EU Enlargement and the Portuguese Economy

The main focus of the present paper is on the emerging and likely future trade effects of enlargement. Though our particular concern is with Portugal, we set the scene by comparing the trade structures of the 10 countries of Central and Eastern Europe (i.e. the eight CEE accession states plus Bulgaria and Romania) – including an analysis of the individual cases of the Czech Republic, Hungary and Poland – with those of the EU15 as a whole, and with those of the 4 EU cohesion countries. The elimination of trade barriers between incumbents and accession states will have two trade‐related effects on EU incumbents: an increase in bilateral flows with the CEEC and a shift effect as the CEEC displace some incumbent exports to EU markets. The first effect is likely to be strongest for those incumbents for which there is a strong overlap between their export structure and the import structure of the CEEC. Portugal emerges as one of the economies with the least overlap. The displacement effect, we conclude, is likely to be particularly strong in the case of Portugal, given the high degree of similarity between Portuguese exports and those of the CEEC. Portugal appears to be ‘being squeezed from below’ in that, for the majority of its traditional export sectors, the CEEC became progressively more competitive during the second half of the 1990's. Portuguese specialisation was increasingly confined to low‐technology, low‐added‐value sectors with declining demand, as strong FDI inflows to the CEEC led to an increasing preponderance of more dynamic sectors in their export structures. Thus, Portugal is also being squeezed from above. This suggests that there may be substantial industrial disruption, in response to which labour‐market flexibility and dynamic entrepreneurial response is crucial. Intersectoral mobility is generally easier the more highly educated the workforce – an indicator on which Portugal scores poorly. The Portuguese labour market, however, displays a high degree of flexibility, consistent with its long lasting low rate of unemployment. Continued flexibility will help minimise these likely adjustment costs. Besides the trade and industry effects, other topics considered in the paper include the implications of enlargement for Portugal's ability to attract FDI, the likely consequences for Portugal of inward migration from the CEEC to the EU, and the implications of enlargement for Portugal's budgetary relations with the rest of the EU.     

An event study analysis of outward foreign direct investment: the case of Greece

The purpose of this article is twofold. Firstly, by applying the event study methodology, it provides detailed and updated evidence on the value generating effect of different modes of foreign direct investment (FDI) entry. Secondly, this is the first paper to empirically evaluate the impact of FDI on the stock returns of Greek firms participating in the Athens Stock Exchange (ASE). In the case of Greece, the cross‐section analysis revealed that successful outward FDI projects tend to be located in developed countries, performed in a high‐technology sector and linked to horizontal integration.     

Factors Favoring Greece’s Inward Foreign Direct Investment in the Aftermath of the Global Financial Crisis: An Exploratory Survey

Greece has suffered the worst from the late 2000s global financial crisis. Despite the completion of the economic adjustment program the rate of recovery in Greece is still weak. The liquidity constraints in the Greek economy imply that the investment shock, which will accelerate its recovery rate, will be an outcome of investment inflows by privatizations and/or other opportunities arising to foreign investors (inward FDI) due to the devaluation of the assets in Greece caused by the crisis. However, the level of attracted by the Greek economy has always been well below the European Union average. This paper investigates the factors favoring inward FDI in Greece after the crisis. A survey is made by the use of a questionnaire for the collection of primary data on the activity of multinationals in Greece and non-parametric methods are used for investigating the attractiveness of the Greek market and the decision to invest.     

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.     

External Asymmetries in the Euro Area and the Role of Foreign Direct Investment

Soon after the introduction of the common currency, a divide emerged between two groups in the Euro area: one comprised of the North European countries achieving external surpluses and the other of the South European countries with large external deficits. This paper shows that different patterns of foreign direct investment (FDI) inflows across the Euro area countries contributed to this divergence. Our theoretical framework shows that if the economy is relatively capital‐intensive in the production of traded (non‐traded) output, FDI will be channelled in greater proportions to the traded (non‐traded) sector, thus improving (deteriorating) the trade balance. Focusing on ten Euro area countries over the period 1980 to 2009, we establish a positive (negative) long‐run effect of FDI inflows on the trade balance in the North (South). In the North, the positive effect stems from the traded sector FDI inflows that were significantly higher in comparison with the South, both before and after the EMU. In contrast, in the South, the increased FDI inflows in the post‐EMU era were dominated by investments in the non‐traded sector. When industry‐level data are employed, a positive (negative) long‐run effect of manufacturing (non‐manufacturing) FDI inflows on the trade balance in the North (South) is further established.     

