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This paper uses issuance-level data to study how equity capital inflows that enter emerging market economies affect equity issuance and corporate investment. It shows that foreign inflows are strongly correlated with country-level issuance. The relation reflects the behavior of large issuers issuing in domestic equity markets and that of firms issuing in international markets. Those larger, more liquid, and highly valued firms are the ones more likely to raise equity when their country receives capital inflows. To identify supply-side shocks, capital inflows into each country are instrumented with exogenous changes in other countries' attractiveness to foreign investors. Shifts in the supply of foreign capital are important drivers of increased equity inflows. Instrumented inflows lead a subset of firms (large domestic issuers and foreign issuers) to raise new equity, which they use to fund investment. Corporate investment increases between one-tenth and four-tenths the amount of foreign equity capital entering the country.

The pattern of debt flows to peripheral European Monetary Union members seems puzzling: they are mostly indirect and channeled through the large countries of the European Monetary Union. This paper examines to what extent the introduction of the euro and the elimination of the intra-area currency risk can explain this puzzle. A three-country dynamic stochastic general equilibrium framework with endogenous portfolio choice and two currencies is developed. In the equilibrium, the core members of the European Monetary Union emerge as the main group of lenders to the peripheral European Monetary Union members. Outside lenders are pushed from the periphery debt markets because of currency risk. The model generates a pattern of debt flows consistent with the data despite the absence of any exogenous frictions or market segmentations.

Business groups, which are collections of publicly traded companies with significant amount of common ownership, dominate private sector activity in developing countries. This paper studies how information flows within these groups by analyzing the trading behavior of pension fund managers in firms that belong to the same group. The paper shows that while pension fund managers are momentum traders on non-affiliated companies, they trade in anticipation of future abnormal returns in affiliated firms. Ownership concentration and business group ties exacerbate information asymmetries, discouraging investment and depressing stock market participation. Using the merger and acquisition activity among pension fund managers as a natural experiment, the paper provides evidence that increases in stock ownership concentration, via the threat of informed trading, adversely affect liquidity. The results indicate that cross-ownership structures and extensive investor-industry relations might curb the expected benefits from the presence of institutional investors, limiting market development.

The objective of this paper is to understand the factors driving the location decisions of multinational corporations. The paper uses literature-review and expert-interview techniques to understand what cities can do to be best positioned to attract international capital.

The Securities Settlement Systems (SSS) in the People's Republic of China (PRC) are organized around three different types of markets, which are the bond market, the corporate securities market, and the futures market. The China Government Depositary and Clearing Corporation Limited (CCDC) is the SSS as well as the central securities depository (CSD) for bonds. The China Securities Depository and Clearing Corporation Limited (SD and C) is the central counterparty (CCP), SSS, as well as the CSD for all instruments traded on the Shanghai Stock Exchange (SSE) and Shenzhen Stock Exchange (SZSE). The four futures exchanges have their own clearing and settlement departments, which offer the function of a CCP. The CCDC, SD and C, and Shanghai Futures Exchange (SHFE), Dalian Commodities Exchange (DCE), and Zhengzhou Commodities Exchange (ZCE) operate important securities and derivatives settlement systems both, due to the large volume and value of transactions and the fact that they support key financial sector markets (interbank bond market, stock exchanges and futures). The assessment of the bonds market-CCDC system against the Recommendations for Securities Settlement Systems (RSSS) concludes that the system observes (observed or broadly observed) thirteen of the 19 recommendations, being one not applicable. The assessment of the stock exchanges-SD and C system against the RSSS concludes that the system observes (observed or broadly observed) seventeen of the 19 recommendations. The assessment of the commodities futures markets-SHFE system against the Recommendations for Central Counterparties (RCCP) concludes that the system observes (observed or broadly observed) eleven of the 15 recommendations, being one not applicable. The present document is the assessment of securities and derivatives settlement systems in the PRC based on the recommendations of the Committee on Payment and Settlement Systems (CPSS) and the International Organization of Securities Commissions (IOSCO) for RSSS and the recommendations of CPSS-IOSCO for Central Counterparties (RCCP). The paper is divided into following five parts: the first part gives general information; the second gives information and methodology used for assessment; the third part is securities and derivatives settlement systems infrastructure overview; the fourth part is main findings from the assessment with international standards; and the fifth part gives authorities' response.

Despite decades of war and instability, Iraq's abundant natural resources, strategic geographic location and cultural history endow Iraq with tremendous potential for growth and diverse economic development. Driven by windfall oil revenues in recent years, the Government of Iraq has invested heavily in rebuilding the infrastructure of the country, and its abundant oil reserves ensure that progress can continue steadily. This report was initiated at the request of the Iraqi government to assess the local investment climate and identify those high priority factors which most significantly impede private sector development in Iraq, in an effort to prioritize the recommended investments, institutional and regulatory reforms which would most significantly contribute to sustainable private sector growth and increased productivity.

