the effects of fdi on host country export performance (austria)
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The effects of FDI on host country export performance (Austria). A presentation by; AJang Elvis Ngwesse Supervised by; Prof. Joseph Francois. Overview. Research objective and hypothesis Theoretical consideration Empirical evidence Trends in Austria The Austrian economy - PowerPoint PPT PresentationTRANSCRIPT
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The effects of FDI on host
country export performance
(Austria)
A presentation by; AJang Elvis Ngwesse
Supervised by; Prof. Joseph Francois
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Overview
• Research objective and hypothesis
• Theoretical consideration
• Empirical evidence
• Trends in Austria
• The Austrian economy
• Data description
• Methodology
• Results and Conclusion
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Research objectives and Hypothesis
• The main objective of this study is to investigate the impact of FDI on export performance in Austria during the period (1970-2005).
• We hypothesize that the inflow of FDI has impacted export growth positively during the period (1970-2005).
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Theoretical considerations The New Growth Theory.• It views technological progress as a product of economic activity. It also
suggests that knowledge and technology are characterised by increasing returns (Cortright, 2001).
• Investment in human capital contributes to increasing returns, the more resources devoted to R&D the faster the rate of innovation and the higher the rate of growth (Teixeira and Fortuna , 2003).
• FDI is expected to generate growth by encouraging the incorporation of new inputs and foreign technologies into host countries economy.
• The transfer of advanced technology strengthens the host country’s
existing stock of knowledge through labour training, skill acquisition, and the introduction of better management practices (Sjoholm , 1999).
• As a consequence, FDI increases productivity in the recipient economy, and FDI can be deemed to be a catalyst for domestic investment and technological progress (Markusen, 1999).
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The OLI Theory
It seeks to explain why multinationals move across boarders.
It argues that the combination of ownership, location, and internalization advantages explains the decision to establish production subsidiaries abroad (Cuervo-Cazurra, 2008).
Ownership advantage, e.g. rights to a particular technology. Locational advantage, availability of endowments. At home or abroad? internalization advantage, advantages of not licensing or leasing but
internalizing e.g. risk of copying.
Ownership (O) advantages, location (L) attraction, and internalization (I) benefits interact to determine the extent of foreign production activities of MNEs termed foreign direct investment (FDI).
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Author Country Data Findings Results
Zhang & Song 2000
China (1984-1997)
Panel data on manufacturing
Export growth & FDI
FDI promotes export
Jacorcik 2004 Lithuania Firm level panel data
MNC & spillovers effect
Existence of positive spillovers
Kutan and Vukšic 2007
12 transition economies
Panel data analyses
FDI & export performance
Positive spillovers by MNC
Jordaan 2008 Mexico Manufacturing industries
Externalities of FDI
Positive externalities
Empirical evidence on FDI and economic growth
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Trends in Austria
• Austria´s exports have grown much faster over the period 1995-2005.
• Percapita GDP has also been on a rise since the early 1970´s.
• Unit labour productivity which represents Austria´s competitiveness in manufacturing has been oon a decline.
• Trading partners have increased since Austria joined the EU.
• There have been a continues inflow of FDI with the inflow into service industries surpasing the inflow into manufacturing.
• There appear to be a number of contributing factors including FDI inflows which have been rising consistently since the early 1990´s.
• If FDI leads to export growth, then policicies in attracting FDI are justified! We attempt to adress these issues in this study.
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The Austrian economy
Exports % GDP (1970-2006)30
3540
4550
55
1970 1980 1990 2000 2010Years
Source: WDI, 2009
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The Austrian economy
Merchandise/Service exports Mill $ (1980-2007)0
50
00
01
00
00
01
50
00
0
1980 1990 2000 2010YEAR
service exports Merchandise export
Source: UNCTAD
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The Austrian economy
Productivity in manufacturing (trading partners)
Luxembourg
Norway
France
Austria
Netherlands
Italy
Germany
UK
Switzerland
Japan
Czech Rep
Hungary
Poland
0 20 40 60 80
1
Poland
Hungary
Czech Rep
Japan
Switzerland
UK
Germany
Italy
Netherlands
Austria
France
Norway
Luxembourg
Source: World competitive year book 2008 (GDP per person employed per hour, in US$).
