US Foreign Direct Investment in East Asia: Strategy and Policy Issues

East Asian trade and investment policies have attracted US investment into the region, but these policies should be fine-tuned for the region to compete effectively for US investment inflow and increase their global share of US foreign direct investment. The changes should consider the needs of the US investors and East Asia's own economic development. Bilateral free trade agreements with the US are the likely channel for these changes, but the question is whether East Asia is ready for a comprehensive and deep liberalization. East Asia should work toward a regional investment policy framework to facilitate and expand the regional production network developed by the US foreign direct investment.     

Foreign Direct Investment and the Incentives to Innovate and Imitate*

We propose a new channel of FDI spillovers on domestic firms, which operates through imitation of original products. Domestic heterogeneous firms may not introduce any new products, introduce a new product line (innovate), or develop a variety that is a close substitute to an existing product line (imitate). The presence of foreign firms generates incentives for imitation because they introduce original products that are vertically differentiated from domestic products. Using firm‐level panel data for China, we find that increased FDI presence in a given industry leads to more imitation, but not necessarily more innovation, by domestic firms.     

Foreign direct investment and exports The experiences of Vietnam1

We examined the implementation statuses of a total of 5,919 foreign direct investment (FDI) projects approved by the Vietnamese Ministry of Planning and Investment since 1988, and compiled a database of actually disbursed FDI in Vietnam. The database covers FDI flows into Vietnam from 23 countries from 1990 to 2004. Using the data, we analyzed the impact of FDI on the exports of Vietnam with gravity equations. The empirical results demonstrate that FDI is one of the major factors driving the rapid export growth of Vietnam. It has significantly facilitated the expansion of Vietnam's exports to FDI source countries. In particular, the empirical analysis shows that a 1 percent increase in FDI inflows will be expected to give rise to a 0.13 percent increase in Vietnam's exports to these countries.     

Asymmetric Demand Information and Foreign Direct Investment*

We examine the FDI versus exports decision of firms competing in an oligopolistic (quantity‐setting) market under demand uncertainty and asymmetric information. Compared to a firm that chooses to export, a firm that chooses to set up a plant in the host market has superior information about local market demand. In addition to the well‐known tension between the fixed set‐up costs of investment, the additional variable costs of exports and oligopoly sizes, the incentive to invest abroad is explained by the strategic learning effect. FDI may be observed even if trade costs are zero. The analysis is robust to price competition and to the possibility that a foreign firm can engage in both FDI and exports.     

Asymmetric Oligopoly and Foreign Direct Investment: Implications for Host-Country Tax-Setting

We present a duopoly model with heterogeneous firms that vary in cost-efficiency, each of which can choose to serve a foreign market by either exporting or local production. We do so to analyse the effects of a host-country corporate profit tax on both the scale and composition of FDI, and find that: strategic interaction between oligopolistic firms provides for a pattern of FDI that favours cost-inefficiency to the detriment of host-country welfare; and the host-country tax rate can be optimally used to avoid such patterns of FDI and instead promote direct investment by a relatively cost-efficient firm.     

Threshold Effects in the Capital Account Liberalization and Foreign Direct Investment Relationship

This paper examines how capital account liberalization （CAL） affects foreign direct investment （FDI） inflows. Authors use a dynamic panel model encompassing 14 Middle East countries over the period from 1985 to 2009. The findings suggest that countries that are able to reap the benefits of the capital openness policy satisfy certain threshold conditions regarding the level of financial development and institutional quality. Thus to promote FDI, governments in this region should develop a set of policies that not only focus on financial openness, but also on the improvement of the financial system and legal institutions.     

Labor Taxation and Foreign Direct Investment*

In this paper, we analyze the implications of the effective taxation of labor for profits and, hence, the decisions made by multinational enterprises concerning the location of their headquarters. If a higher employee‐borne tax burden reduces manager effort, it should also negatively affect firm profits and the location of the headquarters. We compile data on personal income tax profiles for 52 economies and the year 2002 at different moments of the distribution of gross wages. Our findings suggest that higher employee‐borne labor taxes are less conducive to the location of headquarters and foreign direct investment stocks in a given host economy.     

