Browsing by Subject "FDI"

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  • Chi, Louchin (Helsingin yliopisto, 2018)
    In the 20th century global trade began changing dramatically in its volume and its form and in turn, many new theories of trade and economics have been created as a reaction to these changes. Using data from two developing regions--South Asia and Southeast Asia--which are expected to be the global leaders in economic growth in the 21st century, South Asia and Southeast Asia, this paper is an empirical study of the impact of several of the new determinants of growth: export composition/diversification, financial and institutional development, financial volatility, FDI, external debt, energy dependence, and international trade taxes. The author also creates within the model measures of trade balances across several commodities to measure and control for heterogeneity in economic structures and conditions. The study concludes that FDI, financial development, debt, and international trade taxes can be conducive for economic growth in a developing economy while higher inflation, higher interest rates, and export-orientation of some manufactured products should be avoided.
  • Walta, Veikko (Helsingin yliopisto, 2020)
    The determinants of FDI have been a topic of interest in economics since the 1980s and this paper aims to contribute to this field. This study aims to measure how associated FDI is with the political risk as well as to see the extent of this relationship in Turkey in the years 1996–2017. The political risk is measured as a change in indexes that are provided by the World Bank, Freedom House, and Transparency International. These political indicators are Political Rights, Civil Liberties, the Corruption Perceptions Index, Regulatory Quality, Voice and Accountability, Rule of Law, Government Effectiveness, Control of Corruption, and Political Stability. The earlier literature on FDI and political risks is mostly empirical and there has not been much theoretical research. Chakrabarti analyzed the past studies on FDI and its determinants in 2001 and found out that in the earlier research, almost every explanatory variable of FDI except the market size was sensitive to small changes in the conditioning information set, casting doubt on the robustness of the results. There have also been conducted studies that address political risk or equivalent concepts. The 2005 research of Busse and Hefeker had the same topic as this paper but their data consisted of many countries and they employed two different panel models. One was a fixed-effects panel analysis while the other utilized a generalized method of moments estimator. I selected three model specifications for the time-series regression analysis. All three specifications have market size as a control variable and the other two also have the economy’s growth rate and trade openness. The third has the inflation rate as the final control variable. The data have a small number of observations which limits the options available for the empirical part of the study. Out of the nine political indicators, Regulatory Quality is the only political indicator that is not associated with FDI, while the results on the Corruption Perceptions Index and Control of Corruption are inconclusive. The rest six are associated with FDI. The Rule of Law index has the highest estimated coefficient value of the World Bank indicators and the Political Rights index has the highest estimated coefficient value of the Freedom House’s indicators.
  • Ulyanchenko, Olga (2010)
    Central and East European countries have faced a difficult process of transition since the dissolution of the Soviet bloc. Ten transition countries (Hungary, Poland, teh Czech Republic, Slovakia, Slovenia, Lithuania, Latvia, Estonia, Bulgaria and Romania have chosen to join the EU and have moulded their transition reforms to ensure the compliance of their legal and institutional framework with EU requirements. The high levels of FDI attracted by the candidate countries for EU membership had been attributed to rapid transition of the countries aiming to join the European Union and the fact that favourable evaluations by EU authorities of the progress made by the candidates had a large impact on improving investor confidence. The aim of this paper is to investigate the reform strategies of the Czech Republic and Slovakia undertaken when the countries were preparing for EU membership and the dynamics of FDI inflows into these economies. Subsequently a comparative analysis of FDI stocks in these countries is conducted. We find that both countries faced similar economic challenges in implementing structural and institutional reforms. In accordance with EU requirements the Czech Republic and Slovakia have perfected their legal and institutional framework, increased the authority of regulatory and supervisory bodies and focused on implementation of new or amended legislation. During the period of the analysis (1998 – 2007) the Czech Republic and Slovakia have attracted increasing amounts of FDI. Comparative analysis in terms of important determinants of FDI reveals further similar features: macroeconomic stability; an open and liberalised market; low labour costs compared to EU-15 and a similar breakdown of FDI inflows by investor country. Consequently, the fact that the Czech Republic received much larger volumes of net FDI inflows could be attributed to the difference in market size between the two states. This conclusion is consistent with previous empirical studies that list market size among the main determinants of FDI. However, when we look at FDI as a percentage of GDP the evidence is more mixed. In 2004 - 2007, Slovakia has surpassed the Czech Republic twice. Whether this tendency will persist remains to be seen. The analysis in this paper based on empirical data. However, the choice of the method, namely case studies and comparative analysis, means that the conclusions of this study are theoretical and remain to be further tested in quantitative models.
