The present study examines the impact of foreign direct investment (FDI) in a three sectors model economy consisting of an organised sector, semiorganised sector and unorganised sector. If we consider that capital is immobile within sectors then an increase in FDI in organised sector will increases the demand of skilled labour in organised sector, increase the demand of unskilled labour in unorganised sector and decreases the demand of skilled labour in semiorganised sector. Furthermore we consider spillover effect of FDI from organised sector to semiorganised sector. Then we extend the model to situation where capital is perfectly mobile within sectors and find conditions for increasing wage inequality when there is an increase in FDI in organised sector
{"title":"Impact of FDI in a Three Sectors Model","authors":"Arpita Gupta, Adarsh Chand","doi":"10.2139/ssrn.3873761","DOIUrl":"https://doi.org/10.2139/ssrn.3873761","url":null,"abstract":"The present study examines the impact of foreign direct investment (FDI) in a three sectors model economy consisting of an organised sector, semiorganised sector and unorganised sector. If we consider that capital is immobile within sectors then an increase in FDI in organised sector will increases the demand of skilled labour in organised sector, increase the demand of unskilled labour in unorganised sector and decreases the demand of skilled labour in semiorganised sector. Furthermore we consider spillover effect of FDI from organised sector to semiorganised sector. Then we extend the model to situation where capital is perfectly mobile within sectors and find conditions for increasing wage inequality when there is an increase in FDI in organised sector","PeriodicalId":388027,"journal":{"name":"PSN: Foreign Direct Investment (International) (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-06-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123168997","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
A. Achleitner, D. Bazhutov, A. Betzer, Henry Keppler
We document empirical evidence that the investment patterns of the two most relevant investor groups from regions with hierarchical structures in the German stock market, namely China (including Hong Kong) and the Gulf Cooperation Council, differ substantially. Chinese investors buy large shares in relatively small, but not necessarily young, companies. Since their objective is often to gain control, they appear to pay higher premiums when acquiring large equity stakes. Investors from the Gulf states purchase smaller shareholdings in notably larger, older, and more international companies. They seem to seek long-term benefits rather than short-term profits. Our findings are mainly attributable to industrial policies pursued by Chinese and Gulf investors, which mirror the different political and economic goals in these two regions.
{"title":"Foreign Direct Investments in the German Stock Market From China and the Gulf States","authors":"A. Achleitner, D. Bazhutov, A. Betzer, Henry Keppler","doi":"10.2139/ssrn.3792400","DOIUrl":"https://doi.org/10.2139/ssrn.3792400","url":null,"abstract":"\u0000 We document empirical evidence that the investment patterns of the two most relevant investor groups from regions with hierarchical structures in the German stock market, namely China (including Hong Kong) and the Gulf Cooperation Council, differ substantially. Chinese investors buy large shares in relatively small, but not necessarily young, companies. Since their objective is often to gain control, they appear to pay higher premiums when acquiring large equity stakes. Investors from the Gulf states purchase smaller shareholdings in notably larger, older, and more international companies. They seem to seek long-term benefits rather than short-term profits. Our findings are mainly attributable to industrial policies pursued by Chinese and Gulf investors, which mirror the different political and economic goals in these two regions.","PeriodicalId":388027,"journal":{"name":"PSN: Foreign Direct Investment (International) (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-02-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132462157","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The mushrooming of special economic zones (SEZs) in recent years has led to a significant increase in the supply of attractive incentives for investors looking for opportunities abroad. Special economic zones are self-contained regimes, inextricably associated with investment promotion policies and domestic industrial policy in general, that many times form part of a broader strategic governmental planning that aims at experimenting with economic rule-making in strictly defined territorial and jurisdictional boundaries. While empirical evidence is still inconclusive, special economic zones can contribute to economic development at the domestic level through a varying degree of channels. This is even more the case with services-only special economic zones, a new phenomenon that exemplifies the rising importance of trade in services but also the ‘servicification trend’ that drives global economic activity. Against this background, this article examines the case of services in special economic zones and offers a tour d’horizon of the current services-related special economic zone landscape. Furthermore, the article critically reviews the patterns, traits, and limits of trade in financial services within special economic zones and discusses the relevance of the General Agreement on Trade in Services at this juncture. It concludes with a discussion of potential development-related benefits ensuing from trade in financial services within special economic zones.
