Search

This paper studies the impact of macroeconomic factors on co-movement in the foreign exchange rate markets. Data of foreign exchange rates from 24 merging markets is used to this end along with a dynamic spatial Durbin model as to examine spatial dependencies among markets. Our empirical findings show no evidence that cultural ties exert a role in spreading macroeconomic shocks in the exchange rate of a country to the exchange rates of other countries. Moreover, we show that economic closeness through foreign direct investment (FDI) and international bilateral trade is the most prominent channel in spreading macroeconomic shocks and spatial effects in emerging markets through the foreign exchange rates. In addition, geographical proximity reinforces the interdependence relationship of emerging markets. Our findings show that the co-movement of foreign exchange rate markets across the selected emerging markets is positively influenced by their gross domestic product (GDP) and interest rate differential and negatively affected by the terms of trade and remittance. In addition, we reveal that terms of trade, the inflation differential, and remittance are the most prominent fundamental factors affecting foreign exchange rate movements. [ABSTRACT FROM AUTHOR]

This paper investigates the determinants of outward foreign direct investment (OFDI) of British multinational firms in the European Union (EU) and the European Free Trade Association members across 2009–2019 using Bayesian model averaging. We find evidence that supports the existence and dynamic behavior of the East–West structure of FDI between three groups of countries: core-EU, Central and Eastern European economies (CEE), and the Nordics. Further, we document the importance of relative market size, urbanization, the rule of law in attaining horizontal FDI in the core-EU economies. In turn, infrastructure spending and enhanced political stability are the most important drivers for FDI in CEE (post-2000 accession). Finally, our results highlight the negative effects of the Eurozone crisis and Brexit anticipation on British OFDI activity in the region. The findings remain robust when accounting for potential MNE profit shifting to partners such as Ireland, Luxembourg, and alike. [ABSTRACT FROM AUTHOR]

This paper constructs various measures of domestic and global uncertainty and provides a comprehensive study of their impacts on the Thai economy. Based on a small open economy VAR, global uncertainty delivers deeper and more long-lasting effects when compared to within-country ones. In addition, we find that uncertainty shocks first generate sudden and large declines for stock prices and foreign portfolio investment, before gradually affecting the real economy through investment and trade channels. There is also meaningful heterogeneity among different types of domestic uncertainty. While financial uncertainty matters most for the Thai economy overall, consumption demand largely responds to macroeconomic uncertainty, while economic policy and political uncertainty generates the most persistent effects on investment. Furthermore, fiscal policy uncertainty is a key driver of trade flows while monetary policy uncertainty plays an important role for capital markets. [ABSTRACT FROM AUTHOR]

In this paper, we propose a Bayesian estimation approach for a spatial autoregressive logit specification. Our approach relies on recent advances in Bayesian computing, making use of Pólya–Gamma sampling for Bayesian Markov-chain Monte Carlo algorithms. The proposed specification assumes that the involved log-odds of the model follow a spatial autoregressive process. Pólya–Gamma sampling involves a computationally efficient treatment of the spatial autoregressive logit model, allowing for extensions to the existing baseline specification in an elegant and straightforward way. In a Monte Carlo study we demonstrate that our proposed approach markedly outperforms alternative specifications in terms of parameter precision. The paper moreover illustrates the performance of the proposed spatial autoregressive logit specification using pan-European regional data on foreign direct investments. Our empirical results highlight the importance of accounting for spatial dependence when modelling European regional FDI flows. [ABSTRACT FROM AUTHOR]

In theory, changes in a host country exchange rate can be a cause or consequence of changes in its level of foreign direct investment (FDI), and recent incidences suggest that government stability may have sizable implications for the interactions between FDI and the exchange rate. This paper uses a semiparametric system of simultaneous equations to empirically characterize the relationship between FDI and the exchange rate, with each country's level of government stability serving as a moderator. The results suggest that across developed and developing economies the most prevalent type of symbiosis between FDI and the exchange rate is a positive effect of FDI on the exchange rate, but no effect of the exchange rate on FDI. This significant FDI effect is heterogeneous, with an interquartile range of 1.241. At the median, a 10% increase in FDI inflows relative to GDP causes approximately a 13.29% increase in the annual change in the exchange rate. Government stability acts as a moderator variable by strengthening the relationship between FDI and the exchange rate in some countries, but eliminates the relationship in other countries. [ABSTRACT FROM AUTHOR]

