The Impact of Foreign Direct Investment (FDI) Inflows on Economic Growth in Barbados: An Engle-Granger Approach

The purpose of this article is to look at the impact of foreign direct investment (FDI) inflows on economic growth in Barbados in the long and short run from 1979 to 2008 with the use of the Engle-Granger two-step procedure. The study shows that in the long run, a 1 percent increase in FDI inflows will expand economic growth by 0.10 percent while in the short run, the relationship between FDI and economic growth will be positive but almost flat. These results imply that any policy by Government aimed at boosting economic growth using FDI inflows will have to be considered for the long run since Government could not rely on FDI inflows in the short run.     

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.     

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.     

How EU Integration and Legacies Mattered for Foreign Direct Investment into Central and Eastern Europe

This essay uses the case of foreign direct investment (FDI) in Central and Eastern Europe to stipulate how European Union (EU) integration affected the economic globalisation of the post-socialist region. Existing studies argue that expectations of impending EU membership had a direct effect on raising FDI inflows because they reduced perceived investment risks for potential investors. In contrast, I show that the EU accession process worked through an indirect effect on FDI: it influenced post-socialist states' efforts to promote FDI as a desirable strategy of economic development and the behaviour of firms. These state efforts, in turn, increased FDI inflows, net of conventional risk and return factors. Further analyses indicate that decisions about state FDI-promotion have been influenced not only by EU conditionality but also, and importantly, by particular legacies, namely the countries' initial choice of privatisation strategies, extent of reform during socialism and history of state sovereignty. Overall, the results suggest that EU integration and legacies of the past shape both the structural and the ideational context for domestic decision-making elites in Central and Eastern Europe, and may act not only as constraints but also as enabling conditions facilitating the global economic integration of the region.     

Openness and the International allocation of foreign direct investment

This paper develops an ordinal index to measure the openness of FDI policy regimes for individual countries. There has been a generalised increase in the index between 1990 and 2002. The most important determinants of variations in FDI flows across countries and over time are country size, the level of educational achievement, and growth. The openness index is positively associated with FDI flows, but its explanatory power is low. Liberalising approval procedures and lifting requirements that foreign companies enter into joint ventures with domestic firms encourage FDI. We conclude that the openness of the FDI regime operates as a factor enabling FDI, but that location advantages are paramount in determining the international allocation of FDI. We also turn the question around and ask what countries are more likely to impose restrictions on FDI. We find that lower levels of education and larger domestic markets are associated with greater restrictions on FDI. In addition, there is some evidence that better institutions are associated with lower FDI restrictions.     

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.     

Government regulations and FDI: a historical perspective of mexico

This article analyzes the development of foreign investment regulations and their impact on FDI flows in Mexico. The study covers the evolution of sectoral and aggregate investment patterns from the independence period to the 1994 Peso crisis and its aftermath. The pattern followed by FDI in Mexico has paralleled the transformation of the Mexican economy itself, focusing initially on the extractive and agricultural sectors, then on manufacturing activities, and recently on the services sector. Mexico has continuously reformed and modernized its regulatory system in order to adapt to internal political changes and changes in the world economic environment. Recent economic reforms and liberalization of FDI regulations have had a major positive impact on capital inflows, but more needs to be done, especially in the area of financial services in order to achieve a higher level of economic efficiency and to prevent financial breakdowns like the one experienced in 1994.     

Innovation and growth in traditional agriculture of the lower Volta,Ghana

This article addresses the important question of whether foreign direct investment enhances economic growth and labour productivity in Mexico, both from a theoretical and empirical perspective. After briefly reviewing the Mexican experience with net FDI inflows during the 1990s, the article presents a simple endogenous growth model which explicitly incorporates any positive (negative) externalities generated by additions to the foreign capital stock. Using cointegration analysis, the article estimates a dynamic labour productivity function for the 1960-95 period that includes the impact of the growth rate in the stocks of both private and foreign capital (as opposed to the flows) and the economically active population (EAP) (rather than the rate of population growth). The error correction model (ECM) estimates suggest that increases in both private ad (lagged) foreign investment spending, as well as the rate of growth in exports, have a positive and economically significant effect on the rate of labour productivity growth. In addition, the results show that increases in the EAP have a negative and statistically significant effect on the rate of labour productivity growth, while changes in the government consumption variable have a negative but marginally significant impact. The error correction terms of the estimated models are negative and statistically significant, thus suggesting that deviations of actual labour productivity growth from its long-run value are corrected in subsequent periods. Finally the article generates historical simulations from the estimated ECM's and offers some policy recommendations to enhance the positive externalities associated with FDI inflows.     

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.     

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.     

The importance of geopolitics in firms' international location decisions: The Polish case

Despite connections and common traits between geopolitics and International Business based on geography and location, literature on this matter is scarce. This study aims to contribute to this literature gap, by assessing the importance of Poland's geopolitical factors in FDI location decisions. By applying a hybrid methodology which combines qualitative and quantitative analyses we conclude that there is a connection between Poland's geopolitical factors (stable, variable and interactional) and the volume, origin and distribution of the FDI received.     