{"title":"Financial Services Trade in Special Economic Zones","authors":"Panagiotis Delimatsis","doi":"10.2139/ssrn.3758141","DOIUrl":"https://doi.org/10.2139/ssrn.3758141","url":null,"abstract":"\u0000 The mushrooming of special economic zones (SEZs) in recent years has led to a significant increase in the supply of attractive incentives for investors looking for opportunities abroad. Special economic zones are self-contained regimes, inextricably associated with investment promotion policies and domestic industrial policy in general, that many times form part of a broader strategic governmental planning that aims at experimenting with economic rule-making in strictly defined territorial and jurisdictional boundaries. While empirical evidence is still inconclusive, special economic zones can contribute to economic development at the domestic level through a varying degree of channels. This is even more the case with services-only special economic zones, a new phenomenon that exemplifies the rising importance of trade in services but also the ‘servicification trend’ that drives global economic activity. Against this background, this article examines the case of services in special economic zones and offers a tour d’horizon of the current services-related special economic zone landscape. Furthermore, the article critically reviews the patterns, traits, and limits of trade in financial services within special economic zones and discusses the relevance of the General Agreement on Trade in Services at this juncture. It concludes with a discussion of potential development-related benefits ensuing from trade in financial services within special economic zones.","PeriodicalId":388027,"journal":{"name":"PSN: Foreign Direct Investment (International) (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-12-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128396157","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Developing countries experience balance of payments deficits, dwindling foreign exchange reserves and declining national incomes. Their ability to finance development is therefore affected. To fill such gaps, countries turn to foreign direct investment (FDI). While FDI is viewed as both bad and good, this article presents an overview presentation of FDI theory and examines how the Maldives as an FDI host has fared in recent years.
{"title":"Foreign Direct Investment: How Has Maldives Fared?","authors":"Fazeel Najeeb","doi":"10.2139/ssrn.3776702","DOIUrl":"https://doi.org/10.2139/ssrn.3776702","url":null,"abstract":"Developing countries experience balance of payments deficits, dwindling foreign exchange reserves and declining national incomes. Their ability to finance development is therefore affected. To fill such gaps, countries turn to foreign direct investment (FDI). While FDI is viewed as both bad and good, this article presents an overview presentation of FDI theory and examines how the Maldives as an FDI host has fared in recent years.","PeriodicalId":388027,"journal":{"name":"PSN: Foreign Direct Investment (International) (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125630475","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper reflects on the policy formation process in the burgeoning area of government’s involvement venture capital finance (VC) over the two decades 2000-2020. It looks at both why and how government VC funds (GVC) have evolved. The increasingly common vehicle of ‘hybrid’ co-investment funds, which include both public and private VC investors managed by a jointly approved private fund manager, is analysed. The evolution and greater refinement of public intervention in VC markets over time is acknowledged while noting that significant operational challenges remain. There is some evidence that later iterations of GVC programmes have started to add net value which may imply a public-policy learning process. A fluctuating supply over time for venture capital finance, particularly at the earliest stages of firm formation and growth, suggests the benefits of well-designed and complementary government venture capital activity. The rubric of Ten Meditations is employed as a device to communicate both problem and prescription across the academic/policy maker divide. The paper is intended to be relevant to policy makers while grounded in robust academic research.