Since the Aid for Trade (AfT) Initiative was launched in 2005, there have been many studies investigating the effects of AfT on trade and foreign direct investment (FDI). Most studies have found positive effects of AfT on exports and imports of recipient countries, as well as on aggregate FDI flows to recipient countries. Lee and Ries (World Dev 84: 206–218, 2016) and Ly-My and Lee (World Econ 42: 2120–2143, 2019) found positive effects of AfT particularly on greenfield FDI to recipient countries. Noting that there are two entry modes of FDI (greenfield and M&A), this study fills a gap in the literature by investigating the effects of AfT on cross-border M&A flows to recipient countries. By using the system GMM estimator with a dataset of 102 countries for 2003–2016, this paper finds evidence that AfT has a positive and significant effect on the US dollar value of M&A investment flows to recipient countries. Specifically, we find that AfT results in an increase in the dollar value of M&A FDI inflows because it increases both the extensive and intensive margins of M&A deals as well as source countries. Our results add to the beneficial effects of AfT on the recipient countries, as there is ample evidence of the benefits of M&A FDI. [ABSTRACT FROM AUTHOR]

This paper investigates productivity spillovers from foreign direct investment (FDI) and the absorptive capacity of domestic firms using the firm level data of South Korean manufacturing industries. This paper finds that the absorptive capacity has as a role in mitigating the negative spillovers from FDI by capturing additional positive spillovers from FDI. Thus, firms without any absorptive capacity suffer more from FDI than firms with absorptive capacity. However, when the endogeneity problems in absorptive capacity such as R&D and export activity variables are considered, the role of absorptive capacity becomes too insignificant to alleviate the negative spillovers from FDI. In addition, the results from simultaneous quantile regression indicate that the effect of R&D and export activity to absorb the additional spillovers is heterogeneous depending on the conditional productivity distribution. [ABSTRACT FROM AUTHOR]

The last decades have seen an increasing interest in FDI and the process of production fragmentation. This has been particularly important for Germany as the core of the European Union (EU) production hub. This paper attempts to provide a deeper understanding of the drivers of German outward FDI in the EU for the period 1996–2012 by tackling the two main challenges faced in the modelization of FDI, namely the variable selection problem and the choice of the estimation method. For that purpose, we first extend previous BMA analysis developed by Camarero et al. (Econ Model 83:326–345, 2019) by including country-pair-fixed effects to select the appropriate set of variables. Second, we compare several estimation methods in their multiplicative form, namely four versions of the generalized linear model. The results of the empirical application indicate that Gamma pseudo-maximum likelihood is the best performing estimator. Furthermore, our results point to horizontal-ness as the primary strategy for German investment in core EU countries, while vertical-ness seems to prevail in peripheral EU countries. [ABSTRACT FROM AUTHOR]

This paper investigates which firm-specific characteristics lead multinational enterprises (MNEs) to increase their R&D expenditure in host countries as a way of expanding their business into local markets (market-oriented R&D). The literature that addresses this topic is quite limited because of the difficulty of separating market-oriented R&D expenditure from knowledge-sourcing R&D expenditure in the data. We argue that determining the relationship between local sales and R&D expenditure is a better way to identify whether MNEs are investing market-oriented R&D than is separating the two types of R&D. For connecting firm-specific characteristics, local-market sales, and R&D expenditure together, we adapt two-stage regressions. By employing data from Taiwanese multinationals from 2003 to 2006, we found that if an MNE moves its technology toward capital-intensive products, it increases its R&D expenditure to promote its sales in the local markets in the host country. [ABSTRACT FROM AUTHOR]

This paper aims to shed light on the characteristics and particularly the determinants of credit-less recoveries. After documenting some stylised facts of credit-less recoveries in emerging market economies, this paper uses panel probit models to analyse key determinants of credit-less recoveries. Our main findings are the following. First, our frequency analysis shows that credit-less recoveries are not unusual. Moreover, the frequency of credit-less recoveries doubles after a banking or currency crisis. Second, results from estimated panel probit models suggest that credit-less recoveries are typically preceded by large declines in economic activity and by financial stress, in particular if private sector indebtedness is high and the country is reliant of foreign capital inflows. Finally, our model performs well in predicting the credit-less recoveries experienced by emerging market economies in recent years. [ABSTRACT FROM AUTHOR]