Aid Absorption and Spending in Africa: A Panel Cointegration Approach

This article focuses on the macroeconomic management of large inflows of foreign aid. It investigates the extent to which African countries have coordinated fiscal and macroeconomic responses to aid surges. In practice, we construct a panel dataset to assess the level of aid ‘absorption’ and ‘spending’. This article departs from the recent empirical literature by utilising better measures for aid inflows and by employing cointegration analysis. The empirical short-run results indicate that, on average, Africa's low-income countries have absorbed two-thirds of (grant) aid receipts. This suggests that most of the foreign exchange provided by the aid inflows has been used to finance imports. The other third has been used to build up international reserves, perhaps to protect economies from future external shocks. In the long run, absorption increases but remains below its maximum. Moreover, we also show that aid resources have been fully spent, especially in support of public investment. There is only weak evidence that a share of aid flows have been ‘saved’. Overall, these findings suggest that the macroeconomic management of aid inflows in Africa has been significantly better than often portrayed in comparable exercises. The implication is that African countries will be able to efficiently manage a gradual scaling up in aid resources.     

Policy responses to capital inflows: lessons from mexico

This paper has two basic objectives. The first is to examine the impact large inflows of foreign capital have on the economies of developing countries. This is important because international investment in many “emerging” markets has increased rapidly, particularly since 1990. The second objective is to explain Mexico's recent (1994-95) currency and financial crisis and to assess the role large capital inflows (and outflows) played in these events. In general, the paper concludes that the Mexican crisis was a direct outgrowth of the large inflows of foreign portfolio investment that followed the announcement of the NAFTA in early 1990. But while these capital inflows served as the catalyst, the policy responses adopted by the Mexican authorities to deal with these flows bear the ultimate responsibility for the crisis. Accordingly, this paper reviews the most common alternatives for redressing the effects of capital inflows on the recipient's economy and balance of payments, and uses Mexico's recent experience to draw general lessons for countries that encounter similar situations in the future.     

Do double taxation treaties increase foreign direct investment to developing countries?

Developing countries invest time and other scarce resources to negotiate and conclude double taxation treaties (DTTs) with developed countries. They also accept a loss of tax revenue as such treaties typically favour residence-based over source-based taxation and developing countries are typically net capital importers. The incurred costs will only pay off if developing countries can expect to receive more foreign direct investment (FDI) in return. This is the first study to provide evidence that developing countries that have signed a DTT with the US or a higher number of DTTs with important capital exporters actually do receive more FDI from the US and in total. However, DTTs are only effective in the group of middle-, not low-income developing countries.     

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.     

The personal and the factor distributions of income in a cross-section of countries

The shares of capital and labour in national income vary substantially both over time and across countries. This paper shows that the factor distribution of income is an essential determinant of the personal distribution of income. We use cross-country and panel data for a group of developed and developing countries to show that a larger labour share is associated with a lower Gini coefficient of personal incomes. This effect is not only statistically significant but also economically important. An increase in the labour share in Mexico to that observed in the US would reduce the Gini coefficient of the former by between two and five points.     

Migrants’ Remittances and Home Country Elections: Cross-National and Subnational Evidence

Elections in developing countries have increasingly become international events. Previous scholarship identifies many examples in which migrants from developing countries have played a role in financing elections in their home countries and provides cross-national evidence that migrants increase remittances in election years. However, previous cross-national analyses have been limited by their reliance on annual national-level data. This article provides statistical analyses of quarterly subnational data of remittance inflows to Mexican states and new monthly national-level data on remittance inflows for nine countries. These analyses demonstrate that political remittance cycles appear in the quarter prior to an election, can exist both for national and subnational elections, and are influenced by both economic conditions in migrants’ host countries and political conditions in their home countries.     

Globalization and private capital movements

This paper examines the power topography of international private capital movements with specific reference to FDI and portfolio equity flows. A number of important development conclusions emerge from the paper. There exists little relationship between incomes and levels of FDI participation, although developed and resource-endowed economies have received greater inflows. While greater liberalization from the mid-1980s has stimulated the explosive growth of portfolio equity capital flows, it has also exposed developing economies to serious systemic risks. Contrary to neoliberal arguments, developing economies that have managed to utilize FDI effectively and to prevent systemic volatility generated from portfolio capital movements from seriously destabilizing them, have generally relied on effective governments. Inter-country economic development has become increasingly unequal in the period 1980-97. While the material conditions of the majority of developing economies have improved, those located in Africa and South Asia in particular have remained seriously disadvantaged.     

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.     

What matters the most in curbing early COVID-19 mortality? A cross-country necessary condition analysis

COVID-19 represents a turbulent problem: a volatile, uncertain, complex, and ambiguous crisis, in which bounded-rational policymakers may not be able to do everything right, but must do critical things right in order to reduce the death toll. This study conceptualizes these critical things as necessary conditions (NCs) that must be absent to prevent high early mortality from occurring. We articulate a policy-institution-demography framework that includes seven factors as NC candidates for high early COVID-19 mortality. Using necessary condition analysis (NCA), this study pinpoints high levels of a delayed first response, political decentralization, elderly populations, and urbanization as four NCs that have inflicted high early COVID-19 mortality across 110 countries. The results highlight the critical role of agility as a key dimension of robust governance solutions—a swift early public-health response as a malleable policy action—in curbing early COVID-19 deaths, particularly for politically decentralized and highly urbanized countries with aging populations.