Export platform foreign direct investment : theory and evidence

This paper proposes a model that accounts for “export platform” FDI – a form of FDI that is common in the data but rarely discussed in the theoretical literature. Unlike the previous literature, this paper’s theory nests all the typical modes of supply, including exports, horizontal and vertical FDI, horizontal and vertical export platform FDI. The theory yields the testable hypothesis that a decrease in either inter-regional or intra-regional trade costs induces firms to choose export platform FDI. The empirical analysis provides descriptive statistics which point to large proportions of third country exports of US FDI, and an econometric analysis, whose results are in line with the model’s predictions. The last section suggests policy implications for nations seeking to attract FDI.

FDI and investment barriers in developing economies

Does investment liberalization in developing economies affect FDI decisions differently across individual firms? To address this question, we simulate the response of individual firms to reductions in investment costs across developing economies. We explore two policy experiments: elimination of setup-procedure requirements for foreign investors and a reduction in corporate tax rates on foreign-owned multinationals. We find that a relaxing of discriminatory foreign investment procedures induces middle productive firms to increase their entry and production in developing economies substantially, but the most productive firms to expand moderately. Multinationals expand their entry and production in developing economies more substantially following a decline in entry barriers than following a decrease in corporate tax rates.

Assessment of FDI impact on Thailand's production sectors : implications for investment promotion activities

This paper examines the overall and sectoral economic impact of foreign direct investment (FDI) on the Thai economy using the economic data from 2005-2013. In assessing the overall economic impact, it is found that FDI has contributed positively to Thailand's economic growth. However, when analyzing the sectoral details, the empirical results indicate that FDI has a varying impact on the productive sectors in Thailand. Out of the 9 sub-sectors covered by this study, 5 sub-sectors (manufacturing, construction, financial, wholesale, retail trade, and agriculture) show strong statistically-significant positive effects of FDI on the relevant sector's value-added output. Based on these findings, it is suggested that policy-makers, including the Board of Investment, should aim to promote FDI with special consideration of the sectoral impact that would enable Thailand's FDI promotion policies to be more productive and beneficial for the Thai economy.

The Role of Multilateral Coordination in Transport Policy: The Case of the Maghreb Countries

El WCTR es un congreso de reconocido prestigio internacional en el ámbito de la investigación del transporte y aunque las actas publicadas están en formato digital y sin ISSN ni ISBN, lo consideramos lo suficientemente importante como para que se considere en los indicadores. This paper aims at describing how multilateral cooperation policies are influencing national transport policies in developing countries. It considers the evolution of national transport policies and institutional frameworks in Algeria, Morocco and Tunisia in the last 10 years, and analyses the influence that EU cooperation programmes (particularly those within the Euromed programme initiative) and international coordination activities have played in the evolution towards efficient, sustainable transport systems in those countries. Notwithstanding the significant socioeconomic, political and institutional differences among the three countries, three major traits are common to the transport policy framework in all cases: a focus on megaprojects; substitution of traditional ministerial services by ad hoc public agencies to develop those megaprojects, and progressive involvement of international private players for the operation (and eventually the design and construction) of new projects, focusing on know-how transfer rather than investment needs. The hypotheses is that these similarities are largely due to the influence of the international cooperation promoted by the European Union since the mid- 1990s. The new decision making situation is characterized by the involvement of two new relevant stakeholders, the EU and a limited number of global transport operators. The hierarchical governance model evolves towards more complex structures, which explain the three common traits mentioned above. International coordination has been crucial for developing national transport visions, which are coherent with a regional, transnational system.

Electricity infrastructure: more border crossings or a borderless Europe? Bruegel Policy Contribution 2013/05, February 2013

Being able to transport electricity seamlessly across borders is essential for achieving three major European Union energy policy goals: (1) enabling competition between national energy companies, (2) cost-effective roll-out of renewables,and (3) security of supply. However, neither the market design nor the framework for infrastructure investment proposed by the European Commission is adequate for enabling free flows of electricity within the EU.

The New Financial Regulatory Paradigm: A transatlantic perspective. CEPS Policy Brief No. 287, 21 March 2013

This CEPS Policy Brief reviews key aspects of the new financial paradigm in a transatlantic perspective, focusing on the general approach in EU and US legislation in response to the financial crisis and the G-20 commitments and specifically as regards the extraterritorial implications. Following discussion of the institutional setting, conclusions are offered on what these changes mean in the context of the recently proposed Transatlantic Trade and Investment Partnership. In comparing the EU and the US efforts in re-engineering their regulatory regimes in response to the financial crisis, the paper finds, with the notable exception of the banking union, serious grounds for concern that the outcome may be an even more fragmented European financial market, access to which for third-country institutions is highly problematic.

