Foreign Capital Inflows and Economic Growth in Nigeria: Any Nexus?

ABSTRACT

This paper examines the impact of foreign capital inflows on economic growth in Nigeria for 1980–2015 period. It employs Autoregressive Distributed Lagged (ARDL)-bounds test, and finds a cointegration relationship between foreign capital inflows and growth. Specifically, foreign portfolio investment has positive impact on growth, while the impact of foreign loans is negative. Nevertheless, foreign direct investment and foreign aid have insignificant impact on growth, suggesting that Nigeria cannot rely on foreign direct investment and foreign aid as vehicles to stimulate growth. Rather, an increase in foreign portfolio investment or reduction in foreign loans has beneficial effects on the economy.     

On the Irrelevance of Mercosur: Evidence From Foreign Direct Investment

ABSTRACT

This article utilizes data from more than 100 countries over 30 years to identify the key factors that make a country more attractive to foreign direct investment (FDI). We find evidence that a country's potential marginal returns to capital, available infrastructure, degree of trade openness, labor force qualification, and macroeconomic stability have a positive impact on FDI inflows. Our estimates capture a change in the role played by trade protection and an increase in the importance of human capital as globalization progressed. An application of our models illustrates why Mercosur countries have underperformed their peers in attracting FDI.     

Problems of developing and transition economies

ABSTRACT

The Solow growth model was extended to account for the graft by corrupt individuals from domestic savings, which could have been used for productive capital accumulation, the productive stock of capital to be augmented by foreign direct investment (FDI), and the expatriation by FDI international investors. The results indicate that higher levels of FDI inflows, savings rates, and more advanced technology embedded productive capital would result in higher steady-state per capita productive capital to labor ratio. The graft from domestic savings, expatriation of FDI, and growth rate of labor negatively affect steady-state per capita productive capital to labor ratio.     

Why on Earth Should Foreign Banks Invest in Africa's Financial Services Sector? Evidence from Financial Multinationals in Ghana

While sub‐Saharan African countries have been able to attract some degree of resource‐seeking foreign direct investment (FDI) due to their abundant natural resources, financial FDI inflows have proved to be elusive for the region, in spite of the widespread financial‐sector adjustment programs that offer attractive incentive packages for financial multinational corporations (MNCs). Literature surrounding the determinants of FDI inflows has mainly focused on manufacturing and real production activity. We analyzed the root causes of the weak administrative and institutional framework in Africa's banking industry, using Ghana as a case in point. Focusing on two financial MNCs as case studies, this article validates the significance of a thorough qualitative investigation in evaluating the explanations as to why most foreign banks do not invest in sub‐Saharan Africa and why the few that do have relatively insignificant operations. The study also reveals that despite the far‐reaching reforms, there are several structural constraints and deficiencies placed on financial MNCs that affect the size of the business they can conduct and their future investment decisions. One of the major issues prior to the financial‐sector reforms in Africa was disintegration, and the restructuring was not designed to create an attractive location for foreign capital; hence, the low financial FDI inflows to Ghana in particular and Africa in general. © 2015 Wiley Periodicals, Inc.     

An examination of the investments in U.S. biotechnology firms by foreign and domestic corporate partners

This study examines the characteristics that make start-up biotechnology firms attractive alliance partners. We distinguish between firm specific and location-specific characteristics as well as between foreign and domestic corporate partners. We present and test a longitudinal model of alliance development based on data from 64 public biotechnology firms. The results provide evidence that foreign and domestic alliance capital inflows are driven by different factors. Firm-specific factors explain minimal variance in capital inflows from foreign alliance partners; rather, location-specific factors seem to matter more. The reverse is true for domestic alliance partners. Further, our results suggest that firm size moderates the relationship between location-specific factors and capital inflows from foreign alliance partners such that larger firms benefit more when located in technologically munificent environments.     

Is foreign direct investment a safer form of financing?

It has been common to attribute financial crises to short-term capital inflows, while foreign direct investment (FDI) is seen as a safer form of finance. The relationship between crises and the composition of capital flows is particularly relevant at present because the flow of capital to Latin America is becoming increasingly dominated by FDI. This paper asks whether the composition of capital inflows and of the stock of foreign liabilities is relevant for financial crises, be it their frequency, depth, or length. It explores the possible role of FDI as a benign form of external liability relative to other classes of liabilities, reviewing both analytical and empirical arguments.     

