Exports versus FDI: An Empirical Test

In a recent paper Helpman, Melitz and Yeaple argue firm heterogeneity leads to self-selection in the structure of international commerce. Only the most productive firms find it profitable to meet the higher costs associated with FDI; the next set of firms finds it profitable to serve foreign markets through exporting; while the least productive firms serve only the domestic market. The paper tests this assumption using the concept of stochastic dominance. Robust support is found for the model, the productivity distribution of multinational firms is found to dominate that of export firms, which in turn dominates that of non-exporters. JEL no. D24, F14, F23     

西部地区利用外商直接投资的制约因素与对策

制约西部地区外商直接投资的因素是:经济发展水平仍然较低,对生产性活动投资的引致能力不足;产业结构优化度低,未能形成承接新一轮国际产业转移的平台;未能得到根本改变的不容乐观的投资环境,降低了外商直接投资的动力;绝对过剩并且素质低下的劳动力,难以适应外商对资本与技术密集型产业转移的需要;完善度和成熟度仍然较低的市场体系,提高了外资获利成本。为提高西部地区吸引外商直接投资能力,西部地区应完善公共基础设施、加强人力、资本的开发和引进,调整引进外资结构。     

Spatial determinants of Japanese FDI in China

Research on foreign direct investment in China has spawned an increasingly large literature. Whilst regional cleavages with respect to the distribution of foreign direct investment (FDI) are acknowledged, empirical research on the spatial determinants of FDI in China has been limited. Furthermore, research on the spatial determinants of home country FDI in China has thus far been neglected due to difficulties in accessing the appropriate data. The objective of this paper is to examine the spatial determinants of Japanese direct investment in China by using an econometric model. To that purpose, a dataset is created from the Toyo Keizai directory on the overseas activities of Japanese companies. The results show that tertiary education, inland waterways, as well as coastal location are positive and significant determinants of Japanese investment in China.     

Effects on China and ASEAN of the ASEAN-China FTA: The FDI perspective

The ASEAN-China FTA (ACFTA) is a significant step in regional economic integration for both China and the ASEAN countries. While analysis of the effects of Free Trade Agreements (FTAs) most commonly focuses on the trade effects, the closeness of the link between trade and investment implies that the effect of an FTA on foreign direct investment (FDI) is also potentially significant. FTAs may stimulate FDI through the effects of market expansion and vertical fragmentation, while they may also reduce FDI through a plant rationalization effect. The overall effect of an FTA on FDI flows is an empirical question. This paper examines the impact of ACFTA on FDI flows through an econometric model that captures the influence of East Asian production networks on FDI, which we expect to be an important explanatory factor. The model finds that ACFTA has a significant and positive effect on FDI flows. A brief survey of the theoretical literature on the welfare and other related effects of FDI serves to emphasize that the extent to which individual member countries of the ACFTA will benefit from this increase in FDI will depend in important ways on the policies pursued in each country.     

Taxes and the Financial Structure of German Inward FDI

The paper analyses the financial structure of German inward FDI. Intra-company loans granted by the parent should be all the more strongly preferred over equity the lower the tax rate of the parent and the higher the tax rate of the German affiliate. We find that the corporate tax rate of the foreign parent has no significant impact on the financial structure of a German subsidiary. However, among subsidiaries that are directly held by a foreign investor those firms that on average are profitable react more strongly to changes in the German corporate tax rate than this is the case for less profitable firms. This gives support to the frequent concern that high German taxes are partly responsible for the high levels of intra-company loans. Taxation, however, does not fully explain the high levels of intra-company borrowing. Roughly 60 per cent of the cross-border intra-company loans turn out to be held by firms that are running losses. JEL no. F23, H25     

Outward FDI and Local Employment Growth in Italy

Using several data sources, we assess the impact of Italy’s outward foreign direct investment (FDI) on local employment growth between 1996 and 2001 for 12 manufacturing industries and 103 administrative provinces. Our main result is that, controlling for the local industrial structure and area fixed effects, FDI is associated with faster local employment growth, relatively to the national industry average. We also find that employment in small plants is not negatively influenced by higher levels of FDI. Our findings do not support therefore the idea that FDI is detrimental to local employment growth in the home country. JEL no.  C21, F21, F23     

The determinants of location choice of South Korean FDI in China

By using extensive and unique firm-level data for South Korean foreign affiliates in China, we investigated the determinants of location choice for South Korean multinational companies. South Korean companies are unevenly distributed inside China with more than 60 percent of their affiliates being located in the three northeast regions. Using conditional logit estimation, we found that market size and government policies approximated by economic zones, quality of labor, and transport infrastructure play a positive role in deciding location. On the other hand, labor costs, inner waterways, and distance show negative and significant coefficients. Finally, the model specification is shown to be robust to possible violation of the assumption of identical independent error terms. Some of the estimation results stand in contrast to those of other studies on the determinants of FDI stock flows from the world or Japan.     

