Browsing by Subject "Foreign direct investment"

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An equilibrium model of 'global imbalances' revisited
(2011) Körner, Finn Marten
?Global imbalances? are almost universally regarded as a disequilibrium phenomenon. Caballero, Farhi, and Gourinchas (2008) challenge this notion with their dynamic general equilibrium model of global imbalances. The authors conclude that current account deficit nations need not worry about long-lasting deficits as long as the model is in equilibrium. The joint model in this paper combines the two model extensions for exchange rates and FDI which are disjunct in the original model. An analytical solution to the new joint model is neither as straightforward as for the separate models nor can previous results from calibrated simulation be confirmed without restriction. The model is highly dependent on parameter assumptions: A variation of calibrated parameters highlights the prime impact of investment costs previously assumed away. Sustainable equilibrium paths for global imbalances are much narrower in updated simulations than previously predicted. Policy recommendations on the sustainability of international debt holdings therefore need to be a lot more cautious.
Reforms and foreign direct investment : possibilities and limits of public policy in attracting multinational corporations; a multiple case study of Romania and Croatia
(2009) Zühlke, Dietmar; Belke, Ansgar
I. Introduction: This thesis analyzes the impact of reforms in Romania and Croatia on the inflow of Foreign Direct Investment (FDI) by German and Austrian Multinational Corporations (MNCs). The research questions are: (1) What role can public policy play in transition countries in attracting FDI, (2) what influence does public policy in transition countries have on the investment decision of MNCs, (3) how successful have investment policies been in Romania and Croatia, (4) what influence do different political actors have on FDI, and (5) what can be learnt from a cross-country analysis? II. Theoretical approach: This dissertation is based on two theoretical pillars: The theory of locational competition is well-suited to analyze both perspectives of potential investors and state actors. Furthermore, it includes the consideration of interdependences of different determinants as well as of trade-offs of political measures and decisions. The NIE is well-suited to categorize FDI measures and to analyze actions and time constraints of individual actors. III. Methodological approach: The analysis is focused on FDI in Romania and Croatia. It follows the case study approach and is based empirically on expert interviews. The analysis of Romania and Croatia is rewarding in particular since both countries belong to the most important FDI recipients of South East Europe and have not been analyzed in this combination so far. The qualitative analysis allows drawing country-comprehensive conclusions and can demonstrate to what extent EU candidate countries can learn from new EU member states. The case study approach enables the use of different types of sources and is open to the consideration of different research disciplines. The author conducted 90 expert interviews. Interviewees were on investors as well as state representatives. The transcript protocols comprise more than 400 pages and the consolidated case study database contains more than 6,700 expert statements. Furthermore 40 state and company documents were evaluated with a total of over 1,900 pages. IV. Key research results: The interview analysis leads to a definition of three dimensions of legal, economic and political determinants that comprise a total of 14 determinants and 29 sub-determinants. The subsequent analysis of the determinants allows answering the research questions above. (1): Political determinants are of key importance of the inflow for FDI into transition countries. States have to provide a minimum quality level for certain determinants in order to be considered as potential investment location at all (e. g. regarding property rights). (2): The analysis of the 29 sub-determinants shows that FDI is influenced by a multitude of determinants. They are considerably dependent on the perception of the MNCs. The most important determinants for transition countries are privatization, EU integration, internal political stability, property law, regional differences in bureaucracy, and the country image. (3) Romania did not start until the end of the 1990s and did not accelerate until 2004. Today Romania benefits, amongst other things, from a sound legal system and a liberal company registration. An important remaining problem is the weak infrastructure. Croatia started gradual reform after the death of Tudman. The political and economic stability as well as the positive country image represent important pull factors for FDI in Croatia. Property law constraints and bureaucratic obstacles are remaining investment barriers. For transition countries in general the removal of bureaucratic hurdles (such as registration times) as well as the reduction of uncertainties appears to have the greatest impact on FDI. MNCs then even seem to accept somewhat higher costs (e. g. for simple customs procedures). The ?race to the bottom? that is often worried about seems less realistic than a ?race for quality?. (4): 6 groups of state actors were identified who influence the inflow of FDI: central government and authorities, local governments and authorities, courts, and the EU. It was that central governments are the most influential actors group overall. Local authorities are of particular importance for follow-up investments. (5): The catching up of Romania in recent years has turned this country into a role for EU accession candidates in different areas (e. g. regarding the reforms of the local bureaucracy). Croatia?s reforms were less speedy due to the impact of the war and ? to some extent ? because it relied too much on its high living standards. The accession process will be an important vehicle for Croatia ? even more than for Romania ? in order to overcome the remaining deficiencies.
Trade integration, global capital flows and the link to institutional quality from a North-South perspective
(2020) Schneider, Sophie Therese; Jung, Benjamin
This doctoral thesis is a cumulative dissertation containing three essays. In the first essay, I create a panel data set of North-South preferential trade agreements (PTAs) building on the comprehensive database on the design of trade agreements (DESTA). I analyze the effects of the depth and number of PTAs signed on the quality of institutions in developing countries, the global South, measured as the political risk component investment profile of the ICRG database. I show that the system GMM is the appropriate estimator to apply for my empirical analysis to account for various sources of endogeneity. I show that signing deep North-South PTAs positively affects institutions in the South. The results differ with respect to the type of agreement and region. The second essay deals with the determinants of PTAs focusing on institutional distance as a driving factor and regarding PTAs as an instrument to compensate for missing institutions. I argue that the effect of institutional distance is specifically important (1) in a North-South trade relationship where institutional distance is particularly large and (2) if countries trade a large share of contract-intensive goods. For this analysis I create a panel data set including a large number of developing countries and a variable to measure the difference of the share of bilateral contract-intensive exports and show that a linear probability model for discrete choice panel data is a suitable estimator to be used. I address endogeneity using an instrument variable (IV) approach. I show that institutional distance promotes the formation of PTAs. Comparing this effect for North-North, North-South, and South-South country pairs reveals that the positive effect of institutional distance on the probability of PTA formation is specifically high for the formation of North-South PTAs. Furthermore, I find that the effect is nonlinear and that trading contract-intensive goods reinforces the positive effect of institutional distance for the formation of North-South PTAs and may offset negative effects. Robustness checks with regard to the underlying sample reveal that the effect of institutional distance is driven by North-South relationships involving the EU. Essay 3 is dedicated to global investment flows and aims at deriving a global model to determine the factors of foreign direct investment (FDI) by considering investment flows between and within North and South. We empirically estimate and assess global FDI models, namely the gravity and knowledge capital (KK) model, based on the new CDIS data set by the IMF, which includes a large number of developing and transition countries. This allows us to detect potential vertical motives for FDI and to address the global trend of increasing FDI from and to the global South. We find the gravity model to achieve the best theory-consistent out-of-sample prediction, particularly when parameter heterogeneity of South and North FDI is allowed for. Controlling for surrounding market potential is important to recover the horizontal effect of the gravity model. Including institutional, cultural, or financial factors does not improve the model performance distinctly although results for those variables are mostly in line with theory.