Foreign Direct Investment,Institutional Quality,and Financial Development along the Belt and Road: An Empirical Investigation

ABSTRACT

The source of financial development is less investigated in the literature, especially the role foreign direct investment (FDI) plays on financial development. Using data from 50 countries joining the Belt and Road Initiative, this article at first time tests the impact of FDI on financial development in a host country. Empirical results show that FDI can significantly improve the development of financial sector, especially the development of financial markets. FDI is found to be a stronger driver of financial development for countries with higher quality institutions. Moreover, FDI not only increases financial deepening, but also enhances financial function.     

Bilateral investment treaties and foreign direct investment: Evidence from emerging market firms

Bilateral investment treaties (BITs) help developing countries attract foreign direct investment (FDI) from developed countries. However, whether BITs matter for emerging market firms’ (EMFs) FDI is unclear. This paper investigates how BITs affect EMFs’ FDI locations using conditional logit models with firm-level panel data from 2003 to 2015. The results show that BITs can help host countries attract FDI from emerging market countries. BITs work alongside good institutions to increase the attractiveness of FDI, irrespective of a host country being developed or not.     

Corruption Distance and Foreign Direct Investment

We study the effects of “corruption distance,” defined as the difference in corruption levels between country pairs on bilateral foreign direct investment (FDI). Using a “gravity” model and the Heckman (1979) two-stage framework on a data set of forty-five countries from 1997 to 2007, we find that corruption distance adversely influences both the likelihood of FDI and the volume of FDI. A novel finding in this study is that we identify the asymmetric effect of corruption distance and find that the positive corruption distance, defined as the corruption distance from a high corruption source to a low corruption host country, is the prominent one that affects the behavior of bilateral FDI.     

Financial Competitiveness,Financial Openness and Bilateral Foreign Direct Investment

ABSTRACT

In this article, we test the impacts of financial competitiveness and financial openness on bilateral FDI with novel indexes, covering 127 host countries and 122 home countries from 2009 to 2016. We find that the improvement of financial competitiveness and financial openness significantly increases the FDI assets in the home country and significantly increases the FDI liabilities in the host country. In particular, the impacts of financial competitiveness and financial openness are significant both on the intensive and extensive margins. In addition, the above results remain robust in further analyses, such as using sub-index of financial competitiveness, using quantile regression model, considering capital control on FDI and dealing with the endogenous problem. The study demonstrates the financial competitiveness and financial openness are important factors to explain why FDI positions are relatively small in some developing countries.     

Sectoral analysis of foreign direct investment and growth in the developed countries

Empirical studies on foreign direct investment (FDI) and growth in developed countries have yielded conflicting results using cross-country regressions. We use sectoral data for a group of six country members of the OECD. Our paper is the first to identify the sector-specific impact of FDI on growth in the developed countries. Our results show that FDI has positive, or no statistically discernible, effect on economic growth directly and through its interaction with labor. Moreover, we find the effects seem to be very different across countries and economic sectors.     

Do Taxes Matter for Foreign Direct Investment?

The tax sensitivity of foreign direct investment (FDI) has importantpolicy implications. If FDI is not responsive to taxation, thenit may be an appropriate target for taxation by the host country.This question is examined for Mexico by estimating the responseof FDI from retained earnings and transfers from abroad to thetax regimes in Mexico and the home country, the credit statusof multinationals, country risk factors, and regulatory andtrade regimes in Mexico. FDI in Mexico is found to be sensitiveto the tax regimes in Mexico and the United States, the creditstatus of multinationals, country credit ratings, and the regulatoryenvironment. Thus Mexico's current policies to dismantle regulationsand employ a tax system competitive with the United States areexpected to have salutory effects on FDI in Mexico.     

Institutional herding in international markets

This paper studies herding behavior of institutional investors in international markets. First, we document the existence of wide-spread herding in 41 countries (referred to as “target countries” hereafter) in the sample. We then examine the relation between contemporaneous institutional demand and future returns and find that institutional herding stabilizes prices. Next, we examine the relation between institutional investors’ herding behavior and the level of information asymmetry in the target countries. We measure the degree of information asymmetry in each target country along five dimensions: (1) stock market development, (2) ease of access to information, (3) corporate transparency, (4) investor rights, and (5) macroeconomic factors that relate to the information environment. We find evidence that institutional investors herd more in markets characterized by low levels of information asymmetry (high level of information transparency). This result suggests that institutional investors’ herding behavior is likely driven by correlated signals from fundamental information. Lastly, we show that price adjustment is faster in informationally transparent markets.     

