Political risk and political loss for foreign investment

In 1986, The Economist produced a risk analysis for 50 countries under the title “Countries in Trouble.” The analysis resulted in a risk rating based on scores from ten weighted political and social variables. This article examines the theoretical structure underlying the analysis and assesses the accuracy of The Economist's projections. Discussion includes considerations of variable choice, variable weights, and data derivation as well as the impact on the outcomes of implicit theory. Conclusions focus on the possibility that underlying theory has predetermined some results, altering the direction of foreign investment. The discussion stresses the connection between abstract theory and profit/loss consequences for businesses in the field of political risk analysis and, particularly, the need for assessing and measuring politically determined losses in order to statistically evaluate the accuracy and utility of risk assessments.     

An information-based trade off between foreign direct investment and foreign portfolio investment

The paper develops a model of foreign direct investments (FDI) and foreign portfolio investments (FPI). FDI enables the owner to obtain refined information about the firm. This superiority, relative to FPI, comes with a cost: a firm owned by the FDI investor has a low resale price because of asymmetric information between the owner and potential buyers. The model can explain several stylized facts regarding foreign equity flows, such as the larger ratio of FDI to FPI inflows in developing countries relative to developed countries, and the greater volatility of FDI net inflows relative to FPI net inflows.     

Foreign political risk assessment: government instability and nontariff barriers to trade

While many political risk assessments depict government instability as a key variable in estimating foreign business risk, evidence linking government instability and change in policies affecting international businesses is limited and mixed. Is the focus on government instability misplaced? Using a pooled cross-sectional time series design, this study examines the relationship between two measures of government instability (turnover in the head of government and turnover among relevant cabinet ministers) and the use of hard-core non-tariff barriers to imports on a quarterly basis for the countries of South America from 1981 to 1985. Though cabinet turnover appears to bear no relationship with policy change, the findings indicate that turnover in the head of government has a strong positive association with both protectionism and liberalization. This suggests that this kind of government instability is an important element in assessing foreign political risk.     

Linking corporate productivity to foreign direct investment: An empirical assessment

This paper examines whether foreign firms generate productivity spillovers. Despite the relevance of this question to public policy, previous studies have failed to find consistent and conclusive evidence to support the existence of positive spillovers. Using previously unexploited firm-level data over the 1994–1999 period, we attempt to contribute to the literature on productivity spillovers from FDI by analysing the Portuguese manufacturing industry. The results indicate that foreign firms in the same industry of the observed firms (horizontal spillovers) and linkages between foreign firms and their local suppliers or customers (vertical spillovers) do not impact significantly on firms’ productivity. Moreover, we detected no differences on productivity spillovers associated to firm-specific characteristics.     

Cuba's legal structure: How it affects foreign investment and trade

The legislative decree—Decree No. 50—allowing for foreign investment in Cuba today was ironically written back in 1982. Cuban officials have resuscitated this decree following the collapse of the Soviet system in order to obtain badly needed foreign investment. As a result, there has been a significant increase in the amount of joint ventures between foreign entities and the Cuban government. This paper gives an overview of the foreign investment laws, the application process to establish joint enterprises and the various operating aspects regarding business in Cuba, which have come about as a result of Decree No. 50. It examines the risks and rewards of doing business on the island and the impact of the United States on the efforts to liberalize the Cuban market.     

Heterogeneity of political connections and outward foreign direct investment

By examining the heterogeneity of political connections (PCs), this study reconceptualises the relationship between PCs and outward foreign direct investment (OFDI). Drawing upon resource dependence theory, we hypothesise that firms with ascribed PCs benefit from top political privileges in their home market and have a low OFDI commitment. Firms without any PCs have a medium OFDI commitment because they have to avoid the discriminative competition associated with their inferior political status. Firms with acquired PCs possess relatively strong political and market resources and face exchange pressure; thus, they exhibit a high OFDI commitment. The aforementioned hypotheses are supported by empirical results from probit and Tobit models based on panel data of 482 listed Chinese firms with OFDI from 2003 to 2014.     

