Openness and Growth: Re-Examining Foreign Direct Investment,Trade and Output Linkages in Latin America

The openness–growth connection is still an open question in the empirical literature. Although some studies have found that openness has a positive impact on economic performance, others have seriously questioned the significance of this result. The main point that we try to emphasise in this paper is that openness involves more than just trade liberalisation. The increasing importance of international capital flows and especially foreign direct investment (FDI) seems to be another relevant component of outward oriented policies. Therefore, by using quarterly data from the late seventies to 2000, we investigate the effects of liberalisation in Mexico, Brazil and Argentina by taking into account trade and FDI growth links. The results suggest that it is important to consider both exports and FDI to ascertain the benefits associated to the outward oriented strategies followed by these countries.     

Expanding the levels of analysis of fdi for improved understanding of policy issues: the case of mexico

Foreign Direct Investment (FDI) inflows are a key component of the restructuring and external integration now underway in many Latin American national economies. This paper suggests that understanding of policy issues concerning FDI can be enriched by two complementary shifts in the levels of analysis of FDI, each of which entails more detailed attention to the strategies and operations of multinational corporations (MNCs). At the macro-level, we show why it is beneficial to expand beyond the normal analytic concern with aggregate total FDI flows to focus instead on the separate, disaggregated components of those flows--that is, equity, reinvested earnings and other long-term and short-term capital flows between parent firms and their affiliates, as recorded in the national balance of payments capital account. The microlevel shift emphasizes the importance of focusing on varieties of types of FDI, not only across different foreign investors but within individual companies as well. It demonstrates the significance of switching from the usual concentration on firms as a whole to instead accentuating examination of individual projects and products--especially the dichotomy between market-access projects producing for the host country domestic market and production-efficiency projects producing for export markets, including the home country market. These two shifts in the level of analysis complement one another, and they interact in the sense that the mix of component flows can depend in part on the type of FDI. These analytic themes are developed using evidence concerning FDI in Mexico, with special reference to the automotive industry. Such improved comprehension of FDI is particularly germane for Latin American countries that are contemplating liberalization of foreign direct investment rules or have already undertaken them and witnessed the ensuing increase of inbound FDI.     

Are Tax Havens Good Neighbours? FDI Spillovers and Developing Countries

Abstract

This paper investigates the impact of tax havens on non-tax haven countries in terms of foreign direct investment (FDI). We analyze the importance of agglomeration effects by including FDI inflow levels in tax havens and capture geographic spillovers by measuring proximity to the nearest tax haven. Our analysis yields several interesting findings. First, using panel data for 142 countries, we find evidence of positive spillovers from tax havens to nearby developing countries, but not to nearby developed countries. Second, restricting our panel to developing countries, we find the positive effect of tax haven FDI on developing countries to be robust. Third, we find that geographic distance matters for financial flows: developing countries which are the closest to a nearby tax haven benefit the most in terms of FDI inflows. This result is robust to accounting for spatial interdependence of FDI.     

Labour and Its Discontents: The Consequences of Orthodox Reform in Venezuela and Mexico

The negative impacts of orthodox liberalisation policies on labour in Venezuela and Mexico were representative of outcomes elsewhere in Latin America. Untheorised increases in precarious informal work, unemployment, and emigration as well as a growing breech between wages and productivity followed trade, capital, and labour market reforms and the prescribed macro stabilisation policies. Orthodox reforms in both countries paradoxically facilitated market failures given the forms or modes taken by foreign direct investment (FDI), which introduced ever more increasing scale economies with their attendant information imperfections. In addition, the growing competition from tradeable goods faced by domestic producers in both countries and the decision to buy rather than make technologies by way of FDI undermined job creation and induced inter-sectoral flows toward service sector and informal work.     

Corruption,Governance and FDI Location in China: A Province-Level Analysis

China's recent rapid growth has been matched by large increases in exports and foreign direct investment (FDI), but considerable regional disparities in FDI flows exist. We use detailed province level data for China to examine the determinants of intra-country FDI flows. Specifically, we investigate whether FDI is attracted to those regions that exhibit good governance and are most strongly engaged in the fight against corruption, constructing proxies for provincial government efficiency and anti-corruption effort. Our regression results confirm that FDI is attracted to provinces with relatively high levels of government efficiency and are actively involved in the fight against corruption.     

Foreign trade regimes and the FDI–Growth Nexus: a case study of Thailand

This article examines the role of trade policy regimes in conditioning the impact of foreign direct investment (FDI) on growth performance in investment receiving (host) countries through a case study of Thailand. The methodology involves estimating a growth equation, which provides for capturing the impact of FDI interactively with economic openness on economic growth, using data for the period 1970–99. The results support the ‘Bhagwati’ hypothesis that, other things being equal, the growth impact of FDI tends to be greater under an export promotion (EP) trade regime compared to an import-substitution (IS) regime.     