The Role of Geography in Financial and Economic Integration: A Comparative Analysis of Foreign Direct Investment,Trade and Portfolio Investment Flows

The objective of this paper is to examine the role of geography in explaining the patterns of financial and economic integration among both developed and developing countries. Using a gravity model, we compare North‐North, North‐South and South‐North FDI, trade and portfolio investment flows to examine how geographical factors influence these bilateral flows. The results indicate that the impact of geography variables on FDI and portfolio are similar to their effect on trade. Geography variables have a statistically significant effect both on FDI and portfolio investment, but FDI is more sensitive to distance. We interpret the negative effect of distance as the existence of information costs in financial flows. Also bilateral FDI, trade and portfolio investment flows react to macroeconomic fundamentals in the same way, however, with different degrees of sensitivity. There are significant differences between North‐North and North‐South flows. Our results find support for the argument that most FDI among industrial countries are horizontal, whereas most FDI investment in developing countries is vertical. The fact that the significance of geographical variables on financial flows still remained even after controlling for the macroeconomic fundamentals, is in contrast with the standard capital market model. The results can, however, be reconciled if geographical factors can proxy for information costs, which may in turn explain why country portfolios are still home‐biased. The significant effect of distance on financial flows may also explain how idiosyn cratic shocks are spread (i.e. contagion) to other countries in the same region. Ultimately, the geographical location of a country may determine its economic and financial integration into the world economy.     

Effects of aid for trade on extensive and intensive margins of greenfield FDI

Using a panel dataset of 105 developing countries for the period 2003–15, this paper assesses the effects of Aid for Trade (AfT) on greenfield FDI flows to the aid‐recipient countries. Particularly, this paper classifies the total dollar value of greenfield FDI flows to each recipient country in terms of four different layers: the extensive and intensive margins of projects as well as the extensive and intensive margins of source countries. Applying the system GMM estimator, this paper finds that AfT not only increases the dollar value of FDI flows to the recipient countries but also helps diversify the greenfield projects and source countries. In addition, this paper finds that AfT has a greater effect for greenfield FDI from donor (developed) countries than from non‐donor (developing) countries. Among the three components of AfT, aid for trade‐related infrastructure and aid for trade policy regulations are found to have positive links with greenfield FDI, irrespective of source‐country groups, yet their effects are larger for developed source countries. In contrast, aid for building productive capacity hinders greenfield FDI flows from non‐donor countries, while it promotes greenfield FDI from donor countries. We offer some explanations for this finding.     

Trade Protection During the Crisis: Does it Deter Foreign Direct Investment?

This paper looks empirically at the implications that protectionist measures implemented during the current crisis may have had for a country’s ability to attract foreign direct investment. The research utilises data on such measures that are available from Global Trade Alert, combined with bilateral FDI data between OECD countries and a large number of partner countries for 2006 to 2009. This allows us to examine the short‐run effect that protectionist measures may have had on bilateral FDI flows. The verdict from this analysis is clear: a country that implements new protectionist measures may expect that this may result in lower foreign direct investment inflows into the economy. The point estimates from our preferred specifications suggest that, depending on the empirical model, the implementation of a trade protection measure is associated with about 40 to 80 per cent lower FDI inflows. Trade protection does not appear to have any implications for the country’s FDI outflows, however. The negative effect on FDI inflows does not appear to be due to direct investment measures but rather to actions related to intellectual property rights protection and other more trade‐related measures.     

The Impact of Bilateral Free Trade Agreements on Bilateral Foreign Direct Investment among Developed Countries

Previous studies find that a trade treaty positively impacts foreign direct investment (FDI). But does a trade treaty always have positive effects on FDI? What is the effect of bilateral free trade agreement (FTA) on bilateral FDI among developed countries? Based on the Knowledge‐Capital model, I hypothesize that bilateral FTA has negative effects on bilateral FDI in developed–developed country pairs, but positive effects in developed–developing country pairs. To test this hypothesis empirically, I conduct the within estimator, the Difference‐in‐Difference estimator and the Arellano–Bond estimator with panel data of bilateral FTA and outward FDI in 30 OECD countries and 32 non‐OECD countries between 1982 and 2005. The result supports the hypothesis. The existence of bilateral FTA decreases bilateral FDI in the OECD–OECD country pairs but increases bilateral outward FDI in the OECD–non‐OECD country pairs. The finding of negative effects of bilateral FTA on FDI is robust to different country classifications by gross national income (GNI) per capita and secondary school enrolment. Hence, the results are consistent with what Carr et al. (2001) predicts about the effects of trade cost on FDI in developed–developed country pairs and in developed–developing country pairs.     

