Vincent Aussilloux, Jean-Charles Bricongne, Samuel Delpeuch, Margarita Lopez Forero, 21 September 2021

French multinational enterprises have been expanding their activity abroad, including for profit-shifting purposes. These tax planning activities may alter the measurement and our understanding of their real activity. This column uses French micro-data from 1997 to 2015 to show that firm-measured productivity declines in the years following multinationals’ establishment of tax havens. Had these new presences in tax havens not been established, the annual growth of French aggregate labour productivity would have been 0.06% higher, which is tantamount to 9.7% of the observed annual aggregate labour productivity growth. 

Randolph Bruno, Nauro Campos, Saul Estrin, 17 July 2021

Do different economic integration arrangements vary in terms of their capacity to attract foreign direct investment? This column uses a structural gravity framework on annual bilateral FDI data for 142 countries between 1985 and 2018 to revisit this question. It finds that deep integration in the form of EU membership increases FDI by about 60% from outside the EU and by about 50% from within the EU. The effect of EU membership on FDI appears to be significantly larger than that from the less deep integration arrangements (EFTA, NAFTA, or MERCOSUR), with the Single Market the cornerstone of this differential impact. 

Simon Evenett, Johannes Fritz, 03 June 2021

Properly guided, foreign direct investment has transformed the prospects of certain firms, sectors, regions, and even economies. This column introduces the 27th Global Trade Alert report, which looks back over the past quarter of a century to put current FDI dynamics in perspective, assesses the degree to which governments continue to favour FDI, and points the spotlight on the limited contribution of FDI to advancing sustainable development in emerging markets.

Mattia Di Ubaldo, Michael Gasiorek, 05 January 2021

Preferential trade agreements increasingly feature non-trade provisions whose impact on foreign direct investment is yet to be explored. This column exploits a structural gravity setting to study how preferential trade agreement provisions related to civil and political rights, economic and social rights, and environmental protection may affect the flow of bilateral greenfield foreign direct investment. It finds that all three types of non-trade related provisions affect FDI negatively. The largest effects are estimated for FDI directed ‘South’ (to middle- and low-income countries), and between ‘South-South’ countries in particular.

Simeon Djankov, Eva (Yiwen) Zhang, 04 December 2020

Foreign direct investment flows to the US have seen a sharp decline in the past two years, despite a cut in the corporate tax rate from 35% to 21% in 2017. Previous research suggests that such a tax cut should have resulted in increased investor appetite. This column argues that countervailing forces, in particular the shift in investment sentiment driven by the corrosion of US openness to trade and global cooperation, have played the dominant role in reducing flows.  

Francesca Spinelli, Dorothée Rouzet, Hongyong Zhang, 03 April 2020

Multinational firms face complex decisions regarding where and how to set up their activity. Their location choices also take into account complementarities between activities and between markets. This column uses micro-data on Japanese foreign affiliates to shed light on what drives these complex location strategies for Japanese multinationals, and argues that policies to foster FDI attractiveness, especially to be chosen as the location of export platforms, need to take into account these complementarities. 

, 03 February 2020

While policymakers go the extra mile  to  try to attract investments, they often hold serious  misconceptions  about the impact of multinationals

Sebnem Kalemli-Ozcan, 12 December 2019

Sebnem Kalemli-Özcan discusses foreign direct investment and how local conditions can limit a country's capacity to take advantage of spillovers from the investment

Bruno Casella, 30 October 2019

A large and growing proportion of global investment flows is channelled through conduit jurisdictions and offshore financial centres, making it difficult to track the real origin and ownership of FDI. This column illustrates an innovative approach to estimating FDI positions by ultimate investors and discuss some implications in key policy areas such as trade and investment, development, and international taxation.

Beata Javorcik, 13 September 2019

Economists argue whether foreign direct investment in developing economies exports pollution or generates green growth. Beata Javorcik talks to Tim Phillips about a surprising conclusion from factory-level research.

Arlan Brucal, Beata Javorcik, Inessa Love, 16 August 2019

The link between foreign ownership and environmental performance remains a controversial issue. Data from the Indonesian manufacturing census show that plants undergoing foreign acquisitions reduce their energy intensity by about 30% two years after acquisition by multinationals. This column argues that foreign direct investment can serve as a channel for the international transfer of environmentally friendly technologies and practices, thus directly contributing not only to economic growth but also to environmental progress. 