This paper investigates whether China's provincial economies follow the same growth path by adopting a finite mixture model in which provinces are sorted into groups according to the similarity in the conditional distribution of their growth rates. The method is flexible in that it accounts for (i) endogenous classifications other than given priori, (ii) heterogeneous marginal effects of determinants, (iii) the possibility of growth path transformation, and (iv) the roles of geographic location and institutions in the growth path. The results reveal that all provinces do not follow a common growth process, but rather two distinct growth regimes. Particularly, one is dominated by foreign direct investment and financial depth, while the other is dominated by trade openness. The growth process of provinces in the central region evolves around the year 2004 from the former to the latter. More importantly, geography and institutions help sort provinces into groups, and institutions are more predominant. [ABSTRACT FROM AUTHOR]

In this paper, we analyse the impact and persistence of shocks to global (push) and domestic (pull) factors on each component of the financial account for the Mexican Balance of Payments, at the highest degree of disaggregation, including investment by foreign residents in Mexican public and private sector securities, as well as investment by domestic residents in foreign securities. To this end, we estimate impulse response functions from vector autoregressive models for the period 1995–2015. We find that an increase in the foreign interest rate leads to lower portfolio investment. An increase in global risk generates lower portfolio investment, particularly in private sector securities. Foreign investors respond to a higher extent to foreign interest rate and liquidity shocks compared to domestic investors. [ABSTRACT FROM AUTHOR]

This paper investigates the impact of institutional difference on China's outward foreign direct investment (OFDI) through a gravity model. Our estimations are based on a large panel of 150 countries over the period 2003–2015. The results show that the institutional differences of government effectiveness and control of corruption between China and a host country have a statistically significant negative effect on China's OFDI. In addition, our empirical evidence suggests that the 'One Belt, One Road' policy does not have the expected positive effect on China's OFDI. Consistent results are obtained from a set of robustness tests. Our findings provide a reasonable guideline for countries aiming to attract Chinese OFDI or seeking factors to boost it. [ABSTRACT FROM AUTHOR]

This paper combines two fields in the economic literature by examining empirically the pattern of foreign direct investment (FDI) flows within the European Union (EU) and the relevance of trade integration as an influence upon investment flows over the period 1995-2009. We capture trade integration primarily by means of the home bias, rather than by using other indicators such as tariffs and non-tariff barriers. In turn, the home bias is computed for the countries in our sample by a standard gravity model. Our results find a positive and robust correlation between trade integration and FDI activity for the countries in our sample. For the particular case of the EU, it is not possible to strictly discriminate between horizontal or vertical FDI. FDI flows seem to be more consistent with a knowledge-capital hybrid model, where considerations about the market size of the partners and their relative endowment of skilled labour are relevant. [ABSTRACT FROM AUTHOR]

This paper investigates the causality relationship between budget and current account deficits for 14 Asian countries. The major findings based on bootstrap Granger causality tests in heterogenous mixed panels are: First, investments (and foreign capital inflows) have a notable impact on the current account prior to the Asian financial crisis of 1997-1998. Second, we detect direct causality between the budget and the current account imbalances before but not after the crisis. The data suggest that the current account targeting hypothesis, that is, the reverse causality, prevails after the crisis. Third, budget deficits have a significant influence on both investment and foreign capital inflows in the second period. Fourth, Asian countries are less susceptible to the influence of FDI inflows in the aftermath of the crisis. Finally, structural break turns out crucial in assessing the causal patterns of the twin deficits nexus in the Asian countries. [ABSTRACT FROM AUTHOR]