{"title":"Ten Meditations on (Public) Venture Capital – Revisited","authors":"Gordon Murray","doi":"10.2139/ssrn.3736664","DOIUrl":"https://doi.org/10.2139/ssrn.3736664","url":null,"abstract":"This paper reflects on the policy formation process in the burgeoning area of government’s involvement venture capital finance (VC) over the two decades 2000-2020. It looks at both why and how government VC funds (GVC) have evolved. The increasingly common vehicle of ‘hybrid’ co-investment funds, which include both public and private VC investors managed by a jointly approved private fund manager, is analysed. The evolution and greater refinement of public intervention in VC markets over time is acknowledged while noting that significant operational challenges remain. There is some evidence that later iterations of GVC programmes have started to add net value which may imply a public-policy learning process. A fluctuating supply over time for venture capital finance, particularly at the earliest stages of firm formation and growth, suggests the benefits of well-designed and complementary government venture capital activity. The rubric of Ten Meditations is employed as a device to communicate both problem and prescription across the academic/policy maker divide. The paper is intended to be relevant to policy makers while grounded in robust academic research.","PeriodicalId":388027,"journal":{"name":"PSN: Foreign Direct Investment (International) (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-11-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125266659","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper analyzed the trends in corporate finance in Pakistan and uses a panel data model for empirically identifying the factors which influence corporate investment decisions, during the period 2014-18. The findings revealed that firm-level factors such as cash flow, fixed capital intensity, leverage, and firm size are significant in determining corporate investment decisions. At the macro level, the cost of borrowing and the effective tax rate is significant in influencing corporate investment decisions negatively. The results of the study generally contribute to the existing literature on the impact of macroeconomic variables and certain firm-level factors on corporate investment decisions. The main value of this paper is to consider a broad-based approach to analyzing the determinants of corporate investment decisions from developing market context.
{"title":"Determinants of Corporate Investment Decision: Evidence from Pakistan","authors":"Ahmed Sheikh, D. Siddiqui","doi":"10.2139/ssrn.3683783","DOIUrl":"https://doi.org/10.2139/ssrn.3683783","url":null,"abstract":"This paper analyzed the trends in corporate finance in Pakistan and uses a panel data model for empirically identifying the factors which influence corporate investment decisions, during the period 2014-18. The findings revealed that firm-level factors such as cash flow, fixed capital intensity, leverage, and firm size are significant in determining corporate investment decisions. At the macro level, the cost of borrowing and the effective tax rate is significant in influencing corporate investment decisions negatively. The results of the study generally contribute to the existing literature on the impact of macroeconomic variables and certain firm-level factors on corporate investment decisions. The main value of this paper is to consider a broad-based approach to analyzing the determinants of corporate investment decisions from developing market context.","PeriodicalId":388027,"journal":{"name":"PSN: Foreign Direct Investment (International) (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-08-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130521550","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
SWFs have pursued VC investments for a variety of reasons, that can be summarized in three main motivations: 1) Strong returns from innovative technologies (disrupting incumbents); 2) Asset class diversification; 3) Diversification of local economies and other positive economic spillovers The focus on returns is perhaps most obvious, but also one of the more difficult to achieve. While VC has enjoyed historically high returns, a flood of investors into the space, often driven by a need to overcome low returns in debt assets, risks making the asset class a victim of its own success. While SWFs are eager to invest in venture capital, many SWFs are also recognizing that they must be careful in selecting when and how to invest. The search of stable and durable returns may include hedging against incumbent leaders. When they invest in a unicorn, they also aim to be part of the new economy that will lead the corporate world in the coming decades and back those companies that will amass the industry profits and market share. For example, it is reasonable for a SWF with a strong portfolio exposition to the banking industry to invest also in fintech companies that may disrupt the whole financial sector in the near future. The same logic applies to sectors such as retail, logistics, healthcare, hotel management, or transportation, that are being already disrupted by startups using new technologies, procedures and solutions. SWFs’ interest in VC is not drive solely by returns, however. Venture investing is also part of a broad strategy of diversification. SWFs want to diversify their portfolios to balance and smooth their exposure to different asset-classes. There is a third reason for SWF interest in VC that is specific to government-owned funds such as SWFs: economic development and the logic of learning how to foster innovation ecosystems. When a pension fund invests in tech-based startups it pursues the first two objectives mentioned above: returns and diversification. Yet, in the case of SWFs, implementing a VC investment program may have a third motivation and benefit: the economic spillovers. SWFs can use these new technologies developed in their portfolio companies to foster economic development, enhance change, and diversify their economies beyond natural resources into stronger value-added economic sectors. In this way, getting access to the latest technologies would allow developing economies with established SWFs (recall that most of SWFs are located in developing economies) to leapfrog in terms of economic development. SWFs can help to transfer the most advanced technologies used by innovative startups in their portfolios to the rest of the economy, looking for efficiency gains in traditional and new sectors.