Estimating the Impact of Time-Invariant Variables on FDI with Fixed Effects

This paper applies the panel fixed effects with vector decomposition estimator to three FDI data sets to estimate the impact of time-invariant variables on FDI while including fixed effects. We find that the omission of fixed effects significantly biases the results, leading to contradictory predictions regarding the effect of trade costs and culture across data sets. After eliminating these biases, the differences across data sets largely disappear and many time-invariant variables consistently indicate the importance of vertical FDI. This suggests that some controversies in the literature may be driven by the extent to which unaccounted fixed effects biases vary across different data sets. JEL no.  F14, F23     

FDI and wage spillovers in Indonesian manufacturing

This paper examines the effect of foreign direct investment in Indonesian manufacturing on wages in locally owned Indonesian manufacturing plants. The issue is examined in a cross section of Indonesian manufacturing industries and provinces in one of the few years for which data on worker characteristics were available. Wages in locally owned plants were high in industries and industries within provinces with large foreign presence. Since the foreign plants also pay higher wages than locally owned ones, the two factors together imply that higher foreign presence raises the general wage level in a province and industry. JEL no. F2, J3 This paper was prepared as part of an ICSEAD project on “Foreign Multinational Corporations and Host-Country Labor Markets in Asia”. Earlier versions appeared as ICSEAD Working Paper 2001–02 and NBER Working Paper No. 8299.     

FDI and inequality in Vietnam: An approach with census data

We investigate the effects of inward FDI on income distribution and absolute living standards in Vietnam using census data from 1989 to 2009. We compute the number of employees of foreign establishments in each of Vietnam's provinces for each year, and use that as a measure of local FDI. We estimate the effects of FDI on local households’ living standards as reported in the data, broken down by educational background to allow us to analyze effects on inequality. Estimates based on the repeated cross section indicate that rising FDI in a province is associated with a slight decline in living standards for households there if they do not have a member employed by the foreign enterprises, with only modest gains for households who do have a member employed by the foreign enterprises. These estimates may reflect composition effects, however, since we find large movements of people toward the provinces receiving the FDI. The findings show that measuring the effect of FDI on household welfare is more difficult than measuring the effect of trade policy, and may pose a difficulty for the view of FDI as a general anti-poverty strategy.     

FDI驱动上海市城市化的影响因素分析

FDI通过一定机制加速工业化和城市化进程,带动一个国家或地区城市化跨越式发展。本文基于上海市城市发展现状,从FDI对经济发展、产业结构变化、人口流动和技术水平四个因素的影响,探究了FDI对上海城市化发展的作用机制,并提出上海利用FDI加快城市化进程的借鉴意义。     

Japanese FDI into U.S. service industries: Exchange rate changes and services tradability

Using the implications of the model of investment under uncertainty, this paper provides a systematic examination of the FDI–exchange rate relationship with respect to services taking into account the degree of tradability across services. Services have mainly been addressed in the literature as a sensitivity test by industry using aggregated service data identified as “nonmanufacturing”. Using data on Japanese FDI into 207 U.S. service industries, maximium-likehood estimates reveal that dollar appreciations are positively correlated with service FDI flows into the U.S. This positive correlation is stronger for non-tradable services versus tradable services. For tradable and non-tradable producer services, higher exchange rate uncertainty may lead to fewer FDI occurrences. On average, across all types of services, higher U.S. unit labor costs relative to Japan had a deterrent effect on Japanese service FDI as well. Finally, this paper also provides a useful benchmark to partition services by tradability.     

The role of foreign direct investment (FDI) on domestic entrepreneurship in South Africa

ABSTRACT

This study examines the effect of foreign direct investment on domestic entrepreneurship in South Africa. With the focus on inward capital flows, the study specifically employed stock data and the Global Entrepreneurship Monitor to measure the impact. The data set analysed is for the period 2000–18, and after testing a Threshold Vector Autoregressive model, it was established that there is a short-run and long-run nonlinear relationship between foreign direct investment and domestic entrepreneurship in South Africa. The key findings of the study were that foreign direct investment has a positive short-run and long-run influence on domestic entrepreneurship. The policy recommendations are for government to create an eco-system that supports entrepreneurship through the lowering of regulatory burden on new domestic firms and enact robust sector-specific localisation policies for big corporations.     

Has China displaced other Asian countries' exports?