This paper examines the long-run effect of the level of foreign direct investment (FDI) on the level of total factor productivity (TFP) for 49 developing countries for the period 1981–2011 using panel cointegration and causality techniques. It is found that (i) FDI has, on average, a negative long-run effect on TFP in developing countries, (ii) long-run causality runs in only one direction, from FDI to TFP, (iii) in the short run, TFP has a negative effect on FDI, and (iv) the long-run effect of FDI of TFP differs between selected groups of countries: While the estimated long-run FDI–TFP coefficients are always relatively large, negative, and significant for countries with lower levels of human capital, financial development, and trade openness, the estimated effects are relatively small, insignificant, or even significantly positive for subgroups of countries with higher levels of human capital, financial development, and trade openness. [ABSTRACT FROM AUTHOR]

The paper looks at the source of dynamic gains to trade liberalization using a two-country model with both physical and human capital accumulation. The model is calibrated and used to examine the effect of the economic integration of Canada and the United States with Latin America. The analysis assumes that differences in productivity levels between regions are due entirely to differences in human and physical capital endowments. Key assumptions are that capital is internationally mobile and human capital formation is income constrained. The simulated impact of moving to a hemispheric free Trade area is significant. The long-run impacts are also different from the short-run efficiency effect predicted by conventional static triangle-rectangle analysis. The long-run multiplier effect on static output gains are on the order of 2.0 to 2.5 for the South -- that is long-run output gains are 2.0 to 2.5 times predicted short-run static gains. In the case of the North, static predictions of gain are ambiguous in sign over the longer run; in some cases there are small dynamic gains in others, small losses. Investment diversion toward Latin America is a prominent characteristic of the results. [ABSTRACT FROM AUTHOR]

In this paper, a random coefficient simultaneous equation system is used to study Direct Foreign Investment by French firms. The problem of formulating and estimating a random coefficient system is discussed at first in a general setting and an easily implementable solution is proposed. The estimating procedures are then applied to a panel of 64 plants belonging to 17 French firms over the period 1976-1982. [ABSTRACT FROM AUTHOR]

Negative foreign direct investment (divestment) between countries has received little attention in international macroeconomics. This is the first country-level study to investigate whether conventional drivers of bilateral foreign direct investment (FDI) have a reverse, but symmetric, impact on foreign direct divestment (FDD). Using bilateral negative and positive FDI data between 126 countries or territories, from 2005 to 2018, we find that conventional gravity variables that have statistically significant effects on FDI, such as host and source country GDP, distance, and source-country remoteness, have similar-signed effects on FDD, rather than opposite-signed effects. Formal testing of whether coefficients on the determinants of the absolute value of divestment are equal but opposite signed to those for investment rejects this hypothesis. The view that what may lead to more FDI may impede FDD is not supported by our empirical findings. [ABSTRACT FROM AUTHOR]

Emerging multinational corporations are grown-up from environments where institutional quality (IQ) is generally poor and market mechanisms are inefficient. Having experience at home, firms from emerging markets have transformed institutional disadvantages into advantages, especially through investing in developing countries. In terms of investing abroad, is the host country's institutional quality a point of concern for emerging multinational corporations? Despite the economic benefits of well-organized institutions, several studies empirically tested the role of institutional quality on foreign direct investment (FDI) from emerging markets to provide inconclusive results. This study conducted a meta-analysis and empirical examination of the IQ-FDI nexus from five emerging markets, namely Brazil, Russia, India, China, and South Africa, collectively referred to as BRICS countries. We found that emerging multinational corporations invested in risky markets where institutional quality is generally modest. Our results suggest that state-owned enterprises persuasively invested in Africa for natural resources when they evaluate a positive and significant effect size of IQ on FDI. We also found that collected estimates contain genuine evidence concerning the effect of a host country's institutional framework on FDI from BRICS countries. [ABSTRACT FROM AUTHOR]

Cross-country capital flows have been widely studied in the literature; however, why some countries may form more similar foreign investment portfolios than others has not been investigated. Using data for a broad panel of countries during the period 2002–2015, we adopt gravity equations to estimate cross-country foreign portfolio investment patterns. The main empirical results reveal that countries are more likely to form similar foreign portfolio investment patterns if: (i) countries are geographically closer; (ii) countries share the same official language; and (iii) countries adopt fixed exchange rate regimes. [ABSTRACT FROM AUTHOR]