You'd better bet on the ETS. Bruegel Policy Brief 2013/02, April 2013

The issue: The European Union's emissions trading system (ETS), introduced in 2005, is the centerpiece of EU decarbonisation efforts and the biggest emissions trading scheme in the world. After a peak in May 2008, the price of ETS carbon allowances started to collapse, and industry, civil society and policymakers began to think about how to ‘repair the ETS’. However, the ETS is an effective and efficient tool to mitigate greenhouse gas emissions, and although prices have not been stable, it has evolved to cover more sectors and greenhouse gases, and to become more robust and less distorting. Prices are depressed because of an interplay of fundamental factors and a lack of confidence in the system. Policy challenge The ETS must be stabilised by reinforcing the credibility of the system so that the use of existing low-carbon alternatives (for example burning gas instead of coal) is incentivised and investment in low-carbon assets is ensured. Further-more, failure to reinvigorate the ETS might compromise the cost-effective synchronisation of European decarbonisation efforts across sectors and countries. To restore credibility and to ensure long-term commitment to the ETS, the European Investment Bank should auction guarantees on the future emission allowance price.This will reduce the risk for low-carbon investments and enable stabilisation of the ETS until a compromise is found on structural measures to reinforce it in order to achieve the EU's long-term decarbonisation targets.

Europe's growth problem (and what to do about it). Bruegel Policy Brief 2013/03, April 2013

The issue: The European Union's pre-crisis growth performance was disappointing enough, but the performance has been even more dismal since the onset of the crisis. Weak growth is undermining private and public deleveraging,and is fuelling continued banking fragility. Persistently high unemployment is eroding skills, discouraging labour market participation and undermining the EU’s long-term growth potential. Low overall growth is making it much tougher for the hard-hit economies in southern Europe to recover competitiveness and regain control of their public finances. Stagnation would reduce the attractiveness of Europe for investment. Under these conditions, Europe's social models are bound to prove unsustainable. Policy Challenge: The European Union's weak long-term growth potential and unsatisfactory recovery from the crisis represent a major policy challenge. Over and above the structural reform agenda, which vitally important, bold policy action is needed. The priority is to get bank credit going. Banking problems need to be assessed properly and bank resolution and recapitalisation should be pursued. Second, fostering the reallocation of factors to the most productive firms and the sectors that contribute to aggregate rebalancing is vital. Addressing intra-euro area competitiveness divergence is essential to support growth in southern Europe. Third, the speed of fiscal adjustment needs to be appropriate and EU funds should be front loaded to countries in deep recession, while the European Investment Bank should increase investment.

Banking system soundness is the key to more SME financing. Bruegel Policy Contribution 2013/10, July 2013

The SME access-to-finance problem is not universal in the European Union and there are reasons for the fall in credit aggregates and higher SME lending rates in southern Europe. Possible market failures, high unemployment and externalities justify making greater and easier access to finance for SMEs a top priority. Previous European initiatives were able to support only a tiny fraction of Europe’s SMEs; merely stepping-up these programmes is unlikely to result in a breakthrough. Without repairing bank balance sheets and resuming economic growth, initiatives to help SMEs get access to finance will have limited success. The European Central Bank can foster bank recapitalisation by performing in the toughest possible way the asset quality review before it takes over the single supervisory role. Of the possible initiatives for fostering SME access to finance, a properly designed scheme for targeted central bank lending seems to be the best complement to the banking clean-up, but other options, such as increased European Investment Bank lending and the promotion of securitisation of SME loans, should also be explored.

Unemployment is the scourge, not youth unemployment per se. The misguided policy preoccupation with youth. CEPS Policy Brief No. 294, 26 June 2013

This Policy Brief argues that too much effort and political capital is being spent by the Commission and member states on being seen to be doing something quickly about youth unemployment when, in fact, the structural measures proposed will only have long-term effects. Expectations of immediate relief are running well above what can be delivered, especially at the EU level. Given the macroeconomic situation, no policy option will deliver a significant dent in either youth unemployment or unemployment in general. The EU policies on the table that are supposed to have an immediate effect, such as increased lending from the European Investment Bank to SMEs for the hiring of young people, will only have a very marginal impact on youth unemployment. Moreover, this impact will come mostly to the detriment of older unemployed persons excluded from such a scheme. Given the perceived need to ‘be seen to be doing something’, we fear that policies subsidising young workers de facto at the expense of older workers or, even worse, policies that subsidise older workers for not taking young people’s jobs, will proliferate. In fact, it is not at all clear that young people suffer more from being unemployed than older people, or even disproportionately more than older unemployed individuals. In particular, it is not clear that the much-publicised notion of a ‘lost generation’ with permanent ‘scars’ is relevant only to the young generation. The paper ends by highlighting the much-neglected policy option of encouraging labour mobility within the internal market. Although the Commission is ‘upgrading and modernising’ its tools, much more could be done in this area – to the benefit of the individuals concerned, the member states, and European integration in general.