Financial flows to mexico: implications for foreign investors

The 1994–1995 Mexican peso crisis occurred with the presence there of a “new” financial force, namely nonbank private funds. Mexico's economic reforms have in recent years led to massive amounts of highly liquid (and volatile) foreign capital inflows. As the country further embraces market-based principles, long- and short-term capital will flow at an even larger scale across its border, subjecting providers as well as recipients to greater risks. This paper examines the trends in both the “traditional” as well as the “new” forms of capital inflows for the period 1981–1996. Our analysis should help the two sides of this issue: foreign investors to be better prepared in managing future economic challenges, and emerging economies—including several in Southeast Asia that suffered Mexican-style exchange-rate crises in 1997—to implement more appropriate policies, especially as they pertain to currency stability.     

外国资本流入对国内储蓄的动态效应研究

本文基于国际资本流动视角分析了外国资本流对我国国内储蓄的影响。通过实证分析,认为在短期内外国资本流对国内储蓄具有“挤入效应”,而长期则具有“挤出效应”。同时,结合我国储蓄与外国资本流入关系的动态变化,认为我国在引入外资过程中,更应注重对外资的利用效率,从而实现跨期资本流入的最优调整。     

Mercosul: Its Successes and Failures During Its First Two Decades

ABSTRACT

In this article, we consider the formation of the Common Market of the Southern Cone (Mercosur) as the outcome of an integration process where its two largest member countries (Brazil and Argentina) pursue industrialization objectives. The article considers the effects of Mercosur in terms of the promotion of economic efficiency and in terms of the promotion of new inflows of foreign direct investment. The article highlights that economic asymmetries between the two largest member countries have been a major obstacle in fostering economic integration in the Southern Cone region.     

Foreign Direct Investment Motives and Marketing Strategies in Central and Eastern Europe

Summary

Foreign direct investment (FDI) inflows are of crucial importance for the process of reintegration of Central and Eastern Europe (CEE) in the global marketplace. This paper explores the motives of foreign investors, host governments, and host companies in the FDI process taking place in CEE. The degree to which the motives of the three parties have been achieved is evaluated. The motives of foreign investors, host governments, and host companies are related to the strategic priorities of the FDI companies. The way in which these priorities have been realized is discussed. Recommendations for foreign investors' behavior in the CEE context are presented at the end of the article. The research data come from four countries: Bulgaria, Hungary, Poland, and Slovenia.     

Is the USA depriving the rest of the world of capital?

High American interest rates and confident expectations about the future dollar exchange rate have exerted an unprecedented attraction on foreign capital in the past two years. Gross capital inflows into the USA came to as much as $ 89 billion and $ 83 billion in 1982 and 1983 respectively. It is widely held that this is depleting the supply of capital to the rest of the world. Is this view justified?     

资本市场与国际收支:来自工业化国家的经验数据

本文从理论和经验上论证了资本市场与国际收支的关系。通过分析18个工业化国家的经验数据得出:一国如果拥有一个发达的资本市场,往往吸引较多的国外资金通过证券投资大量流入,引起资本账户顺差,与之同时往往伴随着经常账户逆差。这一结论的政策含义是:发达的资本市场是一国合理利用外资的一个重要前提;与之同时,发达的资本市场可能是一国国际收支平衡过程中实现自我调节的缓冲器。我国多年来一直保持资本账户巨额顺差,但主要是通过FDI实现的,这种格局的形成也与我国资本市场的缺陷有关。对我国而言,建设一个发达的资本市场对我国国际收支管理有着多方面的积极意义。     

Foreign direct investment and wages: a cross-country analysis

While globalization has led to overall economic growth in a number of countries, questions abound on its distributional effects, especially on rising wage inequality across nations. The main objective of this study is to investigate empirically the effects of foreign direct investment (FDI) on wages in a cross-country setting. We investigate the general equilibrium propositions that capital inflows (outflows) increase (lower) wages in host (home) countries due to the change in relative factor endowments. We also explore whether capital inflows have differential impacts on skilled and unskilled wages in developing economies. Time-series data on 26 countries, 15 developed and 11 developing, are used to fit the labour share equation derived from a translog GNP function with net FDI stock as one of its arguments. Results confirm that capital movement brings about a cross-country convergence of wages. However, there is some evidence that inward FDI flows increase the wage gap between skilled and unskilled workers in developing countries.     