There exists a theoretically ambiguous relationship between employment volatility and trade. Using a 2006–2015 firm-level unbalanced panel dataset for South Korea, this study investigates whether the globalization of firms transmits foreign shocks to domestic employment volatility and examines how foreign shocks that affect domestic employment are transmitted during both a crisis period and a post-crisis period. My empirical findings show that foreign demand shocks to domestic employment are transmitted through inter-firm exports during a post-crisis period window, while foreign demand and supply shocks on domestic employment are transmitted through intra-firm two-way trade and intra-firm imports during a crisis period window. These results show the asymmetric response of intra-firm trade and inter-firm trade to shocks during the crisis and post-crisis periods. Therefore, these results imply structural changes to the transmission channels of foreign shocks that impact domestic employment volatility after the crisis period. In addition, foreign direct investment has a positive effect on employment volatility. This implies higher employment volatility if a firm has overseas production plants, as presence abroad prompts the firm to substitute foreign workers for domestic workers. These findings may have significant implications for policy makers seeking to identify sources of labor market instability. [ABSTRACT FROM AUTHOR]

Using a firm-level dataset of more than 500,000 domestic and cross-border mergers and acquisitions (M&As) for 95 countries during the period 1995–2015, we measure the level and evolution of the border effect on M&As. We find that the number and value of M&As between same-country firms are five times larger than between firms of different countries. We show that the border effect on the number and value of M&As remained constant during the period. The border effect on M&As in the European Union is substantially lower than elsewhere. We find that the border effect is lower for large investors and firms operating in the primary industry and utilities. [ABSTRACT FROM AUTHOR]

This article examines the linkages between inward FDI, services trade (export and import) and economic output using co-integration and VECM causality test. These linkages have been explored both at the aggregate and at the sectoral levels (manufacturing and services). The empirical findings confirm the long-run relationship among these variables. Causality results indicate the presence of bi-directional causal relationship between FDI and economic output as well as between services exports and economic output. The results also bring out feedback relationship between services export and FDI, reconfirming the presence of complementary relationship between the two. At the sectoral level, we find at least a unidirectional causality from FDI and services exports to both manufacturing and services output and also cross-sectoral spillover effects from manufacturing output to services output and vice versa. [ABSTRACT FROM AUTHOR]

The global financial turmoil has led to an unprecedented current account adjustment in central and eastern Europe. This article investigates this issue by revisiting two approaches. The first is the current account literature based on panel econometric techniques. This article adds to the literature by showing that, although there is a large degree of parameter uncertainty associated with the choice of determinants, the implied current account benchmarks for central and eastern Europe are in a narrow range. The second approach is the external sustainability framework where we extend the analysis to take into account the importance of FDI financing. We find that both approaches point to similar conclusions on which countries were in need of a current account adjustment in central and eastern Europe in 2007. The turmoil in financial markets in 2008 set this adjustment in motion. [ABSTRACT FROM AUTHOR]

This research recognises firm heterogeneity theories and uses the extensive transaction-level data of customs to analyse the export success of Bangladesh at the level of annual activity of individual exporters during the period 2004–2011. It identifies the network of peer exporters as a significant factor that promotes export success in both direct and indirect channels. As well as the financial system reported in earlier studies, this study finds the formation of human capital as another influential candidate for an indirect channel. Our findings also suggest that at the exporter's level, experience with destination and products, initial exports and the level of competency with products contribute significantly to the success of new exports. More importantly, for Bangladeshi exporters, the effect of destination experience is stronger than that of product experience. [ABSTRACT FROM AUTHOR]

We ask whether the productivity advantage of internationalized firms documented by the international trade literature can be interpreted most accurately in terms of proximity to the "technological frontier". We answer in the affirmative using a methodology (based on mixture models) of unbundling technology and total factor productivity (TFP) by estimating "technology-specific" production function parameters. Exploiting detailed data provided by the EFIGE database (a sample of firms distributed across Austria, France, Germany, Hungary, Italy, Spain, and the UK), we find technology gaps (with respect to the frontier) more than three times larger than the TFP gaps on average. We also find sizable technology advantages for firms undertaking foreign direct investment and/or exporting to other European Union countries or to China, for importers of materials, and for firms with competitors in China and the USA. Medium and large firms feature a higher technology premium, which is even higher for firms operating in country-sectors that are more exposed to import competition from China. Younger firms use better technologies but less effectively. [ABSTRACT FROM AUTHOR]