Fiscal policy, banks and the financial crisis. National Bank of Belgium Working Paper No. 234, October 2012

This paper studies the effectiveness of Euro Area (EA) fiscal policy, during the recent financial crisis, using an estimated New Keynesian model with a bank. A key dimension of policy in the crisis was massive government support for banks—that dimension has so far received little attention in the macroeconomics literature. We use the estimated model to analyze the effects of bank asset losses, of government support for banks, and other fiscal stimulus measures, in the EA. Our results suggest that support for banks had a stabilizing effect on EA output, consumption and investment. Increased government purchases helped to stabilize output, but crowded out consumption. Higher transfers to households had a positive impact on private consumption, but a negligible effect on output and investment. Banking shocks and increased government spending explain half of the rise in the public debt/GDP ratio since the onset of the crisis.

Memo to Merkel: Post-election Germany and Europe. Bruegel Policy Brief 2013/05, 24 September 2013

Recent economic data points to the seeds of an economic recovery in the European Union. However, significant risks remain and bold policies are still needed. There are three central risks. Competitiveness adjustment is incomplete, casting doubt on the sustainability of public debt. Banking remains unstable and fragmented along national lines, resulting in unfavorable financial conditions, which further erode growth, job creation and competitiveness. Rising unemployment, especially among the young, is inequitable, unjust and politically risky. Germany has a central role to play in addressing these risks. The new German government should work on three priorities: Domestic economic policy should be more supportive of growth and adjustment, with higher public investment, a greater role for high-value added services, and more supportive immigration policy. Germany should support a meaningful banking union with a centralised resolution mechanism requiring a transfer of sovereignty to Europe for all countries including Germany. The establishment of a private investment initiative combined with a European Youth Education Fund and labour market reforms should be promoted. Building on these priorities, a significant deepening of the euro area is needed, with a genuine transfer of sovereignty, stronger institutions and democratically legitimate decision-making structures in areas of common policy.

Prospects for regulatory convergence under TTIP. Bruegel Policy Contribution 2013/15, October 2013

An ambitious, comprehensive and high-standard trade and investment agreement between the European Union and the United States is feasible, but a key concern is whether the transatlantic trade partners will succeed in creating a meaningful agreement within the tight timeline of the Transatlantic Trade and Investment Partnership (TTIP) negotiations. The target of a ratified pact before a new European Commission takes office in November 2014 is an objective that is likely to conflict with the level of ambition on the substance. Regulatory congruence would require the unilateral and unconditional recognition by the TTIP partners of each other’s standards, procedures and conformity assessment tests. The way forward is to create a ‘living’ (or progressive commitment) agreement on regulatory cooperation with a horizontal template for coherence and conformity assessment and a detailed monitoring mechanism, with implementation starting immediately for a few selected sectors. Regulatory harmonisation under TTIP may not lead to emerging markets automatically upgrading to the higher TTIP standards. Domestic priorities and the high demand from a rising price-sensitive group of consumers will likely result in a dual regulatory regime in emerging markets in the medium-term.

Net Neutrality and Mandatory Network-Sharing: How to disconnect the continent. CEPS Policy Brief No. 309, 18 December 2013

A lively debate emerged on the proposed “Connected Continent” legislative package presented by the European Commission in September 2013. The package contains a proposed rule on the ‘open Internet’, which was heavily discussed in European Parliament hearings in early December. This commentary argues that while the proposed rule is in principle balanced and appealing, it is utterly impractical due to the enormous uncertainty that its application would entail. At the same time, the rule is very far from what neutrality proponents have argued for almost a decade: rather than the place for internet freedom, it would transform the Web into a place requiring constant micro-management and tutoring of user behaviour. Both arguments lead to the conclusion that the current proposal should be at once reformed and analysed under a more holistic lens. On the one hand, Europe should launch an ambitious project for the future, converged infrastructure by mobilising resources and reforming rules to encourage investment into ubiquitous, converged, ‘always on’ connectivity. On the other hand, enhanced legal certainty for broadband investment could justify a more neutrality-oriented approach to traffic management practices on the Internet. The author proposes a new approach to Internet regulation which, altogether, will lead to a more balanced and sustainable model for the future, without jeopardising user freedom.

Paving the Way for Micro-, Small- and Medium-Sized Enterprises in the Southern Mediterranean. CEPS Policy Brief No. 314, 14 January 2014

The upheavals of the Arab Spring in the southern Mediterranean led to domestic and international demands on the governments in the region to implement reforms aimed at enhancing business and investment conditions especially for micro, small- and medium-sized enterprises (MSMEs), which carry out an overwhelming majority of the region’s economic activity. A comprehensive survey among some 600 high-growth potential MSMEs in Algeria, Egypt, Morocco and Tunisia identified and ranked the key obstacles impeding their high-growth potential. This Policy Brief summarises the main results and policy recommendations that can be drawn from this survey, which has been analysed in depth by Ayadi & De Groen (2014).