Impact of Openness on Growth in Different Country Groups

This paper evaluates the impact of openness on growth in different country groups using a panel of 79 countries over the period 1970–98. It distinguishes itself from many existing studies in three aspects: Firstly, both trade and FDI are included as measures of openness. Secondly, countries are classified into high‐, middle‐ and low‐income groups to compare the roles of trade and FDI in these groups. Thirdly, the possible problems of endogeneity and multicollinearity of trade and FDI are carefully dealt with in a panel data setting. The main findings are as follows. Total trade has a general positive impact on growth in all country groups, although the impact from imports is not significant in high‐income countries. FDI has a positive impact on growth in high‐ and middle‐income countries, but not in low‐income countries. With the existing absorptive capabilities, low‐income countries can benefit from both exports and imports, but not from FDI. These findings suggest that trade and FDI affect growth through different channels and under different conditions. The paper also discusses important policy implications.     

The impact of trade openness on the unemployment rate in G7 countries

Recent and ongoing literature strongly implies the existence of a significant and robust impact of trade openness (liberalisation) and globalisation on unemployment, particularly in developed economies. This paper empirically investigates the impacts of four different measures of trade openness and globalisation on the unemployment rate in an unbalanced panel framework. The analysis focuses on the G7 countries: Canada, France, Germany, Italy, Japan, the United Kingdom (UK), and the United States (US). Robust empirical findings from panel data estimates demonstrate that, along with macroeconomic indicators and market size, all the measures of trade openness and globalisation are significantly and negatively associated with the unemployment rate. Therefore, we conclude that the continuation of the globalisation process instead of protectionism is of great importance in reducing the unemployment rate in developed economies.     

Intellectual Property Rights,FDI, R&D and Economic Growth: A Cross‐country Empirical Analysis

This paper aims to empirically examine how intellectual property rights (IPRs) protection, foreign direct investment (FDI) and research and development (R&D), along with other possible variables, may affect the economic growth of the host country. Using the panel data of 92 countries during 1970–2007, I conclude from the system generalised method of moments estimation that domestic investment share, FDI, R&D capacity, openness to trade, human capital and IPRs protection all have statistically significant and positive impacts on economic growth. A further investigation of countries at different levels of development suggests two striking findings. First, besides the domestic investment, openness, human capital and IPRs protection, R&D is the key to drive economic growth in the higher‐income countries, while FDI is the engine of growth in both higher‐income and middle‐income countries. Second, a positive and significant impact of IPRs protection on economic growth is found in both higher‐income and lower‐income countries. However, such an impact is not detected in the middle‐income countries.     

Robustness of the KOF index of economic globalisation

The KOF indices of globalisation are the most used globalisation measures in international economics literature, but it uses the nominal trade openness measure to construct the globalisation index. In this paper, we use real trade openness instead of nominal trade openness and recalculate the KOF economic globalisation index over the period 1970–2013. Using the panel data regressions for 146 countries, we revisit the economic globalisation–economic growth nexus to investigate the robustness of the KOF economic globalisation index. We consider several possibilities in model specifications, and the results show that using nominal trade openness measure in calculating the KOF globalisation index is statistically robust. In addition, the KOF economic globalisation index in logarithmic form introduces a more robust outlook in the panel data regressions—a lower bias is emerged by considering different trade openness measures to calculate the globalisation level.     

Pitfalls in the use of foreign direct investment statistics

Foreign direct investment (FDI) statistics are widely used to study the impact of international capital movements and multinational enterprise (MNE) activities. FDI intensity is also an important indicator of globalisation and economic integration. Datasets spanning long time periods and with broad country coverage have been employed in numerous studies to analyse various aspects of the determinants and consequences of FDI. Focusing on a relatively homogeneous group of six Western European EU countries, the present study finds major inconsistencies in the construction and coverage of these data both through time and across countries, leading to large discrepancies. Asymmetries will be far greater for broader groups of more economically and institutionally diverse countries. This study recommends extreme caution in drawing conclusions based on FDI data.     

