Regional integration and foreign direct investment : a conceptual framework and three cases

The authors discuss how regional investment agreements may affect the inward and outward flows of foreign direct investments in the integrating region. After describing the multidimensional character of the issue, they provide a conceptual framework for analysis as well as three case studies focused on different kinds of regional integration: (1) North-North integration (Canada joining the CUSFTA); (2) North-South integration (Mexico's accession to NAFTA); and (3) South-South integration (MERCOSUR). They conclude that the response to an integration agreement will, in each case, depend on the environmental change brought about by the regional investment agreements, the locational advantage of the country or region, the competitiveness of local firms in the integrating region, and the motives for foreign direct investment in and by the country or region in question. The creation of the Canada-U.S. Free Trade Agreement (CUSFTA), for example, had relatively little influence on direct investment patterns in Canada, since much of the trade between Canada and the United States had been liberalized long before the CUSFTA was established. By contrast, the Mexican accession to NAFTA brought about significant policy changes, which helps to explain foreign multinationals'increasing interest in the country. Similarly, the establishment of the MERCOSUR Common Market is likely to significantly affect the region's policy environment, which suggests that it may have a notable (although varying) impact on foreign direct investment in the four member countries.Economic Theory&Research,Environmental Economics&Policies,International Terrorism&Counterterrorism,Payment Systems&Infrastructure,Labor Policies,Trade and Regional Integration,Environmental Economics&Policies,TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT,Economic Theory&Research,International Terrorism&Counterterrorism

Impact of Foreign Direct Investment on Tax Revenue: The Case of the European Union

CC BYForeign direct investment (FDI) is an extremely important factor that promotes national competitiveness and economic development through technology transfer, new management skills, foreign trade, corporate productivity, etc. This study aims to analyze the significance of FDI and its impact on tax revenue and competitiveness, focusing on the European Union (EU) economy. An empirical analysis is conducted to determine the relationship between inward and outward FDI and tax revenue by employing data on EU countries between 1999 and 2019. The data were extracted from the United Nations Conference for Trade and Development (UNCTAD) database and the World Development Indicators database (WDI) of the World Bank. To fulfill the objective of this study and to determine the effect of FDI on tax revenue, an econometric model was developed. The research methods include systematic and comparative analysis of scientific literature, panel data analysis, and multiple regression analysis. The regression analysis was based on the least-squares method, and the estimates of the econometric models were calculated by identifying robust heteroscedasticity-consistent standard errors. The study results reveal that the outward FDI has a significant stimulating impact on total tax revenue. In contrast, inward FDI has a dampening effect on tax revenue. The analysis of the lagging effect of FDI on tax revenue in the EU member states revealed a statistically significant lagging impact of the outward FDI made two years before. The estimations indicate that the lagging effect is an incentive. No statistically significant lagging effect of the inward FDI flows on tax revenue was found

THE HOME COUNTRY EFFECTS OF FDI IN DEVELOPED ECONOMIES

This paper surveys the effects of outward foreign direct investment on the developed home countries of multinational corporations. The focus is on the production interactions arising from outward investment – what is the impact on home country exports and production structure – but the paper also discusses effects on investment, the balance-of-payments, technology and knowledge, and political decision-making in the home country. The main conclusion is that outward FDI is beneficial to the investing firm, but that the effects on the home country vary depending on the characteristics of the investment project and the business environment in the home and host countries. In most cases, there is only a small impact on total exports and production in the developed home countries, but the net effect on employment may be mildly negative. This is related to a shift in production structure, whereby labor intensive activities are outsourced to host countries with lower wage levels, and more advanced operations are kept at home. Most home countries encourage outward investment, but the fear for negative effects (particularly on the balance-of-payments) has at times motivated restrictions on FDI. The final part of the paper discusses effects on developing home countries, and notes that these are likely to coincide with the effects on developed home countries. One exception is technology-sourcing investments, which may be more important than in developed home countries, and which may, at least in theory, provide an alternative to inward FDI as a source of technology for the more advanced developing economies.FDI; MNCs; home country effects

Technological competitiveness, trade and foreign direct investment

This paper seeks to assess the importance of country-level determinants in affecting the international competitiveness of a country, defined both by export shares and shares in FDI, within a common framework based on a neo-Schumpeterian approach which regards technology as playing a central role in competitiveness. The relationships are tested with data for 40 developing and industrialised countries, and country determinants are found to play a similar role in explaining both inward and outward investment and exports. However, the explanatory power of the model varies over countries, explaining almost all the variation in competitiveness of the developing countries and a much lower proportion of the variation for industrialised countries. Technological capabilities, and the level of development of the country, are found to be two of the key determinants of competitiveness. We conclude that country determinants are equally effective in explaining both trade and FDI, but that in the case of industrialised countries there are additional factors, such as firm specific competitive advantages, which are not related to country-specific characteristics, and are important determinants of competitiveness.economics of technology ;

