Foreign Direct Investment in Mexico and Chile

Summary

Increased flows of Foreign Direct Investment (FDI) are a major source of capital for Latin American countries. This paper analyzes the experiences with attracting and the effects of FDI for two nations-Chile and Mexico. Clearly attempts to attract FDI through relaxed restrictions on profit remittances and other reforms have had an impact. However, while Mexico has succeeded in attracting investment to high productivity “greenfield” industries, Chile has seen most FDI go towards low productivity sectors such as mining and agriculture.     

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.     

Comprehending the outward FDI from Latin America and OCED: A comparative perspective

This study examines the determinants of outward foreign direct investment (FDI) from Latin American countries and compares it with their OECD counterparts. Our analysis is based on a sample of 45 countries, 13 from Latin America and 32 from the OECD, over the period 2001–2012. We find that the outward FDI from Latin America is more likely to be located in geographically proximate countries and in countries with similar culture and language than that from their OECD counterparts. We also show that Latin American outward FDI is less likely to be resource seeking. This presumably reflects the rich natural resource endowments and agricultural potential in major Latin American countries. Further, outward FDI from Latin America is more likely to be concentrated in countries with a similar corruption environment than that from their OECD counterparts. This might indicate a broadly similar nature of corruption across Latin America due to shared cultural, political and economic legacies.     

Institutions-FDI Nexus in ECOWAS Countries

ABSTRACT

Of the foreign capital flows that are required for stimulating the process of economic growth, foreign direct investment (FDI) has been the most elected candidate that is often sought. This explains why so much effort has been geared towards its attraction thus paving the way for enquiry into its determinants. Arguably, apart from the conventional FDI-drivers, the importance of institutions has been grossly undermined. On this basis, the study sets out to unravel the causal linkage between institutions and FDI with a special focus on ECOWAS countries. The results showed the existence of prevalent weak governance structure among the ECOWAS countries. Further, on component-by-component basis, this result was robust to the decomposition of the governance indicator into the six sub-indices, namely: voice and accountability, political stability, government effectiveness, regulatory quality, rule of law and control of corruption. We split the sample size into low (poor institutions) and high regimes (better institutions) and found that countries with better institutions were able to attract FDI more than countries with poorer institutional infrastructure. Thus, instituting sustainable governance structure will offer a leeway towards attraction of more FDI into the sub-region.     

Foreign Investment and Asia's,Particularly China's,Rise in the Television Industry: The International Product Life Cycle Reconsidered

ABSTRACT

Examines the international investment cycle and waves in foreign direct investment in TV production. Five such waves are identified. The first two could be explained by Vernon's model of the international product cycle, but not the later ones. These are associated with the rise of Asian countries in television production (first Japan and now China). These Asian countries now have FDI in the original innovating nations. Japan, S. Korea and China have followed active industrial policies, a factor ignored in the original international product cycle theory. The TV investment cycle has more phases than allowed for by Vernon.     

International Success of Business Groups as an Indicator of National Competitiveness

Abstract

Business groups are the dominant form of large private enterprise throughout Latin America. However, relatively little academic research has attempted to identify the dominant characteristics of these groups and even fewer formal studies have examined how these groups are fairing in today's age of increased competition and globalization. While there are numerous characteristics of business groups that are worthy of examination, in this paper we focus on their foreign direct investment (FDI) activities. In order to better understand the potential strengths and weaknesses of Mexican multinationals, we draw upon Dunning's eclectic paradigm of international production and the literature examining developing country multinationals. While this body of knowledge provides a useful theoretical lens, the current FDI activity of Mexican business groups is somewhat at odds with the existing literature.     