Christoph Boehm, Aaron Flaaen, Nitya Pandalai-Nayar, 15 August 2019

What has caused the rapid decline in US manufacturing employment in recent decades? This column uses novel data to investigate the role of US multinationals and finds that they were a key driver behind the job losses. Insights from a theoretical framework imply that a reduction in the costs of foreign sourcing led firms to increase offshoring, and to shed labour.

James Anderson, Mario Larch, Yoto Yotov, 30 July 2019

Foreign direct investment has traditionally been viewed as a key driver of prosperity, and modern FDI has also become a vehicle for transferring intangible assets. This column uses a counterfactual experiment based on a hypothetical world with no outward or inward FDI to and from low-income and lower-middle-income countries to examine the effects of FDI on trade, domestic investment, and welfare. World welfare falls by about 6% and all countries lose out, with some poorer countries losing over 50%. World trade falls by 7%, with the losses again unevenly distributed.

Marco Buti, István Székely, 28 June 2019

The EU11 economies are among the most open economies globally. The process of trade integration and the creation of GVCs have also drove a significant inflow of FDI into these countries. This column shows that while integration in the EU and FDI have enhanced their growth potential, these developments have also made them more vulnerable to external shocks. Domestic and EU-level reforms in the EU11 should focus on increasing economic and social resilience. 

Reda Cherif, Fuad Hasanov, 16 June 2019

The 'Asian miracles' and their industrial policies are often considered as statistical accidents that cannot be replicated. The column argues that we can learn more about sustained growth from these miracles than from the large pool of failures, and that industrial policy is instrumental in achieving sustained growth. Successful policy uses state intervention for early entry into sophisticated sectors, strong export orientation, and fierce competition with strict accountability.

Marco Di Cataldo, Riccardo Crescenzi, Mara Giua, 22 February 2019

Marco di Cataldo, Riccardo Crescenzi and Mara Giua from the Global Investment - Local Development research team at LSE explore the various policy tools available to local decision-makers to attract foreign investments, and most importantly, to make the most of them.

Holger Breinlich, Elsa Leromain, Dennis Novy, Thomas Sampson, 12 February 2019

Media reports suggest that some UK firms have started to move production abroad in anticipation of Brexit. Using data on announcements of new foreign investment transactions, this column reports evidence that the Brexit vote has led to a 12% increase in the number of new investments made by UK firms in EU27 countries. At the same time, new investments in the UK from the EU27 have declined by 11%. The results are consistent with the idea that UK firms are offshoring production to the EU27 because they expect Brexit to increase barriers to trade and migration, making the UK a less attractive place to invest and create jobs. 

Sara McGaughey, Pascalis Raimondos, 29 June 2018

Researchers and policymakers often refer to ‘foreign firms’, but how do we define a firm as ‘foreign’ and does it matter for our policy conclusions? This column argues due to the dominant practice of using only direct ownership links to identify the owners of a firm, the commonly used definition of a foreign firm captures only half of the foreign firms that exist. Indirect ownership link turns out to be pivotal for identifying firms that appear to be domestic but are in reality foreign, with implications for the measurement of FDI productivity spillovers.    

Koen De Backer, Sébastien Miroudot, Davide Rigo, 19 April 2018

Multinational enterprises that produce goods rely on services to organise their value chain, so barriers to investment in services are likely to affect their production. The column uses a new and comprehensive OECD database to measure the share of services in the exports of multinational enterprises, and also in the output of their foreign affiliates. The results suggest that policymakers may need to focus more on the services that support manufacturing industries.

Kun Jiang, Wolfgang Keller, Larry D. Qiu, William Ridley, 15 April 2018

China’s government mandates that foreign investors in certain industries form joint ventures with a domestic Chinese partner. The column uses a dataset accounting for all joint ventures in China from 1998 to 2007 to show that this policy is successful in its aim of encouraging technology transfer from foreign investors to domestic operations. It finds empirical evidence for the existence of at least three channels through which this transfer takes place.

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