Explaining the competition for FDI: Evidence from Costa Rica and cross-national industry-level FDI data

Attracting foreign direct investment (FDI) has become an integral part of the economic development goals of policymakers throughout the world. Previous literature on FDI attractiveness has identified a host of factors that make a country more or less enticing for FDI. Where the literature is less developed is in explaining what occurs when multiple countries are roughly equal across those factors. In this paper, we argue that when several potential host countries (HCs) are on par in attractiveness, a competition arises between them, such that the HC willing to offer the most concessions to the potential foreign investor attracts the investment. We further argue that this competitive relationship holds in some industrial sectors, but not in others, with the difference centered on location constraints. Using both a case study of Costa Rica’s investment promotion activities and cross-national industry-level FDI analyses, we find evidence that concessions are greater in the manufacturing sector, where countries are often equally attractive to FDI, but lower in mining, where natural resource endowments determine FDI attractiveness.     

The location of financial sector FDI: Tax and regulation policy

This paper analyzes how corporate taxation and regulatory requirements affect the location of financial sector FDI. We use novel information on new financial services entities established by multinational firms in 83 host countries. We find a negative effect of host country taxes on the probability of choosing a particular host location. We can also confirm a significant influence of the regulatory environment. For example, stricter (equity) capital requirements negatively affect location probabilities. Our empirical approach allows us to provide new insight in how a policy measure of a given country affects other countries by estimating cross-country tax and regulation elasticities.     

Tax treaty shopping: structural determinants of Foreign Direct Investment routed through the Netherlands

Many multinationals divert Foreign Direct Investment (FDI) through conduit countries that have a favorable tax treaty network, to avoid host country withholding taxes. This is referred to as tax treaty shopping. The Netherlands is the world’s largest conduit country; in 2009, multinationals held approximately €1,600 billion of FDI via the Netherlands. This paper uses microdata from Dutch Special Purpose Entities to analyze geographical patterns and structural determinants of FDI diversion. Regression analysis confirms that tax treaties are a key determinant of FDI routed through the Netherlands. The effect of tax treaties on FDI diversion partly arises from the reduction of dividend withholding tax rates, which provides strong evidence for tax treaty shopping.     

外商直接投资后向关联效应的经验分析——基于我国制造业的研究

测定外商直接投资对东道国经济(尤其是发展中国家经济)的影响,一直以来都是一个重要的研究方向,但从行业和企业角度进行分析的国内文献很少。本文以我国外资相对集中的制造业为例,对我国制造业1996至2005年15部门的面板数据进行回归分析,对比外商直接投资进入我国制造业所产生的竞争效应和后向关联效应,得出外商直接投资的竞争效应并不明显,然而其通过后向关联效应促进我国制造业的发展。     

当前中国吸收外国直接投资面临的形势分析

<正> 一、当前我国吸收FDI的有利因素 首先,中国已于1999年11月15日与美国达成双边协议,加入WTO的最大障碍已经排除,普遍预计将于2000年底加入世界贸易组织。这是我国吸收FDI最大的有利因素。我国加入WTO后,服务业等投资领域的开放,市场准入程度的提高将使外国投资者获得更多的投资机会。同时我国承诺遵守WTO规则,与国际规则接轨,法制化、规范化程度将会提高,可使外商打消对我国政策多变、随意、不透明的疑虑,对在华投资能够做出预测,产生良     

印度FDI流入的决定因素分析

1991年以来,随着印度引资政策的调整和投资环境的改善,流入印度的外国直接投资(FDI)持续增长。目前,印度已经成为仅次于中国的最具吸引力的FDI东道国。拥有大量高素质科技人才是印度FDI持续增长最重要的因素,而实际汇率频繁波动、平均税率较高则阻碍了FDI流入印度。     

Corruption and competition for resources

An increasing share of world FDI is carried out by multinationals from developing countries. These investors may have objectives and constraints that differ from their developed country counterparts. In this paper we focus on differences in attitudes to corruption, and how these may shape the competition for the right to extract resources in a developing country context. We show how differences in the investors’ level of technology and differences in the host country government’s trade-off between bribes and taxes determine who wins the competition for the resource and the winning price. One finding is that competition from a bribe-willing investor may induce a bribe-averse investor to enter into corruption. Surprisingly, however, we also find that competition with a bribe-willing investor may induce the bribe-averse investor to increase its tax payments.     

