When FDI Flows from Rich to Poor Countries: Do democracy and economic reform matter? CEPS Working Document, No. 251, 12 October 2006

Foreign direct investment (FDI) is an instrument of international capital flow and it also shares some features of international trade flows as it is often associated with intra-firm trade by multinational corporations. Combining features from both ‘growth-type’ and ‘gravity-type’ models, we argue that democracy and economic reform in emerging economies have a joint positive impact on FDI inflows from advanced countries. This effect of democracy and economic reform is robust even when the EU membership negotiations are taken into account. We conclude that the role of democracy and market-oriented reform is robust and widespread beyond European borders. On the other hand, our results can be interpreted as evidence that prospects of joining the EU acts as an anchor for the host country

Recensione del volume: Transition and Beyond, Estrin S., Kolodko G.W., Uvalic M. (eds.)

Review

Transition Without Accession. Effects of Differential Integration on Trade and Welfare in a European Perspective

In the past decade, we observed an acceleration of Western European integration, while the transition countries of Central Eastern Europe have not become members of the EU. In this paper, we conduct numerical simulations on the consequences of such a kind of differential integration within the European economic area with a spatial model of endogenous growth. Three main aspects are analysed: first, we look at the impact of inclusion in, or exclusion from, the EU on the localisation of "advanced" industries. Second, we consider the consequences for trade and capital flows (foreign direct investment) of the re-localisation of enterprises due to differential integration. Third, we analyse the welfare effects for insiders and outsiders from a dynamic viewpoint (that is, accounting for different growth regimes and transition). We find that, while outsiders always lose in welfare terms relative to insiders if transition is not accounted for, when transition is explicitely introduced it is possible for an outsider to perform better than the insiders. Hence, the model suggests that successful transition might provide a remedy against delayed accession to an integrated area.In the past decade, we observed an acceleration of Western European integration, while the transition countries of Central Eastern Europe have not become members of the EU. In this paper, we conduct numerical simulations on the consequences of such a kind of differential integration within the European economic area with a spatial model of endogenous growth. Three main aspects are analysed: first, we look at the impact of inclusion in, or exclusion from, the EU on the localisation of "advanced" industries. Second, we consider the consequences for trade and capital flows (foreign direct investment) of the re-localisation of enterprises due to differential integration. Third, we analyse the welfare effects for insiders and outsiders from a dynamic viewpoint (that is, accounting for different growth regimes and transition). We find that, while outsiders always lose in welfare terms relative to insiders if transition is not accounted for, when transition is explicitely introduced it is possible for an outsider to perform better than the insiders. Hence, the model suggests that successful transition might provide a remedy against delayed accession to an integrated area.Non-Refereed Working Papers / of national relevance onl

Pi\uf9 autonomia e pi\uf9 responsabilit\ue0: evitare un ritorno al centralismo nella scuola per favorire crescita e occupazione giovanile

Il capitolo fornisce una quantificazione dei benefici economici (e sociali) ottenibili dall\u2019Italia intervenendo sulla scuola secondaria al fine di migliorarne la qualit\ue0 ed i risultati. Individuati i fattori che, in base alla letteratura economica di riferimento, concorrono a determinare una migliore o peggiore performance del sistema scolastico, passiamo a rappresentare il livello e l\u2019andamento della performance del sistema scolastico italiano, cos\uec come messa in luce dai risultati dei test scolastici PISA condotti dall\u2019OCSE. Procediamo poi a valutare i margini di miglioramento possibili per le scuole italiane, allineando il sistema educativo italiano alle best practice in Europa: questo ci consente di stimare \u2013 con un modello di riferimento analitico - i benefici economici in termini di reddito e occupazione di sistema scolastico pi\uf9 efficiente