Does WTO accession matter for the dynamics of foreign direct investment and trade?

The aim of this article is to study the impacts of World Trade Organization accession on the dynamics of foreign direct investment (FDI) and trade in Vietnam. In order to do this, we employ an augmented gravity model and use a panel data set covering bilateral trade and FDI between Vietnam and its 17 most important partner countries, over the period 1990–2008. Firstly, we find that WTO accession has a significantly positive effect both on Vietnam’s imports and on inward FDI. Secondly, even though we find no evidence to demonstrate convincingly that WTO accession influences Vietnam’s exports, this accession seems to indirectly encourage Vietnam’s exports through the FDI channel due to a strong connection between these two.     

Foreign direct investment and governance quality in Russia

This paper studies the effect of poor governance quality on foreign direct investment in Russia. Using a survey of businesses across forty administrative districts, we find that higher frequency of using illegal payments and higher pressure from regulatory agencies, enforcement authorities, and criminals, negatively affect foreign direct investment. Our identification strategy builds on the exogenous cross-regional variation in worker strikes during 1895–1914, the period before the October Revolution. We find that moving from the average to the top governance quality across Russian regions more than doubles the FDI stock.     

对中国国际贸易与FDI相互关系的重新检验

This paper studies the long-term relationship between FDI and imports and exports through evidence from China by using cointegration technology, and the Granger causality test shows that FDI had an obvious effect on imports and exports activities of foreign firms, and in the meantime, the imports and exports of foreign firms greatly promoted FDI. However, there is not a stable equilibrium between FDI and international trade in the long run for all firms in China. This paper provides some explanations for the possible reasons that cause the above difference in estimation results from the perspectives of both location and industry factors.      

外商直接投资对新疆区域经济的影响及对策

进入十一五时期,我国吸引外商直接投资的规模继续扩大,利用外资的质量不断提高,引资政策也有了明显的转变。国家大力引导外资投向新兴产业及西部欠发达地区。在新形势下,新疆必须结合自身特点,建立有别于其他地区的具有新疆特色的引资发展战略。本文对过去新疆利用外商直接投资(FDI)的相关数据进行对比分析,总结了新疆利用外商直接投资的发展趋势及存在的主要问题,根据新疆经济发展的特点,提出了具有新疆特色的引资发展战略。     

How important is employment protection legislation for Foreign Direct Investment flows in Central and Eastern European countries?1

In this article we investigate empirically the importance of labour market conditions and in particular the role of employment protection legislation as determinants of bilateral Foreign Direct Investment (FDI). We find that FDI flows are significantly higher in countries with relatively low unit labour costs. We also find that employment protection legislation does not exert a statistically significant impact on FDI flows. Our results are consistent with the interpretation that transition economies attract FDI via low production costs whereas indirect costs related to the rigidity of the labour market are less relevant.     

Foreign Direct Investment and Technology Transfer Under Uncertainty in a Liberalizing Host Economy

This paper tackles the issue of investment and optimal ‘choice’ of market structure for a foreign multinational enterprise (MNE) in a newly liberalized economy under uncertainty and in the presence of sunk costs. A minimalist duopolistic model is developed whereby a foreign investor's subjective belief about the probability distribution of policy uncertainty is endogenized as a function of the aggregate output in the tradable goods sector. The main propositions derived from the model are consistent with some unconventional empirical findings in the literature on Foreign Direct Investment (FDI), technology transfer to and crowding out of domestic firms in LDEs.     

Abenomics and Japan's Trade Policy in a New Era

Trade policy, in particular, the Trans‐Pacific Partnership Agreement (TPP), has been a centerpiece of the Abe administration's economic strategy. The TPP's contributions to Japan's growth strategy include: (i) creating trade and investment opportunities abroad for Japanese companies through ambitious liberalization targets; (ii) advancing domestic reforms – with the largest service and agricultural liberalization commitments to date; and (iii) increasing bargaining leverage in other trade negotiations. But the domestic reform goals of Abenomics in agriculture have come up short due to opposition from domestic lobbies. American trade politics – which culminated in the US withdrawal from the TPP – have upended the goals of trade policy under Abenomics. Japan's best option in this new environment is to deliver on high quality, multi‐party trade agreements: concluding negotiations with Europe; scaling up the ambition of Regional Comprehensive Economic Partnership; and salvaging a TPP 11. The merits of a bilateral free trade agreement with the USA will depend on how the Trump administration operationalizes its America First policy.     