The preconditions for manufacturing foreign direct investment in the united states: An empirical assessment

This study used a multivariate regression analysis of industry-and firm-specific factors to determine characteristics that lead to manufacturing firms’ foreign direct investment in the United States (FDIUS). Two hundred forty firms were examined (137 investors and 103 noninvestors) from 7 countries in 10 industries during the 1984–1988 period. Firm size and overall profits were positive and significant indicators of FDIUS, but firms’ return on assets was not significant. Three industry-specific variables (prior exports to the United States, industry concentration, and technological intensity) were examined; they were generally positive but insignificant indicators of FDIUS.     

Trade and foreign direct investment in China: a political economy approach

We view the political process in China as trading off the social benefits of increased trade and foreign direct investment against the losses incurred by state-owned enterprises due to such liberalization. A model drawing on Grossman and Helpman [Am. Econ. Rev. 84 (1994) 833; The Political Economy of Trade Policy: Papers in Honor of Jagdish Bhagwati, MIT Press, Cambridge (1996) 199] is used to derive an empirically estimable government objective function. The key structural parameters of this model are estimated using province-level data on foreign direct investment and trade flows in China, over the years 1984-1995. We find that the weight applied to consumer welfare is between one-seventh and one-quarter of the weight applied to the output of state-owned enterprises.     

Impact of cultural trade on foreign direct investment: Evidence from China

Value of cultural goods varies across consumers with different backgrounds. Exchange of cultural goods may lead to better mutual understand and trust, which helps mitigate the entry obstacles in the investment targets. This paper studies how cultural trade affects Chinese firms' outbound foreign direct investment (OFDI). We find that both likelihood and total volume that a firm invests in a foreign country increase with the amount of bilateral cultural trade. We further show that cultural trade boosts the success rate of OFDI projects. These effects are intensified in targets with weaker institutional quality or a great cultural distance to China.     

Asymmetric effects of cultural institutes on trade and foreign direct investment

The purpose of a cultural institute is to improve international relations with other countries by promoting language familiarity and cultural awareness. In addition, cultural institutes can provide additional business opportunities that lead to positive economic side effects such as increases in trade and foreign direct investment (FDI). In this study, gravity models were used to analyse the data for the Goethe Institut (Germany), the Cervantes Institute (Spain) and the Confucius Institute (China) to identify any stylised international patterns of the documented economic effects. The study finds significant positive effects on bilateral trade and FDI outflows for all three programmes, along with two important (i) the effects are stronger for non‐advanced economies and (ii) the effects are substantially larger on FDI than on trade. These results suggest that cultural institutes can be an effective policy tool in promoting FDI outflows, with the strongest effect realised when a home country locates its cultural institutes in host countries with developing economies. Importantly, results also suggest that the Chinese government's approach to extend its soft power through rapid expansion of Confucius Institutes worldwide has not been as successful as the efforts by the German Goethe Institut in increasing trade and FDI.     

How trade and investment agreements affect bilateral foreign direct investment: Results from a structural gravity model

We employ a structural gravity approach to analyse the impact of preferential trade agreements (PTAs), bilateral investment treaties (BITs) and other policies on bilateral foreign direct investment (FDI). We use the UNCTAD global database on bilateral FDI stocks and flows. To control for the heterogeneous nature of PTAs, we employ two different indicators of PTA depth. We find that on average signing a PTA increases bilateral FDI stocks by around 30%. Nevertheless, we also find that ‘deeper’ or comprehensive PTAs (e.g., including provisions on investment, public procurement and intellectual property rights provisions) do not have a significantly different impact than signing regular PTAs. Belonging to the EU single market, on the other hand, has a strong impact and increases bilateral FDI by around 135%, and signing a BIT has an effect that is comparable to signing a PTA.     