Trade Effects of the European Union's Service Directive: Contrasting ex ante Estimates with Empirical Evidence

One of the top priorities to improve the European Union's growth performance is the creation of a single market for services. The directive on services adopted by the Parliament and the Council by the end of 2006 aims at removing barriers to the free movement of service providers on the internal market. Previous studies quantified ex ante sizable effects of implementing the directive in its original form. This paper is a first attempt to evaluate ex post the trade effects induced by a directive – which excludes the country‐of‐origin principle – by performing a difference‐in‐difference‐(in‐differences) estimator on a sample of EU‐ and non‐EU countries in the period 2004 to 10. We account for non‐tariff trade barriers and the endogeneity of regional trade agreements and find that the service directive adds to a reallocation of business services trade within the EU. Accounting for the trade effect of past deregulations, the EU directive fosters a deeper integration of the new member states into the European service value‐added‐chain and promotes business service exports from third countries towards the EU significantly more than trade of country pairs in the control group. The reorientation of the EU‐15 towards the new members is in turn associated with less intense intra‐EU‐10 businesses, while business trade between EU‐15 members is not significantly affected.     

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.     

Comparative Advantage and the Gains from Financial Trade: A Reappraisal

Emerging market crises have suggested that a national benefit‐cost assessment of external financial liberalisation could well prove unfavourable. This paper re‐examines the principle of comparative advantage in its application to financial trade to seek guidance on measures that might permit a fuller realisation of the potential benefits involved. Drawing a parallel with Balasubramanyam's work on the gains from FDI and international migration we distinguish between those arising in financial trade from the net transfer of capital, and those deriving from the contemporaneous exchange of financial claims or services of equivalent value. In the first interpretation a country's comparative advantage is manifested by its role in ‘intertemporal’ trade (as a borrower or lender). Our alternative emphasis is on the contractual risk‐return characteristics of the financial claims exchanged. This perspective is applied firstly to portfolio diversification gains arising from further international stock market integration. Secondly, price risk management for developing countries in international primary commodity trade is discussed. Both applications imply the need for significant institutional development but could realise approximately contemporaneous gains reminiscent both of those involved in merchandise trade and in the skills and product (or service) flows that Balasubramanyam has emphasised in relation to FDI and international migration.     

The Effect of Foreign Direct Investment on International Migration: Does Education Matter?

Using migration data in 1990 and 2000, we find that inward foreign direct investment (FDI) in non‐OECD countries affects the out‐migration of individuals with tertiary and secondary education to OECD countries originating the investments, but has no significant effect on the out‐migration of individuals with primary education. Distinguishing between linkage and home effects, our results show a dominant home effect of FDI for individuals with tertiary education, but a stronger linkage effect for those with secondary education. The existing stock of former migrants in foreign countries influences the out‐migration of individuals with primary education.     

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.     

Governance and Globalisation

Unlike the large literature on ‘democracy and trade’, there is a much smaller literature on the effect of the level of democracy in a nation on the level of its foreign direct investment (FDI) inflow. These few studies reveal mixed empirical results, and surprisingly only one study has examined bilateral FDI flows. Moreover, few of these studies use multiple governance indicators separating the ‘pluralism’ effect of democratic institutions from the ‘good governance’ effect, there are no studies on democratic institutions’ various effects on the level of FDI relative to trade, and there are no studies of democratic institutions’ various effects on the selection of countries into FDI. We focus on three contributions. First, we examine the simultaneous effects of the World Bank's (six) Worldwide Governance Indicators (WGIs) – which allow separating the effects of pluralism from those of five other good governance measures – on bilateral trade, FDI and FDI relative to trade using state‐of‐the‐art gravity specifications. Second, we find strong evidence that – after accounting for host governments’ effectiveness in various roles of good governance – a higher level of pluralism as measured by the WGIs’ Voice and Accountability Index reduces trade levels, likely by increasing the ‘voice’ of more protectionist less‐skilled workers, but not FDI levels. Moreover, we find qualitatively different effects of other WGIs – such as political stability – on trade versus FDI flows. Third, we account for firm heterogeneity alongside a large number of zeros in bilateral FDI flows using recent advances in gravity modelling. We distinguish between the (country) intensive and extensive margins and show that pluralism affects FDI inflows negatively at the intensive margin, but positively at the extensive margin.     