After decades of academic debate on the factors that determine FDI, the discussion still remains open. This article empirically investigates the determinants of FDI activity using Spanish regional data (NUTS 2) for the period 2004–2013. We apply the Poisson pseudo-maximum-likelihood estimator with country-origin fixed effects in a gravity framework and implement an exploratory factor analysis to avoid collinearity problems. The empirical analysis revealed the following allocation patterns: FDI locational strategies in the Spanish regions are determined significantly by the economic potential, competitiveness and agglomeration effects of the regions, and to a lesser extent, by the productive capacity. We also confirm the adequacy of using the stock of FDI in the empirical analysis and obtain an improved specification of the model compared to previous literature based on FDI flows. The results allow us to draw some policy implications about the prospective promotion of incoming FDI at the subnational level. [ABSTRACT FROM AUTHOR]

This study investigates the empirical relationship between foreign direct investment (FDI) and domestic investment (DI) in China using a comprehensive city-level panel over the period from 2003 to 2011. System-generalized method-of-moment estimation reveals mixed results. At the national level, FDI neither crowds in nor crowds out DI, indicating a neutral FDI–DI nexus. However, when the full sample is segmented by geographical topology, a positive and significant FDI–DI nexus can be found in eastern and, to a lesser extent, central cities. A negative, although insignificant, association is reported among western cities. Further, the empirical nexus is conditional on several local absorptive capacities including human capital, financial development, and institutional quality. These findings suggest that a region-based FDI strategy in general and local governments should strengthen their absorptive capacities to fully internalize FDI spillovers. [ABSTRACT FROM AUTHOR]

It is open to question whether the intensified worldwide competition for FDI has reduced its traditionally strong concentration in a few large and relatively advanced host countries. We calculate and decompose Theil indices to track changes in absolute and relative concentration of FDI during the period 1970-2013. We find that both absolute and relative concentration decreased when excluding offshore financial centers from the overall sample. In addition to the narrowing gap between OECD and non-OECD countries, the concentration across non-OECD countries declined for both the absolute and relative measures. This is also true for major subgroups of non-OECD countries. Finally, recent developments indicate that low-income countries are no longer at the losing end of the competition for FDI. [ABSTRACT FROM AUTHOR]

This study aims at examining the nonlinear influence of economic growth, foreign direct investment, and population density on the environmental degradation in the BRICTS countries from 1990 to 2014. All the variables were found to be stationary based on recent panel unit root tests. On fully applying both static (OLS, FE, and RE) and dynamic (system GMM) panel data approaches, it was found that there is a relationship between CO2-GDP that foregrounds the Kuznets curve for individual cases. In fact, the Kuznets curve is valid in the BRICTS countries. This validation is strengthened through the relationship between CO2 emissions and population density, as well as between CO2 emissions and FDI inflows. The overall results showed that the population density and FDI inflows initially increased, which reduced the CO2 emissions as the population and FDI inflows reached the threshold level, thus confirming the FDI halo hypothesis (FDI halo). In contrast, the Kuznets curve between CO2 emissions and economic growth is not valid. This implies that the increase of economic growth impedes the environmental quality. These empirical insights are of particular interest to policymakers as they help build sound economic and energy conservation policies to support the environment quality. [ABSTRACT FROM AUTHOR]

We investigate heterogeneity between foreign direct investment (FDI) and domestic investment induced by corruption and human capital. Controlling for corruption and human capital, inbound FDI has significant, heterogeneous complementarity effects on domestic investment; the effect of outbound FDI on domestic investment is fluid: substitution and complementarity exist, and change direction over time. The fluid effects of outbound FDI oppose the popular dollar-for-dollar hypothesis. Although lower corruption and higher human capital strengthen, weaken, or do not change the degree of these FDI effects, the data are inconsistent with the hypothesis of a global optimum for corruption or human capital. Corruption and human capital do not appear to be binding constraints in all countries. The role of institutional quality appears consistent with the prediction of the General Theory of Second Best. [ABSTRACT FROM AUTHOR]