Two sides of economic openness: non-tariff barriers to trade and capital controls in transition countries, 1993–2000

This article presents new measures of foreign economic openness in the transition countries that allow us to distinguish between non-tariff barriers to trade and capital controls. We argue that this distinction is important for the analysis of foreign economic relations in the post-communist world. While most states lowered barriers to trade since 1993, they increased the number of capital controls, which had been low at the beginning of the transition process. The ELITE (Economic Liberalization in the Transition Economies) data set, which is based on the IMF statistics on exchange arrangements and exchange restrictions and encompasses 24 transition countries, further demonstrates important exceptions to this trend. The comparison of the ELITE indicators with alternative measurements of economic openness indicates the need to move towards more refined analyses of the political economy of the transition process.     

Foreign Ownership and Employment Growth in a Developing Country

Many developing countries would like to increase employment in the formal sectors. One way to accomplish this goal may be to encourage the entrance of foreign firms. We examine employment growth in Indonesian plants taken over by foreign owners from domestic ones. We also examine the effect of FDI during different trade regimes and the timing of employment effects following an acquisition. For plants that change the nationality of ownership, we find a strong effect of shifts from domestic to foreign ownership in raising the growth rate of employment, but no significant effects of shifts from foreign to domestic ownership.     

The determinants of foreign direct investment inflows in the Central and Eastern European Countries: The importance of institutions

This study investigates the determinants of FDI inflows in six Central and Eastern European countries (CEEC) by incorporating the traditional factors and institutional variables over the 1996–2009 period. The study identifies whether and how these determinant factors differ across four investor countries (EU-15, the US, China, and Japan). The results verify the positive and economically significant role of GDP size, trade openness, EU membership, and institutions (measured by economic freedoms, state fragility, political rights, and civil liberties indices) on FDI inflows. The results also reveal the existence of notable differences in the determinant factors across four investor countries.     

Foreign direct investment,financial development and economic growth

This article argues that the development of the financial system of the recipient country is an important precondition for FDI to have a positive impact on economic growth. A more developed financial system positively contributes to the process of technological diffusion associated with FDI. The article empirically investigates the role the development of the financial system plays in enhancing the positive relationship between FDI and economic growth. The empirical investigation presented in the article strongly suggests that this is the case. Of the 67 countries in data set, 37 have a sufficiently developed financial system in order to let FDI contribute positively to economic growth. Most of these countries are in Latin America and Asia.     

Capital and Labour Mobility and their Impacts on Mexico's Regional Labour Markets

Abstract

This paper studies the effects of capital and labor mobility on real wages across Mexican states for the period 1997–2006. Employing dynamic panel data methods, we find: (1) strong positive effects on real wages from foreign direct investment (FDI) and from migration; (2) domestic and foreign migration provide similar wage effects; and (3) alternative partitions indicate that real wages are more sensitive to FDI-related fluctuations across states with relatively lower wages and migration levels. Overall, these results provide support that real wages respond positively to fluctuations in capital flows and labour movements as predicted from the theory.     

MNE Affiliation,Firm Size and Exports Revisited: A Study of Information Technology Firms in India

In this study we argue that the export performance of affiliates of multinational enterprises (MNEs) in developing countries is determined differently from that of licensees of foreign firms or of domestic firms. Our empirical results for the information technology sector in India show that exports of MNE affiliates are greater when they have larger foreign equity stakes that bring more tacit knowledge transfer and complementary FDI advantages and when they import more explicit technology from the purchase of licences. Standard export determinants such as firm size and capital intensity do not matter for MNE affiliates, but they do for licensees and domestic firms.     

The ownership advantage in Latin American FDI: A sectoral study of us direct investment in Mexico

This article develops a model which tests the hypothesis that sectoral FDI flows from the United States to Mexico over a four‐year period can be explained by the ownership advantages of US multinationals. Theoretical developments in the concept of ‘ownership advantage’ are used to guide the formulation of the research. The findings suggest that direct investment into US MNEs’ affiliates in Mexico is driven by benefits derived from embedded human knowledge, technology‐embodied advantages, and possibly from scale advantages. Local R&D is negatively associated with FDI.     

Domestic actors and liberalization: a case study of internal and external pressures in Moi's Kenya

The diffusion of political and economic liberalization to countries all across the world over the last 30 years has raised questions about the influence of domestic and international actors. Most scholars have given credit to international actors such as the USA, Western European countries, the International Monetary Fund (IMF), and the World Bank for the spread of liberalization or any political openness and/or market-oriented reform. Their external-actors-focused explanations have been almost exclusively at the expense of domestic actors. They have essentially viewed domestic actors as simply receivers of liberalizing change or incapable of initiating reform. As a result, international development policies and programs have tended to focus on what these external actors can do to force other countries to liberalize. While recognizing the influence of these external actors, this article reverses this emphasis and notes that the focus should be on internal actors and factors, primarily social movements/groups and opposition political polities that are agitating for reform. This article is a case study on Kenya that shows how domestic factors and actors pressured the Moi government to embrace reform starting in the 1980s.     