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The Austrian economy
Export Destination by country in %
EU
Germany
Italy
France
Switerland
US
Hungary
0 10 20 30 40 50 60 70
1
Hungary
US
Switerland
France
Italy
Germany
EU
Source:OeNB 2007
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Inward FDI share by industry (1999-2006)Year 1999 2000 2001 2002 2003 2004 2005 2006
Agriculture, Forestry, Fishing 35 35 37 39 19 19 23 19
Mining and quarrying 257 286 336 332 345 373 386 336
Food, beverages and tobacco 378 631 647 878 297 244 2,643 300
Textiles, clothing and leather 232 252 262 243 245 215 246 246
Wood and wood products 22 50 53 47 43 53 51 62
Paper and paper products; printing 803 783 777 1,099 1,130 1,191 1,323 1,629
Chemicals, rubber and plastic products 2,641 2,529 2,527 3,732 3,074 4,223 3,302 3,017
Non-metallic mineral products 409 468 539 540 572 508 634 690
Metal and metal products 504 584 622 668 673 684 807 801
Machinery and equipment 730 1,149 1,189 1,358 1,110 1,107 1,137 1,254
Electrical, electronic and optical equipment 1,240 2,286 2,941 2,425 2,226 2,143 1,614 1,115
Motor vehicles and other transport equipment 387 412 497 487 434 426 376 539
Other manufacturing; recycling 74 86 78 60 61 25 41 21
Electricity, gas and water supply 32 30 31 34 187 220 854 1,323
Construction 81 80 48 70 106 72 77 56
Trade and repair 5,430 6,449 6,401 8,848 10,468 9,020 10,748 12,074
Hotels and restaurants 202 262 274 243 164 195 175 182
Transport, storage and communication 1,191 1,439 1,649 1,457 813 744 2,187 3,702
Banking Insurance 2,895 6,556 7,046 6,446 8,089 10,874 14,465 20,804
Real estate, renting, IT, R&D 6,647 9,066 13,632 13,699 15,512 19,495 28,793 36,040
Public and other services 72 60 127 106 69 85 95 127
Total 24,261 33,493 39,713 42,811 45,635 51,915 69,977 84,337
Production of goods 7,824 9,661 10,585 12,012 10,520 11,503 13,514 11,408
Services 16,437 23,832 29,129 30,798 35,114 40,412 56,463 72,930
Source.OeNB
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Inward FDI by share of Goods & Services. 0
20
40
60
80
An
nu
al %
1998 2000 2002 2004 2006Years
goods Services
Inward FDI in Goods & Services
Source: OECD
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The Austrian economy
Inward FDI (Mill. Euros)
Germany
FranceItaly
Netherlands
Sweden
United Kingdom
Switzerland,
Liechtenstein
Russia
U.S.AJapan
Spain
Slovenia
Belgium
Hungary
Belgium
Germany
France
Italy
Netherlands
Sweden
Spain
United Kingdom
Slovenia
Hungary
Switzerland, Liechtenstein
Russia
U.S.A
Japan
Source:OeNB
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Data
• All of the data used in this study are from secondary sources.
• Some data sources include UNCTAD,IMF,WDI,WIFO,OeNB,OECD,UNESCO.
• The period covered is from 1970-2005
• Some data have missing values e.g Terms of trade
• Most data are aggregate data (FDI) making further findings not possible.
• Poxy for HC Primary/Secondary enrolmenet was not available.
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Summary Statistics
stats | FDI EXP TOT REEX GDP
mean | .9063889 36.53833 98.9929 .3666667 2.581143
max | 4.4 53.2 104.52 13.6 6.21
min | .15 28.89 90.46 -13.8 -.36
variance | 1.016527 44.08881 9.098932 33.79657 2.88094
skewness | 1.867783 1.059393 -.7489629 -.0682148 .1361214
kurtosis | 5.896101 3.122904 3.516625 3.42861 2.365281
range | 4.25 24.31 14.06 27.4 6.57
cv | 1.112359 .1817253 .0304713 15.85495 .6575898
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Methodology
Model specification. We try to capture the effect of FDI on export by using the following specification.
