The Positive Causal Impact of Foreign Direct Investment on Productivity: A Not So Typical Relationship

Previous research has argued that foreign direct investment (FDI) exerts a positive and causal impact on the productivity of the recipient countries. However, we find that there is little macroeconomic evidence that FDI fosters productivity growth in recipient countries, including in those with high absorptive capacity, once we use an instrumental variables (IV) estimator robust to outliers.Foreign Direct Investment, Productivity, Robust Regression.

Who Ultimately Bears the Burden of Greater Non-Wage Labour costs?

We investigate the effect of a rise in non-wage labour costs (NWLC) on real manufacturing labour costs in OECD countries, taking into account the degree of coordination in the wage bargaining process. We find that, in countries in which wage bargaining is not highly coordinated, 55% of an increase in NWLC appears to be shifted to workers in the long run, whereas in countries operating under a highly coordinated bargaining regime, full shifting occurs. Overall, our results suggest that high NWLC can be associated with a high equilibrium unemployment rate, but only in those OECD countries that do not have highly coordinated wage bargaining.labour costs, tax wedge, wage determination, bargaining coordination

Public Governance, Health and Foreign Direct Investment in Sub-Saharan Africa

Using 1985-2004 yearly panel data for 70 developing countries, including 28 from Sub-Saharan Africa (SSA), the paper finds that once market size is accounted for, SSA's FDI deficit with other regions of the world is mainly explained by the insufficient provision of public goods: relatively low human capital accumulation, in terms of education and health in SSA. Based on additional cross-sectional data, the paper finds that in the absence of HIV and malaria, net FDI inflows in the median SSA country could have been one-third higher during 2000-2004, with slightly more than one-half of this deficit explained by malaria.Public Governance, Foreign Direct Investment, Health

Short-run strategies for attracting Foreign Direct Investment

This paper empirically investigates the effectiveness and feasibility of two FDI policies, fiscal incentives and deregulation, aimed at improving the attractiveness of a country in the short run. Using disaggregated data on sales by US MNEs’ foreign affiliates in 43 developed and developing countries over the 1982-1994 period, results show that the provision of fiscal incentives or the deregulation of the labour market would exert a positive impact on total FDI. Given the drawbacks frequently associated with the use of incentive packages, economy-wide policies which ease firing procedures and reduce severance payments would certainly be the best policy option. This paper also highlights the different aggregation and omitted variable biases that have affected results of previous studies and provides some support to recent theoretical models of FDI by showing that third country effects and spatial interdependence influence respectively the location of export-platform FDI and vertical FDI.Foreign direct investment; fiscal incentives; regulations, market potential; spatial interdependence.

Institutional Quality and FDI to the South: An Analytical Approach

We ask whether MNEs’ experience of institutional quality and political risk within their “home†business environments influences their decisions to enter a given country. We set out an explicit theoretical model that allows for the possibility that firms from South source countries may, by virtue of their experience with poor institutional quality, derive a competitive advantage over firms from North countries with respect to investing in destinations in the South. We show that the experience gained by such MNEs of poorer institutional environments may result in their being more prepared to invest in other countries with correspondingly weak institutions.foreign direct investment, multinational enterprises, institutional quality

Public governance as a key determinant of FDI : a comparative analysis of sub-saharan Africa and south-east Asia host countries

The World Bank (2000), in its report on Quality of Growth emphasises the importance of public governance as the keystone of a country's development. Studies examining determinants of foreign direct investment (FDI) are also increasingly taking account of such fundamentals as institutional and political factors. Thus, rule of law, bureaucratic corruption, educational attainment or quality of physical infrastructure are now included in econometric analyses next to more common variables such as market size, labour costs or trade openness. In other words, good governance appears to be a key condition for attracting FDI. For instance, Lehmann (1999), shows that a country like India could increase its share of US affiliates' physical investment by 50% if it were to eliminate all political uncertainty. For a developing country, the stakes for improving its public governance are high. Beyond an increase in its growth rate, a favourable business climate is likely to attract more FDI and enhance their alleged spillovers. More FDI means more financial resources for the host country, whereas it is likely that the technological intensity of these investments and the transfer of foreign know-how to domestic firms will largely depend on the quality of public governance. This article has three goals. First, to clarify why public governance is likely to influence FDI inflows. Second, to propose a new evaluation of public governance through the construction of quantitative, relatively objective, easily replicable and sample-specific indicators. The public governance of two geographic zones will be assessed through this method: Sub-Saharan Africa (SSA) and South-East Asia (SEA). As shown in table 1.1, the former attracts much less FDI than the latter. Third, to test econometrically whether public governance explains the diverging abilities of SSA and SEA to attract FDI