Foreign Direct Investment in Africa: The Role of Natural Resources,Market Size,Government Policy,Institutions and Political Instability

Data from several investor surveys suggest that macroeconomic instability, investment restrictions, corruption and political instability have a negative impact on foreign direct investment (FDI) to Africa. However, the relationship between FDI and these country characteristics has not been studied. This paper uses panel data for 22 countries over the period 1984–2000 to examine the impact of natural resources, market size, government policies, political instability and the quality of the host country's institutions on FDI. It also analyses the importance of natural resources and market size vis‐à‐vis government policy and the host country's institutions in directing FDI flows. The main result is that natural resources and large markets promote FDI. However, lower inflation, good infrastructure, an educated population, openness to FDI, less corruption, political stability and a reliable legal system have a similar effect. A benchmark specification shows that a decline in the corruption from the level of Nigeria to that of South Africa has the same positive effect on FDI as increasing the share of fuels and minerals in total exports by about 35 per cent. These results suggest that countries that are small or lack natural resources can attract FDI by improving their institutions and policy environment.     

Reconciling quantile autoregressions of firm size and variance–size scaling

The aim of this paper is to understand what economic mechanisms may cause the Law of Proportionate Effect to break down for fast-growing and shrinking firms. Recent evidence has highlighted that the first-order coefficients of quantile auto-regression of firm size decline across quantiles. Our theoretical results show that negative variance–size scaling is sufficient to yield a decline in quantile auto-regression coefficients if firm log-size is Laplace-distributed, conditional on size one period ahead. However, it is sufficient only for declining auto-regression coefficients for fast-growing firms under Asymmetric Laplace conditional log-size if skewness is decreasing with size. In other words, if the growth of large firms is less dispersed and more left-skewed, size is a disadvantage for the growth of fast-growers, but not necessarily an advantage for fast-decliners. Thus, size-related determinants of negative growth skewness, such as diseconomies of growth, market power, and managerial attention issues, impact on how the LPE is violated. Using data on Dutch manufacturing companies from the Business Register of Enterprises observed between 1994 and 2004, our empirical estimates of quantile regression models confirm the evidence of declining quantile regression coefficients for small–medium firms (20–199 employees) mainly in the right-most quantiles, and for the same subsample, we find that growth rates variance and skewness are decreasing with size. The theoretical propositions of the paper are thus corroborated.     

Mean reversion of inflation rates in seven Eastern European countries: An application of a fourier quantile unit root test

This paper applies recently developed Fourier quantile unit root test to investigate time-series property of inflation in seven Eastern European countries. This method combines the quantile unit root test with smooth unknown multiple breaks through Fourier function, and has good size and power when the data follows heavy tailed distribution. Our results show that the inflation rates are stationary within each quantile for Czech Republic, Bulgaria and Lithuania, while the other four countries contain a unit root within some quantiles. We also find the speed of inflation adjustment towards to its long-run equilibrium for each country is asymmetric. Our results have important policy implications for monetary authorities in these Eastern European countries.     

Has Globalisation Affected Collective Bargaining? An Empirical Test, 1980–2009

We investigate whether globalisation has affected the nature of collective bargaining in OECD and emerging countries. The main innovations over the existing empirical literature are (i) the consideration of three distinct aspects of collective bargaining (union density, decentralised bargaining and the extent of government intervention), (ii) the reliance on a sample with a larger cross‐sectional and time dimension (44 countries from 1980 to 2009), and (iii) the application of a more appropriate empirical methodology (dynamic panel data models). We find that globalisation, on average, depresses unionisation but neither affects the degree of decentralisation nor government intervention in collective bargaining. We also uncover significant heterogeneity effects, both across countries and over time.     

Greenfield FDI,cross-border M&As,and government size

This study examines the effects of greenfield foreign direct investment (FDI) and cross-border mergers and acquisitions (M&As) on government size in host countries of FDI. Using panel data for up to 130 countries for the period from 2003 to 2011, the study specifically tests the compensation hypothesis, suggesting that by increasing economic insecurity, economic openness leads to larger government size. It is found that greenfield FDI increases labour market volatility and thereby economic insecurity while M&As are not significantly associated with labour market volatility. The main results of this study are that greenfield FDI has a robust positive effect on government size, while M&As have no statistically significant effect on government size in the total sample of developed and developing countries, as well as in the sub-samples of developed and developing countries.     