Capital Inflows and the Real Exchange Rate: A Comparative Study of Asia and Latin America

The nexus of real exchange rate (RER) and capital inflows is examined through a comparative analysis of the experiences of emerging market economies in Asian and Latin America during the period 1985‐2000. It is found that the degree of appreciation in RER associated with capital inflow is uniformly much higher in Latin American countries compared to their Asian counterparts, despite the fact that the latter experienced far greater foreign capital inflows relative to the size of the economy. The econometric evidence suggests that both the composition of capital flows and differences in the degree of response of RER to capital flows matter in explaining these contrasting experiences. While RER appreciation is a phenomenon predominantly associated with other (non‐FDI) forms of capital inflows (OCFW), a given level of OCFW brings about a far greater degree of appreciation of the real exchange rate in Latin America where the importance of these flows in total capital inflow is also far greater. On the policy front, Asian countries seem to have used fiscal contraction and nominal exchange rate adjustment more effectively to cushion the RER against the appreciation pressure of capital inflows. There is, however, no evidence to suggest that sterilised intervention can generate a lasting impact on the real exchange rate.     

Global capital flows and development: A Survey

Abstract

From a development perspective, capital flows can both provide significant benefits and entail significant costs. Consequently, the development impacts of capital flows do not readily lend themselves to simple generalizations. This survey considers the development benefits and costs of four kinds of capital flows: foreign direct investment, equity portfolio investment, bond finance, and commercial bank lending. The survey suggests that the development impacts of these flows are conditional on both their specific characteristics and the larger policy environments in which they take place. It claims short-term superiority for foreign direct investment and equity portfolio investment over bond finance and commercial bank lending, and offers a set of policy recommendations to make capital flows more development-friendly.     

What drives long-term capital flows? A theoretical and empirical investigation

What drives capital inflows in the long run? This paper illustrates how capital movements conform surprisingly well to the predictions of a neoclassical model with credit constraints. The most intriguing prediction of this class of models is that, contrary to a pure neoclassical model, domestic saving should act as a complement rather than a substitute to capital inflows. Nevertheless, this class of models keeps the neoclassical prediction that capital should flow to countries where it is most scarce. Using foreign debt data from 1970 to 1998, I find qualitative and quantitative evidence that supports these predictions.     

Introduction

SUMMARY

Since the beginning of the transition from centrally planned to market economy, the FDI outflows of the Russian Federation have consistently exceeded the inflows. In the 1990s, most of the outflows were of an informal nature, and unregistered in the balance of payments, or misregistered under other items. Since 2003, their recording has improved. However, the question remains: how can a lower-middle income country become a net capital exporter? It is supposed to be the combined result of economic and political factors such as the economic and business environment, still deemed to be difficult. The fact that the ‘oligarchy’ created under the presidency of Boris Yeltsin (1991-1999) continues to control large parts of the privatized natural resources of the country also stimulated capital exporting behavior. With the political changes currently taking place, only a limited increase in the influence of the State is expected to happen. Moreover, the strategic interest of Russian firms to control their vertical value chains through outward FDI is expected to remain in the longer term.     

Foreign Investment in the Age of Globalization

Summary

Brazil, along with many other emerging market countries has attracted a large amount of Foreign Direct Investment (FDI) in the last decade. The role FDI plays in the modern Brazilian economy is different than in its previous incarnations. The latter included the necessary investment to build a primary export economy, and the manufacturing facilities associated with import substitution industrialization. Modern day FDI is attracted to Brazil due to macroeconomic stability, privatization, changes in the legal status of foreign capital, and as part of a large inflow of capital into emerging markets. The new involvement of foreign business, like the old, brings with it both costs and benefits.     

Service Quality Perceptions of Foreign Direct Investors

ABSTRACT

In this article, the potential disparity between foreign direct investment (FDI) clients' service quality expectations and the actual service experienced (Gap 5) and how these impacts FDI inflows are investigated. Methodological triangulation encompassing quan-titative and qualitative methods is used. Contrary to the quantitative findings, the qualitative findings indicate that Gap 5 exists among the FDI clients. This is the first time the service quality model (performance-based construct) has been used to study FDI issues. Rather than applying the predominant “inside-out” mindset, the model adopts an “outside-in” mindset that uses perceived (actual) service as a reference point for clients' evaluation of service quality.     

The theory of international factor flows: The basic model

The basic model used to discuss the simultaneous international flow of labor and capital is a one-commodity model in which a common technology is shared between countries. The Ramaswami result, wherein an optimal restriction of labor inflows is superior to an optimal restriction on capital outflows for a capital abundant country, is extended to reveal that optimality requires inflows of both factors. Box diagrams and iso-welfare contours are used to show how optimal policy rankings are reversed if foreign labor must be paid higher home wages.