foreign direct investment flows. The results also show that trade openness, growth rate in the labor force, and exchange rates have a positive and significant effect on foreign direct investment flows. But multilateral development assistance, the growth rate in GDP per capita, the country's composite risk level, and the index for political freedom and civil liberties do not have a statistically significant effect on foreign direct investment flows. The policy implication of the positive and significant influence of the bilateral official development assistance on foreign direct investment is that the recipient countries need to formulate policies that improve their economic relationships with the donor countries in order to attract greater foreign direct investment flows from the multilateral corporations located in these countries.     

Reviving Foreign Direct Investments in Southern Africa: Constraints and Policies

Abstract: The objective of this paper is to examine the factors that determine the inflow of foreign direct investment (FDI) to SADC member states, which is critical for introducing widespread technological change, complementing domestic investment, improving the agility and competitiveness of firms, and providing access to skills and global markets. Since the end of apartheid in 1994, FDI flows to SADC have improved significantly increasing from an annual average of only $660 million in 1985–95 to about $5.9 billion in 2000–04. A number of countries in the region have taken additional steps to reform their policy stance in order to boost prospects for increased FDI inflows, while South Africa has now become an important growth pole for attracting foreign investment to the region. However, despite the economic and institutional reforms, especially by some of the low‐income countries in the region, the flow of FDI to SADC member states remains low and concentrated in few countries and sectors. The paper identifies a number of factors constraining FDI inflows, including the small size of the regional economy, persistent macroeconomic uncertainty in some important economies, high administrative barriers, inadequate physical infrastructure, weak financial systems, and growing perception of corruption. The paper argues that SADC member states need to strengthen efforts to enhance policy frameworks, both individually and collectively, in order to make the region attractive for foreign investors. More progress is required on improving the efficiency of institutions, macroeconomic policy co‐ordination and harmonization, opening up to trade, strengthening energy, transport and telecommunications infrastructure, putting more resources in developing local skills, reducing bureaucratic red tape and curbing corruption. Importantly, SADC member states should avoid heated competition or “bidding wars” for FDI, where countries seek to outbid each other in offering fiscal and financial subsidies to attract foreign investors. Competition for FDI between neighbouring countries is not only wasteful and costly, but may also weaken regional co‐operation and integration. Co‐operation at a SADC level may therefore help avoid costly bidding wars.     

Is the relationship between foreign direct investment and trade different across developed and developing countries? Evidence from Korea

Empirical studies that pool data from developed and developing countries may conflate the separate roles played. The pooled coefficient estimates may significantly misrepresent the true relationships. This paper analyses the impact of outward and inward foreign direct investment (FDI) flows between Korea and developed and developing countries on Korean exports in 12 manufacturing sectors over the 1988–2006 period. The evidence suggests that the outward FDI to developing countries is likely to increase Korean exports to those countries than FDI to developed countries likely to increase exports to developed countries. Thus, pooling investment flows can lead to incorrect inferences.     

Domestic interest rate,foreign direct investment,and corruption

It has been argued that foreign direct investment can exert upward or downward pressure on the domestic interest rate depending on foreign investors’ relative weights on internal and external finance with respect to the domestic economy. Additionally, a country’s level of corruption can influence firms’ ability to obtain external finance. We find that across countries a 1 percent increase in FDI inflows (outflows) is more likely to reduce the domestic interest rate by as much as 0.7 (1) percent. This empirical association between domestic interest rates and FDI flows is non-monotonically contingent on a country’s level of corruption.

     

The impact of economic fundamentals on stock markets in southern Africa

The issue of whether stock markets reflect economic fundamentals or speculative bubbles is an important one for their potential role in allocating capital, and relates to a policy issue of whether stock markets should be encouraged in developing countries. This article examines the impact of both domestic and foreign economic factors on real stock market returns in three southern African stock markets – South Africa, Zimbabwe and Botswana, from 1985-95 – using cointegration and error correction techniques. It finds that, while in all cases stock markets are influenced by domestic economic growth, there are no common patterns beyond this. The influence of other domestic and economic variables depends on the size, openness and market-orientation of the individual economies, as well as the size and liquidity of the various stock exchanges. Where foreign economic variables are important, they appear to be those related to trade, rather than international capital flows, indicating that there is little integration of these capital markets, whether regionally or internationally.     

