mibe the economics of emerging economies
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MIBE The economics of emerging economies. The role of Finance in economic development and the emerging economies Gianni Vaggi , April 2014 Finance 1-2 4-Foreign Direct Investments. Foreign Direct Investment. - PowerPoint PPT PresentationTRANSCRIPT
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MIBEThe economics of emerging economies
The role of Finance in economicThe role of Finance in economic
development and the emerging economiesdevelopment and the emerging economies
Gianni Vaggi, April 2014Gianni Vaggi, April 2014
Finance 1-2Finance 1-2
4-Foreign Direct Investments4-Foreign Direct Investments
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Foreign Direct InvestmentForeign Direct Investment
Investment involving a LONG TERM Investment involving a LONG TERM relationship and reflecting a LASTING relationship and reflecting a LASTING interest and control by a FOREIGN direct interest and control by a FOREIGN direct INVESTOR in an enterprise resident in an INVESTOR in an enterprise resident in an economy other than that of the foreign economy other than that of the foreign investor.investor.
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FDI inflows, global and by group of FDI inflows, global and by group of economies, 1995–2012 economies, 1995–2012
(Billions of Dollars)(Billions of Dollars)
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FDI flows, by region, 2010-2012 (billions of Dollars and per cent)
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FDI flows by region, 2005-2010(Billions of Dollars)
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Top 20 host economies, 2012 (billion of dollars)
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SECTOR of investmentSECTOR of investment
• Tendency towards SERVICES…Tendency towards SERVICES…
• SERVICES are important becauseSERVICES are important because
increase competitivenessincrease competitiveness
affect living standards (health, affect living standards (health, education, water, electricity)education, water, electricity)
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Sectoral Distribution of FDI Projects, 2011-2012 (Billions of Dollars and per cent)
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Modes of EntryModes of Entry
• Mergers & Acquisitions (M&A)Mergers & Acquisitions (M&A)Transfer of ownership - asset strippingTransfer of ownership - asset strippingNo productive capacity addedNo productive capacity addedMay reduce competitionMay reduce competitionThreaten national sovereignty Threaten national sovereignty
• Greenfield InvestmentsGreenfield InvestmentsNew production facilitiesNew production facilitiesStimulate domestic entrepreneurshipStimulate domestic entrepreneurshipBring in capital slower than M&ABring in capital slower than M&ACrowding outCrowding out
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Value and Number of M&A and Greenfield FDI Projects, 2003-2012
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Distribution of the value of greenfield FDI project by sector, 2012 (per cent)
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FDI in Africa, 2002-2012
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FDI inflows and their share in World Total, 2006-2012
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AFRICAFDI inflows, top 5 economies, 2010-2011 (Billions of Dollars)
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East and South-East Asia
FDI inflows and their share in World Total, 2006-2012
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Distribution of FDI flows among economies, by range, 2012
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EAP- FDI flows, top 5, host and home EAP- FDI flows, top 5, host and home economies, 2011-2012economies, 2011-2012
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South Asia
FDI inflows and their share in World Total, 2006-2012
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SA-FDI flows, top 5, host and home economies, 2011-2012
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Latin America and the Caribbean
FDI inflows (billions of Dollars) and their share in world total, 2006-2012
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Distribution of FDI flows among economies, by range, 2012
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LAC-FDI flows, top 5, host and home economies, 2011-2012
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FDIs; PROs and FDIs; PROs and ConsCons
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The Foreign InvestorThe Foreign Investor
TNC conducts and controls productive TNC conducts and controls productive activities in a specific sector (primary, activities in a specific sector (primary, manufacturing, services) in more than one manufacturing, services) in more than one country.country.
N.B. TNC not in development businessN.B. TNC not in development business
MAX RETURNS ON CAPITAL
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FDI source for DEVELOPMENT?FDI source for DEVELOPMENT?
Filling in gaps:Filling in gaps:
• CAPITAL flowCAPITAL flow
• TECHNOLOGY flowTECHNOLOGY flow
• Gvt. Revenue (tax)Gvt. Revenue (tax)
• Human capital skills (spillovers)Human capital skills (spillovers)
• Non debt creatingNon debt creating
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FDI threat for DEVELOPMENT?FDI threat for DEVELOPMENT?
• Crowding out of local firmsCrowding out of local firms
• Influence gvt. policies badlyInfluence gvt. policies badly
• Local resources allocated for socially Local resources allocated for socially undesirable projects undesirable projects
• Modes of entry Modes of entry
• Sector of investment (value added)Sector of investment (value added)
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Let’s consider…Let’s consider…
• Type of investmentType of investment
• Situation of the host country enterpriseSituation of the host country enterprise
• The sectorThe sector
• The time-frame The time-frame
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SERVICESSERVICES
• POTENTIAL RISKSPOTENTIAL RISKS::
SISTEMICSISTEMIC
STRUCTURALSTRUCTURAL
CONTINGENTCONTINGENT
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SISTEMIC RISKSSISTEMIC RISKS
Lack of regulationLack of regulation
Economic InstabilityEconomic Instability
Es. loose control over capital movements in and Es. loose control over capital movements in and out of the country, volatility of the exchange rate, out of the country, volatility of the exchange rate, contagion effect in case of crisescontagion effect in case of crises
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STRUCTURAL RISKSSTRUCTURAL RISKS
Monopoly sectors (Natural Monopoly, State Monopoly sectors (Natural Monopoly, State Monopoly, public goods)Monopoly, public goods)
Privatization (private monopoly)Privatization (private monopoly)
increase in pricesincrease in prices
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CONTINGENT RISKSCONTINGENT RISKS
FDI in social or cultural relevant FDI in social or cultural relevant sectors (media, strategic sectors i.e sectors (media, strategic sectors i.e financial)financial)
FDI in sectors with high FDI in sectors with high environmental impact (Tourism)environmental impact (Tourism)
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Scope for Governmental PoliciesScope for Governmental Policies
• Active policies to directly affect FDI Active policies to directly affect FDI (sectors, local capabilities, upgrading (sectors, local capabilities, upgrading skills, technological capabilities, skills, technological capabilities, infrastructure)infrastructure)
• International Investment Agreements (IIA) International Investment Agreements (IIA) – Multilateral, Regional & Bilateral levels– Multilateral, Regional & Bilateral levels
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References
• Global Development Finance (WB)• World Investment Report (UNCTAD)• Trade & Development Report (UNCTAD)• Mold Andrew, December 2008, “The Fallout from the Financial Crisis:
Implications for FDI to Developing Countries”, OECD Development Centre, Policy Insight, no.86
• Nunnenkamp Peter, 2002, “Foreign Direct Investment in Developing Countries: What Economists (Don’t) Know and What Policymakers Should (Not) Do!”, Cuts international press
• OECD press release, 24 June 2008, “FDI from OECD Countries Jumps 50% in 2007 but Set to Fall in 2008”, www.oecd.org
• UN, 2009, “World Economic Situation and Prospects 2009”, UN Publication• UNCTAD, 1999, “Foreign Direct Investment and Development”, UNCTAD
Series - on issues in International Investment Agreements• 'Financing Development in a Post-Crisis World: The Need for a Fresh Look‘,
Global Development Network • World Bank database available on the webWorld Bank database available on the web