Do tax sparing agreements contribute to the attraction of FDI in developing countries?

Measuring the effects of taxation on FDI in developing countries requires consideration of the tax sparing provision. This provision signed between developed and developing countries protects host country fiscal incentives for FDI. This paper estimates the impact of tax sparing provisions on Japanese outbound FDI between 1989 and 2000. We find evidence that the tax sparing provision influences positively the location of Japanese FDI, even after having taken into account reversal causality. JEL Classification F23 · H25 · H32 We Thank Michael Devereux, Edward Graham, Robert Lipsey, David Margolis, Claudia Rivas, Deborah Swenson, anonymous referees and seminar participants at the Franco-Korean conference in Seoul, and at the Western Economic Association conference in Vancouver for helpful discussions.     

Double-edged incentive competition for foreign direct investment

This paper studies the impact of special interest lobbying on competition for foreign direct investment (FDI) in a common agency framework. We argue that special interest lobbying may provide an extra political incentive for governments to attract FDI. We show that compared with the benchmark case where governments maximize national welfare, now (1) an economically disadvantageous country has a chance to win FDI competition; (2) the equilibrium subsidy for attracting FDI is higher than in the benchmark case; (3) allocative efficiency cannot be always achieved.     

FDI技术溢出效应问题研究综述

在全球一体化不断加深的今天,很多国家都在实行积极的吸引FDI的政策。由于外国厂商的进入通常会带来比本土企业更加先进的技术和经验,可以对东道国企业产生技术的溢出效应。关于FDI对东道国的影响,之前许多学者做了研究,对于溢出效应是正向还是负向以及其大小的研究,不仅仅在理论和实践上具有重要意义,对于政府制定合适的FDI吸引政策也具有很大的现实价值。本文对国外学者所做的研究进行了一定的综述,并对今后FDI溢出效应研究所应前进的方向作出一点建议。     

Foreign direct investment and forward hedging

This paper examines the behavior of a risk-averse multinational firm (MNF) making investment in a foreign country under exchange rate uncertainty. To hedge the exchange rate risk, the MNF has access to an unbiased currency forward market. Foreign direct investment (FDI) is irreversible and sequential in that the MNF can acquire additional capital after the exchange rate uncertainty is completely resolved. The MNF as such possesses a real (call) option that is rationally exercised whenever the foreign currency has been substantially appreciated relative to the domestic currency. We show that the MNF's optimal initial level of sequential FDI is always lower than that of lumpy FDI, while the expected optimal aggregate level of sequential FDI can be higher or lower than that of lumpy FDI. We further show that the presence of the currency forward market improves the MNF's incentives to make FDI, both ex-ante and ex-post.     

Firm-specific forward-looking effective tax rates

This paper computes effective (marginal and average) tax rates that account for bilateral aspects of taxation and, therefore, vary across country-pairs and years. These tax rates serve to estimate the impact of corporate taxation on outbound stocks of bilateral foreign direct investment (FDI) among OECD countries between 1991 and 2002. The findings indicate that outbound FDI is positively related to the parent and host country tax burden and negatively associated with bilateral effective tax rates. Relying only on unilateral (country and time variant) rather than on both unilateral and bilateral (country-pair and time variant) effective tax rates leads to biased estimates of the impact of corporate taxation on FDI.     

Bilateral effective tax rates and foreign direct investment

This paper computes effective (marginal and average) tax rates that account for bilateral aspects of taxation and, therefore, vary across country-pairs and years. These tax rates serve to estimate the impact of corporate taxation on outbound stocks of bilateral foreign direct investment (FDI) among OECD countries between 1991 and 2002. The findings indicate that outbound FDI is positively related to the parent and host country tax burden and negatively associated with bilateral effective tax rates. Relying only on unilateral (country and time variant) rather than on both unilateral and bilateral (country-pair and time variant) effective tax rates leads to biased estimates of the impact of corporate taxation on FDI.