Age and firm growth: evidence from three European countries

This article provides new insights into the dependence of firm growth on age along the entire distribution of growth rates, and conditional on survival. Using data from the European firms in a global economy survey, and adopting a quantile regression approach, we uncover evidence for a sample of French, Italian and Spanish manufacturing firms with more than ten employees in the period from 2001 to 2008. We find that: (1) young firms grow faster than old firms, especially in the highest growth quantiles; (2) young firms face the same probability of declining as their older counterparts; (3) results are robust to the inclusion of other firms’ characteristics such as labor productivity, capital intensity and the financial structure; (4) high growth is associated with younger chief executive officers and other attributes that capture the attitude of the firm toward growth and change. The effect of age on firm growth is rather similar across countries.     

The impact of bilateral tax treaties: A multi-country analysis of FDI inflows into India

This paper models the role of tax treaties in promoting foreign direct investment (FDI) with the help of panel data for 14 countries for the period 1993–2011. A fixed effects (least squares dummy variable) model is developed that captures macroeconomic factors such as gross domestic product (GDP) and per capita income (PCI) in ratio form of home to host country. It also includes bilateral tax treaties as a determinant of FDI inflow. The results show that GDP is a major determinant that is demand driven and per capita income is a major determinant that is supply driven. FDI openness of the home countries and population are also significant determinants. The introduction of the treaty had a positive impact on FDI inflows into India. We get largely significant and positive results for the ‘age of the treaty effect’, especially, in the case of Germany, Switzerland and Japan. The main contribution of the paper is to show that both presence and ‘age of treaty’ are important determinants of FDI flows to India. Further, fundamentals like GDP and PCI are major variables that influence FDI inflows.     

Dependence between the global gold market and emerging stock markets (E7+1): Evidence from Granger causality using quantile and quantile‐on‐quantile regression methods

This study examined the dependence between gold and stocks during 2002–18 in seven emerging countries. The study combined the bivariate cross‐quantilogram introduced recently with quantile‐on‐quantile regression (QQR) approaches to conduct comprehensive and complementary analyses. The QQR results for the full sample revealed a weak positive dependence in all the quantiles of gold and stock returns across all the countries selected during mild market conditions. The results for pre and post‐crisis periods largely were consistent with those obtained for the full sample, except for Turkey (pre‐crisis), and China and Indonesia (post‐crisis). The results of the causality test‐in‐mean (return) and that of the causality test‐in‐variance revealed no causal relation between stock and gold in the pre‐crisis period, while causality ran only from gold to some stocks in the post‐crisis period. Further, while there was volatility causality running only from gold to stocks during the pre‐crisis period, the volatility causality between the two markets was very high during the post‐crisis period. Therefore, we suggest that gold may have been a hedge for stocks during the pre‐crisis compared to the post‐crisis period. Further, international risk factors should be considered in optimal investment decisions between domestic and global markets' assets (stocks and gold).     

Three decades of globalisation: Which countries won,which lost?

The world average exports-to-GDP ratio increased from 17% in 1985 to 27% in 2015. Hence, world exports have grown much faster than world GDP. However, despite this overall trade integration, which is a key aspect of globalisation, the exports-to-GDP ratios have declined for 29 of the 118 countries with such data from 1985 to 2015. Some countries have been driving globalisation, while others have become marginalised. This paper examines three decades of globalisation to shed some light upon which countries might be considered winners and which countries might be considered losers of globalisation. After summarising the evolution of income and income per capita, we examine the evolution of exports and net inflows of foreign direct investment (FDI). Contradictory to previous decades, we show there are now many countries from all income groups that have either experienced marginalisation or been driving globalisation. We then use novel regression analysis to review the robustness of generally accepted drivers of globalisation and marginalisation, with education and macroeconomic stability being the two most robust determinants.     

Source Country Characteristics and the Inflow of Foreign Direct Investment into Saudi Arabia

The paper examines the impact of source country characteristics on the inflow of FDI into Saudi Arabia using a gravity‐type model including economic, distance and socio‐political variables. A unique database listing all new investments involving foreign ownership is used to construct a panel of 33 countries in the period 1980–2005. To account for many country–year observations with zero FDI, the negative binomial regression, the Tobit regression and the Heckman selection procedure are used. The conclusions drawn from the analysis employing panel‐based techniques differ from the results obtained from pooled regression models. Also, the determinants of FDI differ depending on whether foreign investment is measured in terms of investment expenditure or the number of individual foreign projects. The Heckman selection results reveal that there are a large number of factors affecting the decision to invest in Saudi Arabia, compared with relatively few determinants of the actual size of investment. Traditional size and distance characteristics hold to a great extent but the relationship between FDI and bilateral trade is unclear and there is some evidence that the countries that export to Saudi Arabia do not invest there. In terms of scope for possible spillovers, there is mixed evidence on whether the investment comes from more technologically advanced economies but volume‐wise important investments originate from countries characterised by high income per capita.     