The Impact of Foreign Direct Investment on the Economic Growth and Countries’ Export Potential

Most of the FDI specialists think that FDI had a positive impact upon the economic growth in the receiving countries. They showed that it was a direct relation between the FDI flows (as percent of the GDP) and the growth of GDP per capita not just for the developed countries, but also for most of the developing countries. In this way, the countries that had attracted an important FDI volume had the highest economic growth rates. Since the early '60s of the 20th century, the times with the most intense foreign investment activities had coincided with a sudden increase in the macroeconomic indicators (especially the GDP). Because the economic science proved that there was a direct connection between the FDI volume and economic growth rates, the IMF and the World Bank started to recommend to all countries (recommendation that they make currently) to create favorable conditions to attract FDI for ensuring, in this way, high development rates. The countries in transition need FDI not just to produce more goods and a higher quality. Foreign capital investments are the most efficient and safe way to integrate into the world economy. Concluding, only direct foreign investments would allow the re-specialization of the economy to surpass the situation of maintaining on the world markets only with food products and raw materials. Indeed, the acquired experience shows that FDI substantially enhanced the national economies’ re-specialization processes all over the world. The authors share the opinion of those specialists who affirm that FDI plays a determinant role in respecializing the transition economies and in increasing the export potential. Also, FDI growth leads to increase in the manufactured production quantity. Further, we shall examine some structural changes which occurred under the influence of FDI in the economies of new European Union member states (the Czech Republic, Estonia, Hungary, Lithuania, Latvia, Poland, Slovakia, and Slovenia) and in South-East Europe, drawing also the attention upon the changes in the export potential of those countries.foreign direct investment, exports competitiveness, multinational companies, economic growth

Knowledge Spillovers and Entrepreneurs’ Export Orientation

We draw on knowledge spillover literature to suggest that a country’s level of foreign direct investment (FDI) and international trade may influence the export orientation of its entrepreneurs, which in turn may relate to the country’s total level of entrepreneurial activity. Macro-level data from 34 countries during 2002–2005 indicate that a country’s outward FDI, export, and import positively affect entrepreneurs’ export orientation, but these effects differ in how fast they manifest themselves. Furthermore, the extent to which a country’s entrepreneurs engage in export-oriented activities affects the subsequent emergence of new businesses. These findings have important implications for research and practice.Export orientation;Knowledge spillovers;Country-level entrepreneurship

Knowledge spillovers and entrepreneurs' export orientation

In this paper we draw upon the economics literature, and the literature on knowledge spillovers in particular, to examine to what extent a country's level of foreign direct investment (both inward and outward) and international trade (export and import) influence the export orientation of its entrepreneurs. We also examine the relationship between entrepreneurs export orientation and a country's overall level of entrepreneurial activity. We test our hypotheses using macro-level data on 34 countries over a four year time period (2002-2005). We find that a country's outward foreign direct investment as well as its export and import positively influence entrepreneurs export orientation. We also find that the extent to which a country's entrepreneurs engage in export-oriented activities affects the subsequent emergence of new businesses within the country's borders. We discuss our findings, and point to the study's implications, limitations and future research possibilities.

EXPANDING DEVELOPING COUNTRIES´ EXPORTS IN A GLOBAL ECONOMY THE NEED TO EMULATE THE STRATEGIES USED BY TRANSNATIONAL CORPORATIONS FOR INTERNATIONAL BUSINESS DEVELOPMENT

World exports have expanded considerably during the past three decades. Developed countries gained more than other countries from this increase because of the strategies adopted by their transnational corporations (TNCs). The strategies of TNCs for international business emphasizes key elements for strengthening the competitiveness of enterprises, especially technology creation and outward foreign direct investment (FDI) to access resources and markets. Most export promotion and development activities carried out by export-oriented enterprises in developing countries contribute little to boosting and upgrading their exports because these activities are based on concepts - basically free trade, comparative advantage and interrelated concepts - that do not capture the driving forces for trade development in today’s global economy. Proponents of almost total trade liberalization and of a limited role of the State in the economy nevertheless overstate the importance of these concepts when advising developing countries on trade strategies. This ideological consideration benefits mainly developed countries’ TNCs, which now dominate world trade. To obtain greater benefits from an outward-oriented development strategy, policy makers in developing countries should support export-oriented enterprises emulating TNCs’ strategies for international business.