Aid and Resource Mobilisation in Sub-Saharan Africa: the Role of Reverse Flows

This article seeks to ascertain the role of ‘reverse flows’ in explaining the observed limited impact of aid on resource mobilisation in Sub-Saharan Africa. It departs from the previous empirical literature on aid and resource mobilisation by abandoning the pervasive, but untenable, assumption that aid either displaces domestic saving (increases consumption) or increases investment. Some aid is, in fact, used to finance reverse flows (debt servicing, capital flight, and reserve accumulation). The evidence suggests that, for the period covering 1980 to 2006, nearly 50 per cent of aid to Sub-Saharan African countries was used to finance reverse flows.     

Corruption,Privatisation and Economic Growth in Post-communist Countries

Abstract

This article empirically investigates the effects of corruption and privatisation on economic growth in the post-communist countries of Central and Eastern Europe and the former USSR. We use a corruption and privatisation augmented open-economy leader–follower endogenous growth model to derive our research hypotheses. In this setting, corruption, privatisation and external openness jointly determine the per capita income in the follower economy. This model predicts that economies with higher shares of private ownership, lower corruption, and higher external openness enjoy higher rates of growth. Our empirical verification of these predictions is based on a panel of 29 post-communist countries during the period 1996–2014. Our estimation results confirm the negative effects of corruption, while the positive effects of privatisation are limited to small-scale privatisation.     

The Impact of Socio-Political Integration and Press Freedom on Corruption

The analyses in this study demonstrate a more nuanced understanding of a previously understood phenomenon – that openness has a negative relationship with corruption. It is argued that this relationship is substantially influenced by the domestic context, a relationship that has been underdeveloped by previous empirical studies. Focusing on social and political integration, I find that the effect of openness on corruption is conditioned by domestic institutions. The empirical evidence suggests that while political and social openness have a significant impact in combating corruption given a free press, the impact of such international forces are negligible in cases where press freedoms are low.     

The Long-run Relationship between Outward Foreign Direct Investment and Total Factor Productivity: Evidence for Developing Countries

Outward foreign direct investment (FDI) from developing countries has been growing significantly in both absolute and relative importance in recent years. Nevertheless, there is surprisingly little research on the home-country effects of outward FDI for these countries. This paper examines the long-run relationship between outward FDI and total factor productivity for a sample of 33 developing countries over the period from 1980 to 2005. Using panel co-integration techniques, we find that outward FDI has, on average, a robust positive long-run effect on total factor productivity in developing countries and that increased factor productivity is both a consequence and a cause of increased outward FDI.     

The Role of FDI,Exports and Spillover Effects in the Regional Development of China

The objective of this analysis is to assess the impacts of export expansion, inward FDI, domestic investment and labour on the growth of China's Eastern, Central and Western regions using panel data over the period 1984 to 1998. A major contribution of the study is its tests for the presence of interregional spillover effects. The study indicates that both inward FDI and domestic investment stimulate growth in all three regions and for the PRC as a whole and that export expansion stimulates the growth of the PRC, Eastern and Central China, but not the West. Labour enhances the growth of the more traditional Western region, but not the more capital intensive Eastern seaboard or the PRC in its entirety. Finally, output growth spills over from the East to Western and Central China and from the Central area to Western China. These results are fully explained in the text.     

Foreign Direct Investment and economic transition: Panacea or pain killer?

This article sets out to make an assessment of the relationship between Foreign Direct Investment (FDI) and economic growth in transition countries through a review of the empirical record to date. The first part reviews the phases of transition in combination with policy efforts to attract FDI. In the second part, different growth studies across levels of analysis are juxtaposed to better understand the overall growth impact of FDI in transition countries. Since foreign firms have a large direct effect on performance at the level of the firm it is often assumed that they automatically contribute to the economic growth of host countries. The missing link in this discussion is the concept of ‘trickle down’. Superior direct effects in terms of productivity and profitability are hypothesised to trickle down to the host country both as spillovers, or catalysing effects on local firms, and through the expected increase in income that such direct and indirect effects in combination will generate through labour income and taxes. The review shows that such trickle down effects are quite fragile in terms of being demonstrated to exist in transition countries. Combined with widespread usage of tax holidays, subsidies and acquisition discounts, it is not certain that positive direct effects equate with economic growth in these countries.