Firm Growth and FDI: Are Multinationals Stimulating Local Industrial Development?

The aim of this paper is to improve our understanding of the empirical determinants of firm growth by extending the literature to include a new group of variables related to foreign direct investment (FDI), namely the degree of foreign ownership and technology spillovers. Based on recent developments in the field, our analysis also encompasses the role of sunk costs and financial constraints, while quantile regression techniques are adopted as more suitable to the data available (2,640 manufacturing firms operating in Greece in the 1992–1997 period). Our findings highlight the role of FDI in increasing firm growth with varying intensity depending on industry groups and regression quantiles, and vindicate the use of new variables.     

Beyond mean estimates of price and promotional effects in scanner-panel sales–response regression

Traditional mean estimates of conditional sales given price and promotion variables may provide misleading guidance about the underlying market mechanisms, since high, low, and medium sales, respectively, may be generated by quite different price and promotion strategies. Empirical evidence for consumer good scanner data reveals nonlinearities and heteroskedasticity in the sales–response relationship—mean effects typically average and hence may obscure a potentially rich nature of observational data. Besides addressing the heterogeneity of price and promotional effects, the proposed quantile regression framework allows direct estimation of monotonicity restricted nonlinear pricing effects for quantiles of the sales distribution.     

The Impact of EU Preferential Trade Agreements on Foreign Direct Investment

Although North–South preferential trade agreements (PTAs) are expected to affect foreign direct investment (FDI), there is not much evidence to date on the impact of EU PTAs on the pattern of FDI. The aim of this study is to assess the impact of EU PTAs on the outward stocks of FDI of the EU. We estimate a model based on the knowledge‐capital theory of the multinational enterprise over the period 1995–2005 using a sample of 173 host countries. Explanatory variables include measures of the level of bilateral protection and a dummy to capture the impact of deep integration provisions of PTAs. A dynamic panel model with fixed effects is used in order to take into account the dynamic behaviour of FDI and the heterogeneity bias. Results show that EU FDI is both horizontal and vertical. The level of EU protection affects FDI negatively, while the impact of the tariffs applied by host countries varies across groups of partner countries. Deep integration provisions affect EU FDI positively.     

On the Causal Links Between FDI and Growth in Developing Countries

We analyse the Granger causal relationships between foreign direct investment (FDI) and GDP in a sample of 31 developing countries covering 31 years. Using estimators for heterogeneous panel data we find bi‐directional causality between the FDI‐to‐GDP ratio and the level of GDP. FDI has a lasting impact on GDP, while GDP has no long‐run impact on the FDI‐to‐GDP ratio. In that sense FDI causes growth. Furthermore, in a model for GDP and FDI as a fraction of gross capital formation (GCF) we also find long‐run effects from FDI to GDP. This finding may be interpreted as evidence in favour of the hypotheses that FDI has an impact on GDP via knowledge transfers and adoption of new technology.     

FDI and Welfare Dynamics in Africa

This article examines the welfare impact of foreign direct investment (FDI) in a panel of 20 African countries over the period 2000–2013. We explore the multifactor and nonmonetary measures of welfare and the nonlinear effect of FDI on welfare. We used the Driscoll and Kraay standard errors and augmented mean group (AMG) estimator by Eberhardt and Teal (2010) to account for cross‐sectional dependency, endogeneity, and heterogeneity within panel units. The results indicate that although FDI is welfare enhancing, the nonlinear terms report mixed findings. When a multifactor indicator is employed, the increase in the nonlinear term is lower than the linear part. However, there is strong evidence that FDI is ultimately welfare enhancing when a nonmonetary indicator is employed. From an international business perspective, the findings have unlocked the welfare effects of international business on African host economies. International businesses through FDI can enhance welfare in Africa countries. However, the optimal efficacy of FDI‐welfare impact differs across the various dimensions of welfare. © 2017 Wiley Periodicals, Inc.