Michele Ruta, 05 May 2022

The war in Ukraine has suddenly increased geopolitical risks. This column argues that firms will respond to the shock by reassessing security-related risks, leading to changes in the structure of supply chains. But given the capital in place, the cost of searching for alternatives, and factors such as wage differentials across countries, this process is likely to be gradual rather than sudden and will affect different sectors and products differently. It will not result in a reversal of globalisation, unless it is supported by pronounced government intervention.

Cathérine Casanova, Eugenio Cerutti, Swapan-Kumar Pradhan, 24 November 2021

The global footprint of Chinese banks is substantial and growing, including during the COVID-19 pandemic. While they are similar to other banks from emerging countries in terms of their ownership and asset structure, their global footprint often resembles that of banks from advanced countries. Geographical distance acts as a barrier for Chinese banks’ lending, comparable to that for US or European banks. Also like their US peers, the lending of Chinese banks strongly correlates with trade. Some differences are present, such as an atypical negative correlation between bank lending and portfolio investment.

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. 

Cathérine Casanova, Beatrice Scheubel, Livio Stracca, 04 June 2021

Since the Global Crisis, the channels of capital flows have changed significantly. This column analyses key trends and underlying drivers of capital flows since the Global Crisis, including the policy trade-offs. It documents the increasing importance of market-based funding, a growing reliance on domestic currency liabilities, and a less stable foreign direct investment environment, particularly for emerging market economies. Although these changes create risks which should be managed, capital flows also present clear benefits for stimulating economic performance and efficiency. 

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.  

Mitsuo Inada, Naoto Jinji, 10 September 2020

Policy uncertainty is believed to affect foreign direct investment significantly, but, empirical evidence on the impact is scarce. This column proposes a unique empirical strategy for identifying the impact of a change in policy uncertainty on FDI at the sector level by utilising information about reservations of certain obligations contained in international investment agreements. It provides evidence that policy uncertainty discourages FDI. Policy uncertainty will continue to rise in the post-COVID-19 era, and the results highlight the importance of aligning globalisation with the mitigation of public health threats by implementing policies to reduce uncertainty.

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.

Kamran Bilir, Davin Chor, Kalina Manova, 06 May 2019

Understanding how host-country financial conditions influence the global operations of multinational firms is important for encouraging FDI. Using US data, this column show that more financially developed economies have more entry by multinational affiliates and higher aggregate affiliate sales to the local market, back to the US and to third destinations, particularly in more financially vulnerable sectors. Yet at both aggregate and affiliate levels, the share of local sales in total sales is smaller, while the shares of US and third-country sales are bigger. 

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.    

Eugenio Cerutti, Haonan Zhou, 09 February 2018

Chinese banks have continued to expand rapidly both domestically and abroad. Together, they constitute the largest banking sector in the world by far. This column places the Chinese banking system in a global context. Although very small relative to their domestic claims, Chinese banks’ foreign claims are substantial for many borrower countries in Asia, Africa, and the Caribbean in particular. Many of these banking connections are related to Chinese outward foreign direct investment, with fewer related to trade linkages.

Kazunobu Hayakawa, Toshiyuki Matsuura, 09 July 2017

Foreign direct investment has generally been found to have positive effects for firms in their home country. There are, however, concerns about potential negative effects for other domestic firms in the investing firm’s supply chain. This column uses Japanese firm-level data to explore the supply chain effects of foreign direct investment. Foreign direct investment does not appear to have adverse effects on domestic transaction networks. Rather, the positive effects of firms’ foreign investing are found to spread to the whole economy through their supply chains.

Randolph Bruno, Nauro Campos, Saul Estrin, 25 May 2017

The economic effects of foreign direct investment are generally expected to be positive for the host economy. However, this is usually conditional on certain thresholds of development being met, for instance in terms of human capital or institutional quality. This column argues that the economic impact of foreign direct investment is less ‘conditional’ than commonly thought, perhaps because below the thresholds, the difference between private and social returns is substantial, while above them it is smaller.

Konrad Burchardi, Thomas Chaney, Tarek Hassan, 12 November 2016

The economic effects of the unprecedented levels of international migrations over the past few years are at the centre of political debates about immigration policy. This column evaluates the causal effect of migration on foreign direct investment using immigration patterns to the US going back to the 19th century. Foreign direct investment is found to follow the paths of historical migrants as much as it follows differences in productivity, tax rates, and education. The results suggest a mechanism of information flow facilitation, and that the effect of ancestry on foreign direct investment is very long-lasting.

Jean-Marc Fournier, 26 May 2016

The limits of the European Single Market have often been highlighted. This column argues that although implicit barriers remain, the Single Market has delivered substantial benefits to member countries. New empirical evidence is presented of the trade and FDI gains that Central and Eastern European countries have enjoyed since joining the Single Market. On top of making regulations more competition-friendly, regulatory harmonisation can boost the economic links between countries. 

Randolph Bruno, Nauro Campos, Saul Estrin, Meng Tian, 05 May 2016

The current Brexit debate has highlighted questions about the benefits and costs of EU membership. This column considers the effect of membership on foreign direct investment (FDI). Using several measures, EU membership is found to increase FDI inflows by 14–38% between 1985 and 2013. These results support arguments for economic integration, and indicate that, like international trade, FDI is a key channel through which payoffs are delivered.

Nils Herger, Steve McCorriston, 31 January 2016

A key feature of globalisation over the last three decades has been the wave-like growth of foreign direct investment. This column shows that conglomerate cross-border acquisitions, which are closely associated with mispricing in financial markets, play a significant role in explaining these developments.

Rui Albuquerque, Miguel Ferreira, Luis Brandao-Marques, Pedro Matos, 17 January 2016

Previous research has shown that the corporate governance practices of firms are constrained by the legal standards of their country of incorporation. This column explores how an active international market for corporate control can substitute for weak institutions in a host country. Using firm-level data from 22 countries, it shows how cross-border M&A activity improves the governance of non-target firms in the same industry, via peer pressure. These findings provide evidence for corporate governance improvements as a novel positive spillover from FDI.

Nicolas Magud, Sebastián Sosa, 13 May 2015

Emerging markets are not the hot investment prospect they used to be. This column estimates that weaker private investment in these nations is a slowdown after a period of boom rather than an outright slump. Prospects for a recovery of business investment, however, are not promising. Commodity prices are expected to remain weak and external financial conditions are set to become tighter. 



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