Surges and Sudden Stops of Capital Flows to Emerging Markets

A characteristic of many of the recent emerging market currency crises is a preceding surge in capital inflows and their reversals or ‘sudden stops’ during the crises. The empirical investigation of 38 emerging market economies between 1990 and 2003 reveals that a surge in capital inflows significantly increases the probability of a sudden stop. In addition, a surge accompanied by a high current account deficit or an appreciated real exchange rate is more likely to be associated with a sudden stop. The paper also finds that a surge that is dominated by private loans and portfolio flows rather than direct investment has a higher probability to end with a sudden stop.     

Foreign Direct Investment and Inflation

Multinational enterprises (MNEs) are able to shift investments between home and host countries to minimize the negative effects of changes in the macroeconomic environment. This article formalizes a model that allows studying this investment‐smoothing behavior of MNEs facing inflation taxes in both the home and the host country. The MNE is allowed to invest in two economies, home and host, and to finance its foreign direct investment (FDI) either through domestic or foreign sources. The investment smoothing by the MNE is studied for cases of both vertical and horizontal FDI. The results suggest FDI is used as a hedging tool, mitigating the effects of inflation taxes even if there are no formal hedging mechanisms. The investment‐smoothing reaction of MNEs depends on the reason for investment, the financing sources of FDI, and the substitutability between factors of production. Finally, this investment‐smoothing possibility (FDI) reduces the real negative effects of inflation.     

Excess Liquidity and Inflation Dynamics in China： 1997-2007

The surge in international capital inflows and the remarkable excess liquidity in China between 1997and 2007are examined in the present paper. It is shown that China＇s improved position in terms of foreign exchange purchases, ignited by huge foreign capital inflows, has effectively induced excess liquidity in China. More importantly, by developing an econometric madel for inflation and excess liquidity, the present study demonstrates that excess liquidity has imposed significant pressure on inflation in China over the past 10 years. This finding suggests that excess liquidity in China has not only contributed to the rise in stock prices and the real estate market boom, but also affected the consumer goods market. The potential transmission mechanism of liquidity-driven inflation and policy implications of the findings of this study are discussed.     

中国投资是东道国内部冲突的抑制剂还是催化剂

随着国家内部冲突取代了国家间战争成为集体政治暴力的主要形式,对内部冲突中国际维度的关注促使人们思考以国际投资为代表的全球化与跨国企业的影响。从理论上看,国际投资可能会引发冲突,也可能会降低冲突发生的可能性。中国虽然是全球第二大对外直接投资(OFDI)国,但研究中国OFDI对东道国内部冲突影响的实证文献几乎没有。作者基于2004—2016年中国对115个发展中国家的直接投资数据,实证研究了中国OFDI对东道国爆发内部冲突的影响及其作用机制。结果显示,中国对发展中国家的OFDI显著降低了当地爆发内部冲突的概率,而全球第一大OFDI国美国对发展中国家的OFDI对当地爆发内部冲突的抑制作用则不明显。在影响机制上,中国对发展中国家的OFDI显著降低了当地的失业率,有助于增加民众参与武装冲突的机会成本,降低叛乱行为的合法性与成功率,进而减少东道国内部冲突的爆发。以上发现体现出中国投资对东道国内部稳定性的贡献。但这并不意味着可以忽视中国企业“走出去”过程中出现的一些问题。     

Spoilt for choice? Multinational corporations and the geography of international production

This paper questions the view that foreign direct investment(FDI) is producing an integrated world production and tradingsystem. Although multinational firms have a greater choice oflocations than in the past, their recent investments abroadhave taken place within a regional, rather than global, framework.The upsurge of FDI flows from North to South has been attractedby just a handful of fast-growing developing countries. Thepaper disputes the claim that the road to development is forpoor countries to attract FDI on the scale observed in suchcountries as Malaysia. This claim involves a fallacy of composition.While FDI can make a valuable contribution, most countries willhave to rely mainly on their own resources and indigenous producers.The paper argues that current proposals for a Multilateral Agreementon Investment neglect both the regional aspects of integrationand the need of poorer countries to promote their domestic supplycapabilities. Conflicts of interest which are ignored in thecurrent rhetoric suggest the continuing relevance of a strategicpolicy approach to international production.     