Financial Development, Foreign Direct Investment, and the Efficiency of Capital Allocation in China

We study the roles of local financial development and foreign direct investment, and more importantly, their interaction with one another, in local capital allocation, based on Chinese industrial and regional data. Our main finding is that, although local financial development and FDI each individually tended to improve the efficiency of local capital allocation during the sample period, they tended to compete and crowd out each other’s effect, so that one impaired the individual function of the other. In particular, there exists a threshold value for local financial development, above which an increase in FDI reduces the efficiency of local capital allocation, rather than improve it. On the other hand, there exists a threshold value for FDI, above which further development in the local financial system lowers the efficiency of local capital allocation, rather than increase it. Our estimations suggest that the levels of FDI and local financial development in some relatively more developed Chinese regions have already surpassed such threshold values. We provide some interpretations of our findings and we discuss potential policy implications.     

Foreign Direct Investment,Female Education,Capital Formation,and Economic Growth in Japan and South Korea

ABSTRACT

The influence of foreign direct investment (FDI) on host country‘s economic growth is a widely explored issues in the existing economic literature. This study attempts to examine the role of foreign direct investment, capital formation, and expansion of female education on economic growth of Japan during the period 1971–2014, using time series observations. The study further makes a comparison regarding the association with FDI and economic growth with South Korea, another major OECD economy of Asia The study utilises the auto-regressive distributed lag (ARDL) bounds approach to cointegration to examine the long run causality association among the variables. Today, for sustainable economic development the social and institutional policy issues are important. The paper explores one such social issue, namely gender and economic prosperity. This paper has novel contributions in the current research on time series, econometric analysis for the following reasons: (1) it has investigated the relationship between economic growth, foreign direct investment and capital formation in a gendered differential framework (utilising the role of human capital formation among men versus women; (2) the study covers a long period and more recent time period (till 2014), which concurs with the upsurge of world FDI movements and (3) the study also explores the major structural breaks of the two economies and how economic growth is impacted thereof.     

欧盟对华直接投资对中欧双边贸易影响的协整分析

欧盟对华直接投资与中国向欧盟出口以及欧盟对华直接投资与中国向欧盟进口均表现为一种显著的协整关系.这说明欧盟对华直接投资与中欧双边贸易之间的长期均衡关系比较稳定,而且欧盟对华的直接投资与中欧双边贸易在规模上具有相同的变化趋势.同时,从短期看来,欧盟对华直接投资与中国对欧盟进出口的关系由短期偏离向长期均衡调整的速度很快.     

The Role of Trade and International Economic Policy in Indian Economic Performance*

India's economic policies have undergone major reforms since the early 1990s. Before that, government regulation and control of economic activity was pervasive, and the trade sector did very poorly. One consequence was that imports were highly restricted and their scarcity was itself a major constraint on growth. After the crisis of the early1990s, trade policy was substantially liberalized. In this paper, the pre‐1990s regime is first briefly described. Thereafter, the economic policy reforms that impinged most directly on the trade sector are set forth, and the response of exports and imports to those changes is outlined. Exports have grown rapidly, from about 5% of the gross domestic product to around 15%, and they continue to grow at an average annual rate of 20%. Improved performance of the trade sector has been a major contributing factor to India's dramatically accelerated growth performance. A final section of this paper assesses the current situation, and sets forth the major policy challenges that will need to be met if that performance is to be sustained, if not improved upon.     

Foreign direct investment,growth and income inequality in less developed countries

How does foreign direct investment (FDI) affect economic growth in less developed countries (LDCs)? What is its association with changes in the income distribution? This paper empirically examines these issues within a cross section of less developed countries between 1970 and 1989. FDI is positively associated with economic growth within this sample of countries. However, there is no strong association between FDI and changes in income inequality within these same countries and over this same time period. Hence, there is no evidence that FDI is increasing income inequality within this group of LDCs.