GMM estimation of autoregressive equations in error-ridden variables with error memory is considered in exploring the impact of foreign direct investment (FDI) on GDP from country panel data, contrasting, inter alia, the manufacturing and the service sector. To evaluate finite-sample properties of the methods selected, results from Monte Carlo simulations are reported. Contrary to the previous findings, no negative spillover effects from the service FDI on manufacturing GDP growth are obtained; the estimates indicate a positive effect, while (surprisingly) the effect of service FDI on the service GDP growth comes out as insignificant. Overall conclusions are: (1) Aggregate FDI has a positive, but insignificant effect on aggregate GDP based on the full country panel; (2) for the developing Asian countries, FDI significantly improves GDP growth; and (3) manufacturing FDI impacts both manufacturing and service GDP growth positively. [ABSTRACT FROM AUTHOR]

The article looks at the viability of Extreme Bounds Analysis (EBA) in detecting economic, geographical and political determinants of Foreign Direct Investment (FDI). Topics discussed include the mathematical formula for EBA that involves countries, specific regressions and FDI inflows as part of a Gross Domestic Product of a country, and results of the study promoting the role of EBA in creation of policies that enable FDI growth and economic development.

The explosion of hypotheses addressing empirical relationships between foreign direct investment (FDI) and economic growth is to say the least, confusing. There is the positive view whereby FDI positively affects growth, the negative view where FDI negatively affects growth, and the dependent view where FDI may or may not have an effect on growth at all, but is conditional upon whether certain economic and social conditions are met in the receiving country. In other words, to date, dozens of variables and modeling methods have been used to determine the effect FDI has on economic growth, and all with different results. Essentially, parsimony and ease of interpretation have been replaced with confusion. The central theses of the most important arguments focus on the broad dissemination of FDI, an economy's absorptive capacity, and how injections tend to depend upon cyclical components. We use existing theory to justify a simpler model using a single determinant that encompasses these characteristics. By interacting past growth with current FDI, policymakers can more easily draw inference from the estimated marginal effect. We prove this by applying the model to pooled, high income, emerging, and developing economy samples in order to gain a clearer picture of exactly to what extent, FDI affects economic growth. And since policy not only takes growth into consideration, but economic stability as well, we also apply our model to volatility. While the results differ across income groups and growth rates, the inference drawn from them is unambiguous. [ABSTRACT FROM AUTHOR]

This study explores the joint effect of FDI and domestic capital stocks (ICT and non-ICT) on productivity and economic growth, by incorporating two additions to the recent literature. Firstly, biases due to the fact that the observed measures of domestic capital stocks have an FDI component (double counting) are taken into account, and secondly, the possibility that the effect may be heterogeneous. Using semiparametric econometric techniques, the output elasticities for 15 OECD countries for the period 1980-2004 are estimated. The results indicate that biases do exist and they are significant. When corrected, the effects of all three types of capital are positive, significant, and they vary across countries and time. Furthermore, there exist interactions between the three capital variables, implying a complimentary relationship between domestic (ICT and non-ICT) and FDI capital. Additionally, the rates of return to FDI are high and heterogeneous, suggesting that in most countries, there is need for more investment. [ABSTRACT FROM AUTHOR]

The objective of this article is twofold. Firstly, we proceed to an analysis of the evolution of specialization in production in the enlarged EU, taking into account all its 27 member countries. Given their decomposability properties, we use the entropy-based indices to measure countries' relative specialization and then, given our rather short period of analysis, we use the bootstrap method to analyze the evolution of the specialization index. We first analyze all economic sectors and then, our analysis is more detailed focusing on manufacturing industries. Globally, we find that specialization is decreasing across all economic sectors, while it is increasing across manufacturing industries. Secondly, we study specialization determinants, with a special interest in the impact of foreign direct investment (FDI). For homogeneity reasons, we analyze two separate samples, one including old EU members plus Cyprus and Malta and the other, the CEECs. In order to take into account the endogeneity of most of our independent variables, we use the vector autoregression (VAR) technique and analyse the impulse response functions. Globally, FDIs seem to positively influence countries' relative specialization, for our both samples and for both economic sectors and manufacturing industries. However, their impact appears weaker than most of the other independent variables, such as the market potential or the relative endowments. [ABSTRACT FROM AUTHOR]