Introduction to the Special Issue: Management in Africa in the Global Context 1

ABSTRACT

The primary focus of this introductory article is to provide a synoptic peek into the challenges and opportunities facing the countries of Africa in today's global economy and in their attempts to develop their national economies to achieve what is commonly termed the Millennium Development Goals. While foreign direct investment (FDI) is seen as a way to attain these goals, FDI flows to African countries remain extremely low. If Africa is to attract diversified FDI inflows, not just those focused on extractive/natural resources, African countries need to develop a system of management that is effective and efficient, internationally oriented and nationally focused, culturally inclusive and institutionally supportive and reliable, and one that promotes business growth and economic development with a sense of social responsibility.     

对外开放与发展中国家的收入不平等:基于亚洲和拉美国家的比较研究

本文基于要素禀赋理论,在将劳动力划分为低、中、高技能三类的基础上,选取亚洲和拉丁美洲部分发展中国家1960-2005年的数据,建立非平衡面板模型,分析两地区的开放对国内收入分配的影响。实证结果表明,亚洲和拉丁美洲发展中国家的对外开放确实对国内收入不平等起到推动作用。目前的开放有利于中等技能劳动力相对丰裕的发展中国家,而不利于低技能劳动力相对丰裕的国家。总体的贸易依存度对拉美不平等的推动作用更大,但外资对亚洲不平等的推动作用更大;制造业出口倾向于扩大拉美国家的收入差距而缩小亚洲国家的收入差距。     

BOOK REVIEW

Using panel data methods to analyze data from 14 Latin American countries from 1978 to 2003, this paper empirically examines the links between foreign direct investment (FDI), local conditions, and economic growth. The results suggest that FDI plays an important role in contributing to economic growth. However, the effect of FDI on economic growth is dependent on host economy–based conditions. The empirical results from this study show that there is a positive interaction effect of FDI with technology gap and a negative interaction effect of FDI with the level of school attainment on economic growth. Furthermore, the empirical results from the FDI equation suggest that inflation, trade, school attainment, and telephone lines are the most determinant of location decisions for foreign investors. To explore the relationship between FDI and economic growth further, this paper examines Granger-causality between FDI and economic growth. Our empirical evidence shows that the direction of causality is from economic growth to FDI and not the reverse for Asian countries. Therefore, the causal link between FDI and economic growth is unidirectional. We also provide evidence that the link between FDI and economic growth is bidirectional for Latin American countries, which indicates that economic growth initially could attract more FDI, which, in turn, would then result in accelerated economic growth.     

International Capital and the Environment in Latin America

Summary

This century's end has been witnessing an increase in environmental concern. While initially a subject of developed countries, developing countries began to realize that the trade off between developing and conserving the environment has to be equated to give present and future generations a chance of success in their development efforts. Thus far, the approach taken by both developed and developing countries towards correcting environmental problems has been primarily dominated by command and control type of regulations, whose success is clearly a function of the regulator's enforcement capacity. Yet, there are signs that this approach is changing towards a more participatory mixed environmental policy model. This change has further stimulated the growing “environmental industry,” in which international capital plays a major role. This paper discusses these recent trends in the context of the conservation of the Latin America and the Caribbean environment.     

Global value chains and inward foreign direct investment in the 2000s

In this paper, we make use of recent data published by the World Input‐Output Database to: (i) provide evidence on trade in value added of the major Organization for Economic Co‐operation and Development (OECD) member countries and major emerging economies (designated by OE country group), namely by measuring the degree of participation in global value chains (GVCs) at the country and sectoral levels; and (ii) estimate whether the GVC participation of OE countries has positively influenced foreign direct investment (FDI) inward stocks in the 2000s. The pooled regression model estimated shows that the country′s degree of GVC participation has contributed positively for bilateral FDI inward stocks, after controlling for other possible FDI determinants.     

Corruption and FDI: Does the Use of Distinct Proxies for Corruption Matter?