  • Jiang, Yanqing (Svenska handelshögskolan, 2009)
    Economics and Society
    Growth and Convergence: The Case of China Since the initiation of economic reforms in 1978, China has become one of the world’s fast-growing economies. The rapid growth, however, has not been shared equally across the different regions in China. The prominent feature of substantial differences in incomes and growth rates across the different Chinese regions has attracted the attention of many researchers. This book focuses on issues related to economic growth and convergence across the Chinese regions over the past three decades. The book has eight chapters. Apart from an introduction chapter and a concluding chapter, all the other chapters each deal with some certain aspects of the central issue of regional growth and convergence across China over the past three decades. The whole book is organized as follows. Chapter 1 provides an introduction to the basic issues involved in this book. Chapter 2 tests economic growth and convergence across 31 Chinese provinces during 1981-2005, based on the theoretical framework of the Solow growth model. Chapter 3 investigates the relationship between openness to foreign economic activities, such as foreign trade and foreign direct investment, and the regional economic growth in the case of China during 1981-2005. Chapter 4, based on data of 31 Chinese provinces over the period 1980-2004, presents new evidence on the effects of structural shocks and structural transformation on growth and convergence among the Chinese regions. Chapter 5, by building up an empirical model that takes account of different potential effects of foreign direct investment, focuses on the impacts of foreign direct investment on China’s regional economic performance and growth. Chapter 6 reconsiders the growth and convergence problem of the Chinese regions in an alternative theoretical framework with endogenous saving behavior and capital mobility across regions. Chapter 7, by building up a theoretical model concerning comparative advantage and transaction efficiency, focuses on one of the potential mechanisms through which China achieves its fast economic growth over the past few decades. Chapter 8 concludes the book by summarizing the results from the previous chapters and suggesting directions for further studies.
  • Piekkola, Joel (Helsingin yliopisto, 2017)
    Foreign direct investment (FDI) saw a large increase in the EU in the years 1990–2015. A significant and contested topic in economic and industrial policy and a continuing interest to researchers has been the productivity effect of this increased foreign presence on host economies. Theories of economic growth and industrial organization predict a role for FDI, or the increased presence of multinational enterprises, as a catalyst of knowledge diffusion and other productivity effects. Findings from empirical literature support the existence of productivity effects from FDI within industry and through vertical linkages across industries. There is also support in the literature for the role of absorptive capacity as necessary for host country firms to benefit from knowledge diffusion. The scope of this study is to measure first the effect of FDI on productivity and secondly the role of absorptive capacity in mediating this effect. Data from Eurostat is extracted to construct a sample of output, factor inputs and FDI for aggregated industry level data for the years 2008–2012. Absorptive capacity is measured in three categories of intangible assets: research and development (RD), information and communications technology (ICT) and organizational competencies (OC). A production function approach with fixed effects is used to estimate the impact of FDI on productivity. The main findings are that an increase in foreign presence has a positive contemporaneous effect on productivity within industry, but a negative effect through vertical forward linkages. The results from the main specification imply that a 10 % increase in FDI is associated with a 0.5 % increase in productivity within industry and a -0.34 % decrease in customer industries. Absorptive capacity or technology gap in terms of intangible assets is closely related to the presence of these productivity effects. The finding of a positive effect of FDI on productivity within sector is consistent with knowledge spillovers or other positive factors such as increased competition. The negative effect in customer sectors may be explained by adjustment and transaction costs from the breaking down of existing domestic supply chains. The results indicate that FDI is associated with productivity gains within industry, but negative effects on productivity dominate through vertical forward linkages in the short term. From an industrial and economic policy standpoint, FDI is not unambiguously beneficial for productivity of domestic industries, but more research is needed to assess long-term effects and the economic implications for the EU as a whole.
  • Zoronjic, Belkisa (2010)
    The paper focuses on unveiling the determinants affecting the volumes of FDI inflows to the transition countries. Particular attention is devoted to the macroeconomic and institutional factors in host economies, in terms of economic development, which serve as incentives for investors to enter a certain market. In particular, the paper concentrates on exploring regional characteristics of different ‘blocks’ across transition countries and finding out in which way these characteristics affect FDI inflows. The data for the research have been assembled from various publicly available sources – namely from World Bank World Development Indicators, World Bank World Governance Indicators, European Bank for Reconstruction and Development, Heritage Foundation, United Nations Conference on Trade and Development and United Nations Economics Commission for Europe. The research is undertaken in two steps. First, cluster analysis is applied, through which countries are grouped by their common features. The detailed description of each cluster is presented with the focus on the legal framework of the countries in the clusters. Based on the results of the cluster analysis, dummy variables representing clusters are included in the dataset. Panel regression analysis is further employed to all transition countries over the period from 1996 to 2007, except Montenegro, which is excluded due to the lack of data. Through the Cluster analysis, the four distinct groups are determined across the sample, mostly based on the institutional framework and market size of the countries. The first group represents countries with the strengthened legal framework, where transition process is at the advance stage. That is why it is chosen to be the reference group. The second one consists of the countries with the middle size markets and institutions that require certain improvements. Countries with quite weak institutions and small market size are included in the third cluster. This group is characterised by the relatively high GDP growth rates. The fourth group consists of the countries with the largest market size, which represents the main driving force for the foreign investments. Results of the regression analysis suggest that main determinants of Inward FDI in transition countries are market size presented by the GDP per capita and institutional variables, namely Rule of Law and Business Freedom. In addition, Openness of the Economy has shown to be significant determinant of Inward FDI. It has been proved that dummy variable for the third group is statistically significant, which means that belonging to a certain cluster has an impact on the FDI inflows. Significance of the dummy variable for the second group is not robust. Overall, results confirm the thesis hypothesis that determinants of FDI inflows differ across the clusters.