The Pure Effects of European Integration on Intra‐EU Core and Periphery Trade

This paper analyses the effects of EU integration on intra‐EU trade volumes with a special focus on the evolution of trade within and between the core and the periphery countries. In the early phases of EU integration, there have been sizable trade creation and diversion effects with respect to EFTA countries. Both the creation and the diversion effects of EU membership have declined as the EU and EFTA have integrated. In all phases of EU integration, both core–periphery and intraperiphery growth of trade have experienced stronger positive effects than intracore trade. Hence, the EU enlargements did not cause any kind of intra‐EU ‘peripherality’.     

Migration and institutions: Evidence from internal EU mobility

Despite the formal achievement of the free movement of labour within the EU , the institutional characteristics of the labour markets of the Member States may influence European mobility. The paper seeks empirical evidence of the relationship between labour market institutions and intra‐EU migrations, estimating a gravity model for bilateral migration for the period 2001–11. The results indicate that trade union density negatively correlates with the size of bilateral migrations: destinations with relatively high union density are associated with lower migration inflows. Since these countries tend to have a relatively flat earnings distribution, it is also investigated whether their earnings structure reduces their attractiveness as destinations hindering the access to their labour market. Even if a dependence between the earnings dispersion and migrations is found, trade union density remains the main driver of migration patterns. Clear effects of employment protection on EU mobility are not found.     

Are Trade Preferences more Effective than Aid in Supporting Exports? Evidence from the ‘Everything But Arms’ Preference Scheme

This study examines the effect of the ‘Everything But Arms’ (EBA) trade preferences regime on exports from the African, Caribbean and Pacific countries (ACP) to the European Union (EU). With this aim, an augmented gravity model is estimated for exports from the 79 ACP countries to the EU‐15 for the time period of 1995—2013 using panel data techniques. The results are used to quantify the effect of the eligibility for EBA preferences on the export performance of the ACP least developed countries (LDCs) and to relate it to the impact of official development assistance on exports. In addition to their separate effects, the combined impact of EBA and aid flows is examined. The main results do not provide evidence for an additional positive effect of the EBA agreement on the export performance of the ACP LDCs. However, receiving aid shows a significant and positive effect on exports from EBA‐eligible ACP countries to the EU‐15, supporting an EU development strategy that includes both sorts of assistance, aid and trade preferences.     

EMU and Trade Revisited: Long‐Run Evidence Using Gravity Equations

In this paper, we present evidence of the long‐run effect of the euro on trade for the twelve initial EMU countries for the period 1967–2008 from a double perspective. First, we pool all the bilateral combinations of trade flows among the EMU countries in a panel cointegration gravity specification. Second, we estimate a gravity equation for each of the EMU members vis‐à‐vis the other eleven partners. We apply panel cointegration techniques based on factor models that account for cross‐dependence and structural breaks. Whereas the joint gravity equation provides evidence on the aggregate effect of the euro on intra‐European trade, by isolating the individual countries, we assess which of the member countries have obtained a larger benefit from the euro. The results show that the euro has had a positive though small effect on trade. Belgium and Luxembourg, France and Italy are the countries more benefited from the introduction of the euro. The effects for exports to third countries are in general more moderate, and, with the exception of Greece, there is no evidence of diversion effects.     

中国与日、韩、俄经贸关系对经济的贡献比较

本文分析了中国与日、韩、俄三国之间外贸依存度对相关国家经济的贡献程度,并运用贸易乘数比较了双边贸易对相关国家经济的贡献度(贸易所得);从(直接)投资依存度的角度分析了中国与三国间相互投资对经济的贡献程度,并运用投资收益率比较了相互投资对相关国家经济的贡献度(投资所得);综合贸易所得和投资所得,估算了双边经贸关系对相关国家经济的贡献度;最后,就如何深化中国与三国的经贸关系进行了若干思考。