Abstract

The relationship between FDI and corruption/institutional quality in host countries has been widely analyzed. However, the use of distinct samples and indicators for corruption tends to hinder the interpretation and outcomes of econometric assessments. The aims of this paper are to assess the extent to which the use of distinct proxies for corruption provides diverse evidence regarding the relationship between corruption and FDI, and to assess whether controlling for other indicators of institutional quality reinforces the effect of corruption indicators on FDI inflows. In order to accomplish these goals, we estimate a set of multivariate logistic models using 96 countries over the period 2000 to 2010. The results evidence that using distinct proxies for corruption variables, as well as controlling for other types of the countries’ institutional quality, generate distinct outcomes. In isolation, a country’s transparency and its citizens’ corruption perceptions fail to impact on FDI whereas a bribe-free environment is conducive to FDI inflows. When we control for the human, social and economic development of the countries, the impact of a transparent and bribe-free context on FDI attraction is enhanced. Overall, it is clear that in order to become a large recipient of FDI a country has to guarantee a transparent and bribe-free environment, characterized by low income taxes, high literacy rates and generalized economic freedom (own labor and property control by citizens).     

Does foreign direct investment promote institutional development in Africa?

Foreign direct investment (FDI) inflows into Africa have increased since the turn of the millennium, mainly due to FDI growth into African countries by multinational enterprises (MNEs) from developing economies. While African governments view this growth as a positive development for the continent, many governments in the West have raised concerns regarding the institutional impact of investments from developing economies. This paper examines the impact of FDI flows on institutional quality in African countries by distinguishing investments from developed versus developing economies. Previous empirical studies have found a significant relationship between FDI flows and institutional quality in African countries but regard the relationship as MNEs rewarding African countries for adopting institutional reforms. However, little attention has been paid to the reverse causality, i.e. that FDI can cause an institutional change in African countries. Using bilateral greenfield FDI flows between 56 countries during 2003?2015, we find no significant FDI effect from developed and developing economies on institutional quality in host countries. However, aggregate FDI flows from developed and developing economies have a significant positive effect on host country institutional quality but differ concerning the impact's timing. In contrast, we find no significant effect of FDI flows from China on host country institutional quality. Our results are robust to alternative measures of institutional quality.     

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.     

Economic and Political Determinants of the Effects of FDI on Growth in Transition and Developing Countries

This study investigates the role of human capital and political development in determining the magnitude of the effects of foreign direct investment (FDI) on growth for a panel of 61 transition and developing countries for the period 1989 to 2013. A baseline growth model incorporating these variables is tested and then extended to include FDI interaction effects with human capital (measured using secondary school enrollment data) and political development (based on Economist Intelligence Unit Democracy Index scores). These growth interaction effects between FDI and human capital vary according to regime type. Political development in conjunction with FDI appears to suppress the effects of FDI on growth in authoritarian countries while enhancing them in hybrid democracies. For more democratic countries, domestic investment is a more important driver of growth. The effects of FDI on growth in the ten transition economies included in the sample data set are found to be insignificant. Although this result might seem to differ from a priori expectations, it is in line with the findings of most earlier studies that cover the period up to 2004. The paper also provides no strong evidence that a critical threshold of human capital is required to generate beneficial spillover growth effects from inflows of FDI. The paper provides new and more detailed insights into the effects of FDI on growth with particular respect to human capital and political regime covering a large number of transition and developing countries based on an up‐to‐date data set covering a 25‐year period to 2013. © 2016 Wiley Periodicals, Inc.     

Openness to Foreign Direct Investment in Services: An International Comparative Analysis