Foreign and Domestic Shocks: Macroeconomic Responses of ASEAN-3 Countries

Abstract

The study provides new empirical evidence on the relative importance of foreign and domestic shocks on selected ASEAN-3 (Malaysia, Indonesia, and Thailand) macroeconomic variables. Three structural vector auto regression models are estimated for each country. The focal point is given on the formulation of the sources of foreign factors. The first model uses trade-weighted foreign variables of both US and Japan to represent the foreign factors. The other two models use US and Japan by themselves, respectively, to represent the foreign factors. Two important results are emerged. First, foreign sectors play an important role in influencing macroeconomic variables of each of the ASEAN-3 country, especially in the medium and the long-run horizon. Second, most of the time, the Japanese factors are more dominant than the US factors in influencing domestic output and inflation for each of the ASEAN-3 countries.     

论发展中国家促进对外直接投资的政策体系建设

随着经济实力的增强和经济结构的调整,越来越多的发展中国家具备了进行对外直接投资的实力.然而,大规模进行对外直接投资,对于发展中国家而言,既能扩展市场,但也容易导致资本和技术的外流,以至于影响国内经济的可持续发展.     

The effect of intellectual property rights on international trade and investment

The Effect of Intellectual Property Rights on International Trade and Investment. — The widespread debate regarding extended recognition of intellectual property rights across borders has not been matched by empirical investigation regarding the effect of such international recognition of intellectual property as exists in the status quo. In this paper, the effects of membership in intellectual property treaties is investigated in the context of U.S. exports, foreign affiliate sales, and flows of royalties and license fees. Membership in intellectual property treaties increases the flows of payments and receipts for intellectual property as long as domestic patent protection is sufficiently strong. U.S. parents export more to subsidiaries in countries which do not adhere to such treaties, but their impact on arms’-length exports and foreign investment is minimal.     

Technological Innovations in the Control of International Exchange: Lessons for Africa

Empirical studies on international trade highlight the role of innovation on international exchange but do not capture the effect of technological innovation when unobservable common factors (UCFs) are considered. This paper examines the long‐run relationship between technological innovation and international exchange using panel data for eight African countries over the period 1981–2013. The non‐stationarity and cointegration between technological innovation, international exchange, public investment, real gross domestic income and foreign direct investment were examined, controlling for cross‐sectional dependence and heterogeneity between countries. The results suggest that technological innovation in Africa remains low after controlling for UCFs, while public investment, real gross domestic product and foreign direct investment have significant impact on international exchange. Moreover, the results from the homogeneous and heterogeneous estimates, with and without UCFs, show that ignoring UCFs is likely to bias the coefficients. These findings reveal that African countries should invest more in public infrastructures and research and development to upgrade their capability To play an active role in the international market.     

中国对外直接投资的发展趋势与政策展望

中国已是世界上对外直接投资最大的发展中国家,也是全球第五大对外直接投资大国。中国对外直接投资与发达国家和发展中国家过去的投资模式不同,而是遵循一种价值链延伸型的发展趋势。中国的对外投资政策,已经朝着符合中国对外直接投资发展趋势的方向改变,但是,不管是战略层面,还是核准与管理制度层面,以及促进政策方面,要有效地支持中国当前和未来相当长一段时期内的价值链延伸型为主的对外直接投资,还需做出一些调整。     

Business start-up regulations and the complementarity between foreign and domestic investment

This paper shows that the complementarity between foreign direct investment (FDI) and domestic investment significantly depends on regulations required to start a new domestically owned business in host economies. It finds evidence that FDI crowds out domestic investment in countries with entry regulation cost above a certain level, and many of these countries are in the bottom quartile of GDP per capita. Reforms in business start-up regulations can therefore play a critical role in enhancing the complementarity between foreign and domestic investment and thereby increase entrepreneurship and economic growth in low-income countries. The analysis takes into account other significant factors which affect domestic investment such as the cost of capital, government’s economic growth track record, institutional quality, and market size.