21143210 DDXLGDPLTOTLREEXLX ttttt
215143210 DDLFDIXLGDPLTOTLREEXLX tttttt
Equation 1. Suppy capacity equation (captured by GDP)
Equation 2. FDI-Specific effect equation (captured by FDI)
X represents Exports, REEX represents the real effective exchange rate, GDP
represents gross domestic product, FDIG represents Foreign Direct
Investment, TOT represents Terms of Trade, D1 represents Dummy for EU
membership, D2 represents Dummy for adoption of Euro, Ε represents Error
term.
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Results of Unit Root test for Variables in levels
Variable DF PP ADF Order of
Intergration
X -0.728 1.473 1.348 I(I)
GDP -5.185* -3.704* -5.198* I(0)
TOT -3.044** -3.043** -3.030** I(0)
FDIG -3.059*** -2.836*** -2.831*** I(0)
REXC -4.061 * -5.181* -5.218* I(0)
*, **, *** are Significance levels at 1%, 5%, and 10% respectively
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Results of unit root test for transformed variables in first difference
Variable DF PP ADF Order of integration
dxg -4.476* -4.365* -4.457* I(0)
dGDI -11.306* -6.060* -9.015* I(0)
dFdig -10.190 * -12.996 -5.044* I(0)
drexg -8.219 * -10.248 * -6.139* I(0)
dtot -6.025 * -6.155* -3.089* I(0)
*, **, *** are Significance levels at 1%, 5%, and 10% respectively
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Co-integration Tests
Variable DF PP ADF Order of integration
residuals -3.502** -3.079** -3.200** I(0)
Result for Unit root tests for the residuals (ECT)
*, **, *** are Significance levels at 1%, 5%, and 10% respectively
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Variables Coefficient Standard error
dGDP 0.0534952 0.1100093
X_1 -0.272413** 0.1035256
dTOT -0.0683159 0.086801
dREEX -0.05448415*** 0.0314684
D1995 2.419701* 0.7283057
ECT .3222161** .1261245
Constant 9.234293 3.443196
F-Statistics 3.61
P-Value 0.0114
R-Square 0.4850
Breusch-Pagan / Cook-Weisberg test(Hettest)
0.6852
Breusch-Godfrey LM test for autocorrelation
0.3428
Durbin-Watson d-statistic 2.058662
Autoregressive conditional (Hettest) 0.0563
Observation 30
***,**,*, represent statistical significant levels at 1%, 5% and 10% respectively
Regression results for Supply-Capacity equation
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Regression results for FDI-Specific effectsVariables Coefficient Standard error
dGDP 0.0004822 0.0904994
X_1 -0.4770149* 0.1014271
dTOT -0.1399077*** 0.0731762
dFDI 1.485494* 0.4128616
dREEX -0.052764*** 0.0255359
D1995 2.098149* 0.5975733
ECT .5793396 * .1248056
Constant 16.03983 3.373497
F-Statistics 6.55
P-Value 0.0003
R-Square 0.6758
Breusch-Pagan / Cook-Weisberg test(Hettest) 0.9686
Breusch-Godfrey LM test for autocorrelation 0.2941
Durbin-Watson d-statistic 1.642557
Autoregressive conditional (Hettest) 0.2625
Observation 30
***,**,*, represent statistical significant levels at 1%, 5% and 10% respectively
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Conclusion
• We find evidence that FDI inflows in the period (1970-2005) contributed to export growth of the Austrian economy.
• GDP was insignificant. This variable was expected to capture increases in the supply capacity of the economy due to FDI inflows.
• Thus FDI did not contribute in increasing the supply capacity. Reasons being most FDI was directed to the service sector while most Austrian exports was from the manufacturing sector.
• Never the less, results show that FDI was significant in increasing exports through spill-over effects i.e. Positive externalities of FDI.
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