How do epidemics induce behavioral changes?

This paper is concerned with the impact of epidemics on economic behavior, and in particular on fertility and schooling. Special attention is paid to the fertility eect, which has been at the heart of a recent controversy around the AIDS crisis. An illustrative model is proposed where agents choose labor supply, life-cycle consumption and the number of children. We show that the optimal response in terms of fertility and labor supply to an epidemic shock depends on the relative strength of two forces at work, deriving from: (i) the induced decrease in the survival probability, and (ii) the impact of epidemics on wages. A comprehensive empirical study is then proposed to disentangle the latter eects in the HIV/AIDS and malaria cases. Using data from 69 developing countries over the period 1980-2004, we nd that HIV/AIDS has a robust negative eect on fertility and a robust positive eect on education, while opposite results are found in the case of malaria. We argue that this discrepancy can be attributed to a sizeable wage eect in the AIDS case while such an eect is rather negligible under malaria at least in the short term, as higher malaria prevalence depresses wages in the long term.

How do epidemics induce behavioral changes ?

This paper develops a theory of optimal fertility behavior under mortality schocks. In a 3-periods OLG model, young adults determine their optimal fertility, labor supply and life-cycle consumption with both exogenous child and adult mortality risks. For fixed prices (real wages and interest rate), it is shown that both child and adult one-period mortality shocks raise fertility due to insurance and life-cycle mechanisms respectively. In general equilibrium, adult mortality shocks give risse to price effects (notably through rising wages) lowering fertility, in contrast to child mortality shocks. We complement our theory with an empirical analysis on a sample of 39 Sub-Saharan African countries over the 1980-2004 period, checking for the overall effects of the adult and child mortality channels on optimal fertility behavior. We find child mortality to exert a robust, positive impact on fertility, whereas the reverse is ture for adult mortality. We further find this negative effect fertility of a rise in adult mortality to dominate in the long-term the positive effect on demand for children resulting from an increase in child mortality.fertility, mortality, epidemics, HIV

How do epidemics induce behavioral changes?

This paper develops a theory of optimal fertility behavior under mortality shocks. In a 3- periods OLG model, young adults determine their optimal fertility, labor supply and life-cycle consumption with both exogenous child and adult mortality risks. For fixed prices (real wages and interest rate), it is shown that both child and adult one-period mortality shocks raise fertility due to insurance and life-cycle mechanisms respectively. In general equilibrium, adult mortality shocks give rise to price effects (notably through rising wages) lowering fertility, in contrast to child mortality shocks. We complement our theory with an empirical analysis on a sample of 39 Sub-Saharan African countries over the 1980-2004 period, checking for the overall effects of the adult and child mortality channels on optimal fertility behavior. We find child mortality to exert a robust, positive impact on fertility, whereas the reverse is true for adult mortality. We further find this negative effect on fertility of a rise in adult mortality to dominate in the long-term the positive effect on demand for children resulting from an increase in child mortality.fertility, mortality, epidemics, HIV

Does Public Governance always Matter? How Experience of Poor Institutional Quality Influences FDI to the South

This paper investigates whether the higher prevalence of South multinational enterprises (MNEs) in risky developing countries may be explained by the experience that they have acquired of poor institutional quality at home. We confirm the intuition provided by our analytical model by empirically showing that the positive impact of good public governance on foreign direct investment (FDI) in a given host country is moderated significantly, and even in some cases eliminated, when MNEs have been faced with poor institutional quality at home.South-South FDI, public governance, institutions