This paper uses gravity modelling to explore whether and how the growth of China's exports is displacing exports of other Asian countries to third markets over the period 1990–2003. Chinese exports are defined both narrowly and more broadly to include exports from Hong Kong. We investigate whether the displacement effect on Asian exports differs when exports from Hong Kong and China are combined compared to the narrow case of Chinese exports only. Aggregate and disaggregated analyses are undertaken. In the latter, we explore whether the displacement effect varies across Asian countries and in trade with different types of countries. We find evidence of a displacement effect which is more pronounced in developed markets and stronger for Hong Kong and China combined. Further it is the high income Asian exporters that experienced a greater displacement effect. We also investigate whether China's development has generated any offsetting effects on its neighbours' exports to China itself and find that Chinese growth has indeed increased China's imports from the Asian countries in the sample and in particular from Japan and Korea.     

我国对外直接投资的监督与管理

通过分析我国对外投资监管政策与实践,进一步指出我国对外投资监管存在重前置监管、轻事后监管;重审批、轻协调以及重制度、轻控制这三个主要问题,然后在总结与分析国外监管实践的基础上,提出了提高我国对外投资监管水平的政策建议。     

The role of foreign direct investment in Indonesia's manufacturing exports

This article examines whether foreign direct investment (FDI) has contributed to the changing structure of Indonesia's manufacturing exports. It uses industry-level data from 1990 to 2008, classified by factor intensity. Our analysis reveals that FDI promotes exports in most panel observations, especially exports from physical-capital-intensive (PCI), human-capital-intensive (HCI) and technology-intensive (TI) industries. Yet by applying a differentiated cross-section-effect model, we determine that the export-generating potential of FDI is stronger in PCI, HCI and TI industries than in natural-resource-intensive or unskilled-labour-intensive industries, in which Indonesia has a comparative advantage. We also assess the influence of other determinants of export performance – namely, private domestic capital investment, GDP growth and exchange rates. Our findings have implications for policymakers seeking to sustain Indonesia's export performance.     

Foreign direct investment, processing trade, and the sophistication of China's exports

China's export structure has shown a rapid shift towards more sophisticated industries. While some believe that this trend is a result of processing trade and foreign direct investment, the evidence is mixed. This paper examines variations in level of export sophistication across China's manufacturing industries. We find that an industry's level of export sophistication is positively related to the share of wholly foreign owned enterprises from OECD countries and the share of processing exports of foreign-invested enterprises, and negatively related to the share of processing exports of indigenous Chinese enterprises. Evidence from the relative export prices of Chinese goods, which measure within-product export sophistication, shows a similar pattern.     

The Role of the Efficiency Gap for Spillovers from FDI: Evidence from the UK Electronics and Engineering Sectors

This paper focuses on the role of the efficiency gap in determining whether or not domestic firms benefit from productivity spillovers from FDI. We use establishment level data for the period 1980–1992 for the UK. Given that there is substantial heterogeneity of productivity across sectors we focus on two manufacturing sectors in detail, namely, electronics and engineering. We allow for different effects of FDI on establishments located at different quantiles of the productivity distribution by using conditional quantile regression. Overall, while there is some heterogeneity in results across sectors and quantiles, our findings clearly suggest that the efficiency gap matters for productivity spillover benefits. We find evidence for a u-shaped relationship between productivity growth and FDI interacted with the efficiency gap. We also analyse in some detail the impact of changes in relative efficiency on establishments’ ability to benefit from spillovers.     

FDI commitments increase when uncertainty is resolved: Evidence from Asia

How do foreign investors deviate from plans in response to new information? Prior literature shows that how utilized foreign direct investment (FDI) is affected by uncertainty depends on the type of FDI. We examine how utilized FDI differs from planned investments by studying the commitment ratio, defined as the ratio of the two FDI flows, in the context of China, Indonesia, the Philippines and Thailand over 1996–2013. First, we find that the commitment ratio exceeds 1 in China and Indonesia but is lower than 1 in the Philippines and Thailand. Second, we find a higher commitment ratio, which means investments are likely to be a larger fraction of what was proposed, when economic uncertainty regarding the destination country is reduced after a project is proposed and the destination environment is politically stable and financially open.     

Effects of regional integration on FDI: An empirical approach

This study uses an augmented gravity model to capture the effect of regional economic integration on Foreign Direct Investment (FDI) flows in the cases of the EU, NAFTA, MERCOSUR, and ASEAN. Three important conclusions emerge: (i) regional integration has had a positive and significant effect on FDI, which is a combination of investment creation and diversion; (ii) investment diversion does occur in a significant number of cases, and hence it is a legitimate cause for concern, especially among developing countries that are not part of a regional grouping with at least one developed country; and (iii) FDI acts as a substitute for trade in a significant number of cases, although in some cases, it complements trade.