This paper quantifies and analyses the extent of restrictions on inward foreign direct investment (FDI) in the service sector in developed and developing countries. Services account for an increasing share of global FDI. Recognition of the economic benefits of FDI clashes with nationalistic economic, political and national security concerns about foreign takeover of ‘strategic’ sectors, such as telecommunications, finance and transport. Consequently, almost all countries impose restrictions on FDI in services. Several different types of restrictions are considered: limitations on foreign ownership, screening or notification procedures, management restrictions and operational restrictions. These restrictions on FDI are computed at the industry level and then aggregated into a single measure for the service sector as a whole for 23 developed and 50 developing countries. Notwithstanding the worldwide trend towards liberalisation of restrictions, there remain substantial disparities between regions and individual countries in the severity of restrictions on inward FDI in services. The lowest restriction scores are in Europe and Latin America, whereas East Asia, South Asia and the Middle East have the highest levels of restrictions. The evolution over time of FDI restrictions is also presented for developed countries over the period 1981–2005, showing liberalisation in all countries, especially since the early 1990s, although to varying extents across countries. The severity of restrictions also differs considerably by sector, with electricity, telecommunications, transport and finance most restricted. The paper also finds a strong negative correlation of restrictiveness with inward stocks of FDI in services, suggesting that restrictions impede FDI.     

Innovation,productivity and foreign direct investment-induced R&D spillovers

This article examines the effect of foreign direct investment on innovation and productivity in the host and home countries. I investigate how the flows of knowledge transmitted through FDI affect the production of knowledge in both source and recipient countries, as well as how these flows affect productivity. Using patent citations within FDI as the measure of the degree of ‘access’ that one nation gains to the R&D knowledge of another, and new patents as the measure of innovation, results reveal that there are large differences in the way FDI affects innovation and productivity between countries that are technological leaders, and technological followers. Both inward and outward FDI are found to have a strong positive effect on domestic innovation and productivity in countries that are technological followers. For technological leaders, outward FDI is highly conducive to increased domestic innovation, while inward FDI seems to increase competition between domestic and foreign firms, making it more difficult to come up with new viable ideas. As for domestic productivity, inward FDI is highly beneficial for technological leaders, while outward FDI does not have a significant effect. I conclude that technological followers have much to gain from FDI-induced R&D spillovers, and therefore governments in these countries will find it worthwhile to attract foreign multinationals, while those in the more technologically advanced economies need to weigh the costs and benefits of FDI carefully.     

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.     

Patterns of Economic Interdependence in Latin America

This study investigates business cycle synchronization and transmission patterns among the major Latin American countries and their linkages with the United States and Europe. Correlations, principal components, trade patterns, vector autoregressions, and impulse responses are used to discern the business cycle transmission patterns.

There is moderate evidence of a unique Latin American business cycle and of business cycle transmission among the Latin American economies. Most transmission linkages come from outside Latin America. The European business cycle has a slightly stronger influence upon most Latin American economies than the influence of the US business cycle. Brazil is clearly the most influential Latin American economy in terms of business cycle transmission.     

State policies and the challenges in attracting foreign direct investment: A review of the Ghana experience

Foreign direct investment (FDI) to low‐income countries has not only received much publicity in the past two decades due to its economic importance, but its overall flow to these countries has also significantly increased in both relative and absolute terms. However, only a few sub‐Saharan African countries have been successful in attracting significant FDI flows. This article examines Ghana's experience in attracting FDI. Thus, the main thrust of this article is threefold. First, it evaluates the main economic policy adopted by the government from 1981 to 2002 to reverse the post‐independence economic decline. Second, it examines how the policies facilitated the attraction of FDI inflows to Ghana. Finally, it reviews some of the problems that impede the attraction of value‐added FDI inflows to Ghana. Qualitative analysis of available evidence reveals that the implementation of the Structural Adjustment Program (SAP), the main economic reform policy, has led to an increase in the number of multinationals investing in Ghana. This article argues that Ghana's SAP has had some degree of success in many areas, including the lowering of inflation; promotion of an environment of financial stability; elimination of the licensing requirement; the opening of previously closed sectors; removal of tariff barriers that prohibit FDI inflows; abolishing exchange controls; and reducing opportunities for the foreign exchange black market. In spite of the developments, there are still serious challenges that hamper the attraction of FDI inflows into the country. This article contends that there is the need for urgent action to tackle these challenges. © 2004 Wiley Periodicals, Inc.