外商直接投资对中国对外贸易发展的影响

纵现世界各国,无论是在发达国家还是在发展中国家,经济增长都与外贸发展有着密切的联系.在改革开放的中国,外商直接投资(FDI)和对外贸易同步发展,两者相互促进、相互补充共同推动了中国经济的发展.本文旨在分析外商直接投资对中国外贸总量、进出口、外贸结构等方面的影响,并对提高外商直接投资的外贸效益给出了政策性的建议.     

外商直接投资对中国对外贸易发展的影响

纵观世界各国,无论是在发达国家还是在发展中国家,经济增长都与外贸发展有着密切的联系.在改革开放的中国,外商直接投资(FDI)和对外贸易同步发展,两者相互促进、相互补充共同推动了中国经济的发展.本文旨在分析外商直接投资对中国外贸总量、进出口、外贸结构等方面的影响,并对提高外商直接投资的外贸效益给出了政策性的建议.     

The indirect effects of foreign direct investment on trade: A network perspective

The relationship between international trade and foreign direct investment (FDI) is one of the main features of globalisation. In this paper, we investigate the effects of FDI on trade from a network perspective, since FDI takes not only direct but also indirect channels from origin to destination countries because of firms’ incentive to reduce tax burden, to minimise coordination costs and to break barriers to market entry. We use a unique data set of international corporate control as a measure of stock FDI to construct a corporate control network (CCN), where the nodes are the countries and the edges are the corporate control relationships. Network measures, as the shortest path length and the communicability, are then computed on the CCN to capture the indirect channel of FDI. Empirically, we find that corporate control has a positive effect on trade both directly and indirectly. The result is robust with different specifications and estimation strategies. Hence, our paper provides strong empirical evidence of the indirect effects of FDI on trade. Moreover, we identify a number of interplaying factors such as regional trade agreements and the region of Asia. We also find that the indirect effects are more pronounced for the manufacturing sector than for primary sectors such as oil extraction and agriculture.     

外商投资企业出口对我国出口贸易的影响

我国自改革开放以来,就坚持对外开放的基本方针,积极引进技术外资。随着利用外资规模的扩大,外商投资企业数量迅速增长。截至2002年底,全国累计批准设立外商投资企业超过42万家,实际使用外资金额共4480亿美元。作为中国企业的重要组成部分,外资企业对我国经济发展的影响与作用也越来越受到重视,本文试图只从数量的角度来研究外商投资企业对我国出口贸易的影响。     

Foreign direct investment in the Ottoman Empire: Attitudes and political risk

This study examines political risk for foreign direct investment in the Ottoman Empire during the late nineteenth and early twentieth centuries. Such a study has not previously been carried out. Despite many vicissitudes, such as wars and rebellions, the investment climate was more welcoming as compared to neighbouring lands such as Russia and the Balkan countries. While the Ottomans had a corrupt bureaucracy, as in Russia and the Balkans, they were free of xenophobia. Even those Ottoman intellectuals who were against complete freedom in international trade acknowledged the necessity of attracting foreign capital to the country, and suggested policy recommendations.     

Contextual analysis of legal systems and their impact on trade and foreign direct investment

Differences among nations in legal tradition play a role in foreign direct investment decisions by multinational firms. How large a role and to what degree these factors impact the success of foreign direct investment are important issues for examination. A principal question is whether macro-differences in legal systems are causal for international investment on a stand-alone basis or subordinate to multiple other legal variations and societal considerations. This article examines the historical roots and nature of varying legal systems, traditions, and cultures that continue to affect international business. The study analyzes other major conditions which surround the legal environment in investment target countries such as system transparency, degree of corruption, adequate enforcement, and issues of bias related to foreign-owned firms. In addition, firms may have varying strategic objectives for foreign direct investment which may not be driven by short term profitability.     

The effect of foreign trade and investment liberalization on spatial concentration of economic activity

I examine the varying responses of countries to foreign trade and direct investment liberalization on spatial concentration of their economic activity by taking into consideration moderating factors such as their market size and level of economic development. I argue that liberalization increases the concentration under normal conditions but large market size, and underdevelopment can disperse economic activity. Using data from 168 countries for the period of time starting in 1980s, I found support for all hypotheses.