This article uses the generalized likelihood ratio test to formally test whether the relationship between foreign direct investment (FDI) and income inequality varies with the level of human capital and then uses a flexible semiparametric smooth coefficient partially linear model to provide estimates of the inequality effect of FDI that are specific to the level of human capital in a country. Based on the data of 102 countries over the period 1970-2007, we find the following. First, there exists substantial heterogeneity in the inward FDI-inequality relationship. Inward FDI is inequality-ameliorating in low-income countries where human capital is scarce but is inequality-raising in middle- and high-income countries where human capital is abundant. Second, contrary to the conventional mindset, outward FDI has no significant impact on inequality in low-and high-income countries. Nevertheless, outward FDI is inequality-raising in middle-income countries with low levels of human capital. Our results demonstrate that accounting for parameter heterogeneity is critical to identify the key mechanisms through which FDI affects inequality. Omitting parameter heterogeneity could lead to misspecification and incorrect policy prescriptions. [ABSTRACT FROM AUTHOR]

The main objective of this study is to make a contribution to the empirical literature of investment by examining the effects of FDI inflows on private investment in developing host countries. We employ panel data for 91 developing host countries over the period 1970-2000 and estimate our model by a means of system generalized method of moments. The results show that FDI stimulates private domestic investment which supports the 'crowd-in-hypothesis'. Moreover, after grouping countries based on their level of income, we find that the positive effects of FDI on private investment in low-income countries depend on the availability of human capital. [ABSTRACT FROM AUTHOR]

This article investigates the causal relationship between the current account and foreign capital inflows on two groups of countries, industrial countries (ICs) and emerging markets (EMs), during the time period of 1987-2006. Apart from including three sets of control variables (macroeconomic, financial, and institutional) in the regression to avoid omitted variable bias, we additionally examine whether there is a disparate interaction between gross capital inflows and the current account and between net foreign inflows and the current account. Our empirical results show that for EMs, it is mostly true that foreign capital inflow Granger causes the current account, while for ICs, it is the other way around for causality although when using gross foreign capital inflows, there is less evidence of causality detected. We also find that for EMs, after the 1997-1998 currency crises, capital inflows change the nature of their effects on the current account, particularly for Asian EMs. [ABSTRACT FROM AUTHOR]

The study examines the relationship between foreign direct investment (FDI), financial development, and economic growth in a panel of 95 developed and developing countries from 1983 to 2006. The study moves away from the traditional cross-sectional analysis, and focuses on more direct evidence of the channels via which FDI might help or retard economic growth. Using generalized method of moment (GMM) panel data analysis, we find strong evidence of a positive relationship between FDI inflows into a country and its economic performance. We also find evidence that domestic financial system is a significant prerequisite for FDI to have a positive effect on economic growth. Policy implications are clear. Effort should be made to reform and improve the development of domestic financial system in order to benefit more from the presence of FDI. [ABSTRACT FROM AUTHOR]

This article investigates the sources and determinants of output growth of Italian manufacturing firms. Applying stochastic frontier techniques, we decompose output growth into factor accumulation and TFP growth for the period 1998-2003. TFP growth is further decomposed into technological change, efficiency change and scale effects. Two key results emerge from the analysis. After confirming that both input accumulation and TFP growth are important in explaining output growth, we show that efficiency change (technological catch-up) is the most significant component of TFP growth in explaining output growth distribution. Furthermore, using a specific model of the asymmetric error component, we find that R&D spillovers, banking efficiency and public infrastructures have statistically significant and economically relevant effects on technological catch-up. [ABSTRACT FROM AUTHOR]

This study identifies the main shocks that cause fluctuations in French output and their channels of transmission. It uses a large-dimensional structural approximate dynamic factor model. There are three main findings. First, common shocks, especially demand shocks, which seem to originate from the U.S., play an important role in explaining French economic activity. While international trade, relative prices, and foreign direct investment (FDI) flows are the main channels of transmission, the stock market, consumer confidence, and interest rates also matter. Second, France's integration with the rest of the world has increased over time. Third, there is some tentative evidence of regional components in explaining French output fluctuations; country-specific components also contribute. The predominance of exogenous factors affecting French output, the asymmetry in the transmission of shocks, and France's participation in a currency area argue for making French goods, services, and labor markets as flexible as possible. [ABSTRACT FROM AUTHOR]