Political Regime and Vertical vs. Horizontal FDI

We introduce the effect of the political regime in a model of North-South bilateral foreign direct investment (FDI), and test whether it matters for the nature of FDI inflows to emerging markets. Alternative political regimes in the host country may affect the incentive for foreign investors to implement horizontal rather than vertical FDI, if the political expropriation risk is different for the two kinds of investment. We test the model in a panel of 14 source countries and 24 host countries over 1992-2004, and find that autocracies are likely to receive relatively more FDI of the vertical type, while democracies are more likely to be associated with horizontal FDI inflows.We introduce the effect of the political regime in a model of North-South bilateral foreign direct investment (FDI), and test whether it matters for the nature of FDI inflows to emerging markets. Alternative political regimes in the host country may affect the incentive for foreign investors to implement horizontal rather than vertical FDI, if the political expropriation risk is different for the two kinds of investment. We test the model in a panel of 14 source countries and 24 host countries over 1992-2004, and find that autocracies are likely to receive relatively more FDI of the vertical type, while democracies are more likely to be associated with horizontal FDI inflows.Non-Refereed Working Papers / of national relevance onl

Internal vs. External Firm Productivity Drivers. A Study of the Italian Counties

We analyzed productivity growth differentials across 68,000 Italian manufacturing firms over 2001-2010, in order to disentangle internal and external productivity drivers. A two-stage procedure was implemented for extracting fixed effects on the firms for 103 home counties (stage one), and regressing them upon a number of external factors that could affect productivity dynamics (stage two). We found that a rather limited set of external drivers related to financial conditions, social capital and market potential explain approximately two-thirds of the cross-county productivity dispersion

Intangible Capital and Productivity Growth in European Countries

This paper provides evidence about the diffusion of intangible investment across the EU27 member countries and investigates the role of intangible capital as a source of growth to improve our understanding of the international differences in the mix of drivers of productivity growth across Europe. Our study shows that the capitalization of intangible assets, allow identifying additional sources of long-run growth. We show that intangibles have been a relevant source of growth across European countries and that they cannot be omitted from national accounts. In particular, the ―unexplained‖ component of macro-economic dynamics, the Total Factor Productivity, becomes less important, while physical capital turns out to be strongly complementary with intangible capital.This paper provides evidence about the diffusion of intangible investment across the EU27 member countries and investigates the role of intangible capital as a source of growth to improve our understanding of the international differences in the mix of drivers of productivity growth across Europe. Our study shows that the capitalization of intangible assets, allow identifying additional sources of long-run growth. We show that intangibles have been a relevant source of growth across European countries and that they cannot be omitted from national accounts. In particular, the ―unexplained‖ component of macro-economic dynamics, the Total Factor Productivity, becomes less important, while physical capital turns out to be strongly complementary with intangible capital.Non-Refereed Working Papers / of national relevance onl

Searching for the Determinants of IT Investment: Panel Data Evidence on European Countries

The aim of this paper is to identify the stage of IT adoption in individual European economies, and to analyse the determinants of IT investment in a panel of EU countries. We first analyse the dynamics of IT investment expenditure in 15 European countries from 1992 until 2001 and, by means of a cluster analysis, we draw a picture of IT diffusion in Europe. By clustering the European countries according to their shares of IT spending over GDP, we identify three fairly stable groups of fast, medium and slow adopters. We then build an econometric equation of the determinants of IT investment to be estimated with panel data for five European economies over 1980-2001. We consider both aggregate IT investment, and investment in hardware or software taken alone. Financial conditions, income growth and comparative advantage turn out to affect IT investment, but we find that the determinants of hardware investment only partially overlap with those of software.The aim of this paper is to identify the stage of IT adoption in individual European economies, and to analyse the determinants of IT investment in a panel of EU countries. We first analyse the dynamics of IT investment expenditure in 15 European countries from 1992 until 2001 and, by means of a cluster analysis, we draw a picture of IT diffusion in Europe. By clustering the European countries according to their shares of IT spending over GDP, we identify three fairly stable groups of fast, medium and slow adopters. We then build an econometric equation of the determinants of IT investment to be estimated with panel data for five European economies over 1980-2001. We consider both aggregate IT investment, and investment in hardware or software taken alone. Financial conditions, income growth and comparative advantage turn out to affect IT investment, but we find that the determinants of hardware investment only partially overlap with those of software.Non-Refereed Working Papers / of national relevance onl