Cambodia is one of the world's most open economies, sustaining high levels of growth in an environment of relatively weak governance. Emerging from a legacy of genocide and civil conflict, the country has sought to address human and social capital deficits across sectors, weaknesses in public finance, and corruption. Despite improvements in access to basic services, governance constraints persist and may threaten gains from economic integration. Over the 2004-10 period, the Bank's engagement on Governance and Anticorruption (GAC) issues in Cambodia was not defined by a single, overarching priority or entry point (such as core public sector management, natural resource management, or service delivery). Rather, the Bank was opportunistic, opting to support the government's GAC efforts across multiple sectors and institutions. The relevance of this opportunistic approach is judged to be moderately relevant. The Bank's objectives on public financial management (PFM) were highly relevant given Cambodia's nontransparent and weak public expenditure management and limited capacity. The Bank's response to sectoral governance weaknesses such as red tape, inefficiencies, and other forms of rent-seeking in customs is rated modest given the need for the government to implement its World Trade Organization commitments. The Bank's project level engagement is rated as moderately relevant. As a basis for reinstating suspended projects, portfolio-wide measures included the use of an Independent Procurement Agency (IPA) for the International Development Association (IDA) procurements, and the implementation of Good Governance Frameworks (GGF) for all IDA projects.

The chief purpose of this handbook is to provide government lawyers with a framework to evaluate the quality of a country's investment legislation (if it exists) and how the legislation relates to its investment policy and investment incentives. More specifically, it deals with creating new and reforming existing investment legislation in developing and transition economies in furtherance of the World Bank Group's (WBG's) mandate to promote private investment - domestic and foreign - in those economies. Handbook appendices contain drafting guidelines and checklist of issues that foreign direct investment (FDI) laws should include and that countries can use when drafting investment legislation. The report is structured as follows: chapter one defines key terms about investment law reform in an effort to clarify terminology and concepts and show how they are related. Chapter two examines how widespread investment codes are and explains their utility and limitations. Chapter three provides recommendations on the structure of investment legislation and the key provisions to be included such as definitions, investors' guarantees, incentives, framework for investment promotion, and transitional provisions. Chapter four discusses the fundamental issue of investor entry, in particular the conditions under which foreign investors can invest including sectoral restrictions, limitations on foreign ownership, authorization and screening, minimum investment, and performance requirements. Chapter five discusses key investor guarantees including fair and equitable treatment, national treatment, most-favored-nation (MFN) treatment, protection against expropriation, guaranteed convertibility and repatriation of profits, and settlement of disputes. Chapter six looks at the issue of investment incentives, (fiscal incentives in particular) and their effectiveness. Chapter seven summarizes key aspects of investment promotion to guide legal drafters, should policymakers want the investment code to set out the basic framework of investment promotion. Chapter eight presents the various phases of investment law reform projects, from the government's request for assistance with legislation to the delivery of a project plan. Chapter nine identifies some of the challenges in preparing an investment code and the support that governments may need until the law is promulgated. Chapter ten discusses the monitoring and evaluation (M and E) of investment law reforms, including the key indicators involved in a desk review and medium- and large-scale projects.

This paper is one of several case studies prepared for the World Bank. The objective of the case studies is to provide the Commission on Growth and Development insights on the policy reform process in developing countries that give rise to economic growth. In contrast to other countries where economic reforms ushered in a long period of sustained growth, there is no such episode in Philippine economic history. Since the restoration of democracy in 1986, the Philippines under the Ramos administration came closest to breaking out of its 'sick man of Asia' image. The confidence generated by the administration among local and international players and analysts resulted from wide-ranging reforms rooted primarily in a sound macroeconomic and investor-friendly regime as well as global competitiveness. This study is not intended as a scorecard of the Ramos Administration. Rather, it concentrates on three specific sector reforms during the Ramos administration that demonstrate the elements of successful reform processes. These reforms not only helped to free up demands on public finances then- considered, in today's parlance, the 'binding constraint' on needed public investment and reduced risk premium to encourage private investments-but over time brought gains, some unforeseen and broader in terms of positive spillover effects on the rest of the economy, and linkage to overall growth today.

This paper tracks the process through which FIAS, the investment climate advisory service of the World Bank Group advised the government of Latvia from 1998 to 2004 on ways to improve the business environment, achieve higher rates of economic growth, and thereby alleviate poverty. This case study shows that it is reasonable to describe how assistance by FIAS led to an improved business environment. The role that FIAS advice played may be discerned at the level of benefits accruing to the target population (i.e., the amount of resources freed up by lower costs associated with administrative procedures). Whether these benefits accruing to the business community translated into higher rates of investment and productivity, and thus to higher economic growth and reduced poverty, is a function of the entire political, social, and economic structure in Latvia. It is evident that there are many links in the chain of causation, and that the direct attribution FIAS can claim diminishes at every step downstream from its activities. Credit for success must be shared with the Government of Latvia and its immediate stakeholders (i.e., the businesses and their associations), the European Union accession process, the input of many other complementary projects, market forces, and fortuitous timing.

This paper analyzes recent automotive investment in the Slovak Republic and shows how the development of the automotive industry has influenced growth in productivity and output in the broader economy. The study also discusses the motivations for automotive investment, with the country evolving from a relative laggard in reform implementation and foreign direct investment in the late 1990s to one of the region's top performers and one of the fastest-growing economies. It is argued that strong reform implementation, together with continued and credible commitment to reforms, were both preconditions for attracting automotive investments and the key factors that enabled these investments to flourish. The reform efforts were made possible by strong political consensus on accelerating European Union (EU) accession and boosting living standards. Taking into account the specificity of the industry, other aspects related to factor endowments have also played a role. Generous investment incentives appear to have played an important role in swaying foreign investors in selecting the Slovak Republic within the broader region of central Europe. Once investment in automotive production started, it contributed to additional investment by suppliers that has helped generate locally owned suppliers. These, in turn, are beginning to supply car producers in neighboring countries. All told, the full impact of the original automotive investment will be felt only over several years, but even in the early years it has been substantial. With output at the existing three producers set to reach capacity only by 2010, the impact is likely to be more substantial still.