{"title":"Technology, Venture Capital, and SWFs: The Role of the Government in Forging Innovation and Change","authors":"Javier Capapé, Paul Rose","doi":"10.2139/ssrn.3566039","DOIUrl":"https://doi.org/10.2139/ssrn.3566039","url":null,"abstract":"SWFs have pursued VC investments for a variety of reasons, that can be summarized in three main motivations: 1) Strong returns from innovative technologies (disrupting incumbents); 2) Asset class diversification; 3) Diversification of local economies and other positive economic spillovers \u0000 \u0000The focus on returns is perhaps most obvious, but also one of the more difficult to achieve. While VC has enjoyed historically high returns, a flood of investors into the space, often driven by a need to overcome low returns in debt assets, risks making the asset class a victim of its own success. While SWFs are eager to invest in venture capital, many SWFs are also recognizing that they must be careful in selecting when and how to invest. The search of stable and durable returns may include hedging against incumbent leaders. When they invest in a unicorn, they also aim to be part of the new economy that will lead the corporate world in the coming decades and back those companies that will amass the industry profits and market share. For example, it is reasonable for a SWF with a strong portfolio exposition to the banking industry to invest also in fintech companies that may disrupt the whole financial sector in the near future. The same logic applies to sectors such as retail, logistics, healthcare, hotel management, or transportation, that are being already disrupted by startups using new technologies, procedures and solutions. SWFs’ interest in VC is not drive solely by returns, however. Venture investing is also part of a broad strategy of diversification. SWFs want to diversify their portfolios to balance and smooth their exposure \u0000to different asset-classes. \u0000 \u0000There is a third reason for SWF interest in VC that is specific to government-owned funds such as SWFs: economic development and the logic of learning how to foster innovation ecosystems. When a pension fund invests in tech-based startups it pursues the first two objectives mentioned above: returns and diversification. Yet, in the case of SWFs, implementing a VC investment program may have a third motivation and benefit: the economic spillovers. \u0000 \u0000SWFs can use these new technologies developed in their portfolio companies to foster economic \u0000development, enhance change, and diversify their economies beyond natural resources into stronger value-added economic sectors. In this way, getting access to the latest technologies would allow developing economies with established SWFs (recall that most of SWFs are located in developing economies) to leapfrog in terms of economic development. SWFs can help to transfer the most advanced technologies used by innovative startups in their portfolios to the rest of the economy, looking for efficiency gains in traditional and new sectors.","PeriodicalId":388027,"journal":{"name":"PSN: Foreign Direct Investment (International) (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129685056","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
K. Cordes, Lise Johnson, Sam Szoke-Burke, Rumbidzai Maweni
Legal frameworks, and how they interact, are often invisible in the day to day. Yet they are powerful forces that influence government actions and that help to shape who benefits and who loses from foreign investment. Understanding these legal frameworks, and how they interact, is critical for anyone concerned with how foreign investment can be better harnessed to support, rather than weaken, sustainable development and human rights.
This primer provides a brief overview of host government obligations under international investment law, international human rights law, domestic law, and relevant investor-state contracts. It also highlights some of the ways in which those legal obligations may affect or conflict with each other.
{"title":"Legal Frameworks & Foreign Investment: A Primer on Governments' Obligations","authors":"K. Cordes, Lise Johnson, Sam Szoke-Burke, Rumbidzai Maweni","doi":"10.2139/ssrn.3657562","DOIUrl":"https://doi.org/10.2139/ssrn.3657562","url":null,"abstract":"Legal frameworks, and how they interact, are often invisible in the day to day. Yet they are powerful forces that influence government actions and that help to shape who benefits and who loses from foreign investment. Understanding these legal frameworks, and how they interact, is critical for anyone concerned with how foreign investment can be better harnessed to support, rather than weaken, sustainable development and human rights.<br><br>This primer provides a brief overview of host government obligations under international investment law, international human rights law, domestic law, and relevant investor-state contracts. It also highlights some of the ways in which those legal obligations may affect or conflict with each other.","PeriodicalId":388027,"journal":{"name":"PSN: Foreign Direct Investment (International) (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2019-11-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130037515","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
I investigate the exit outcomes of start-ups backed by government VCs (GVCs) and private VCs (PVCs), using a sample of 8,106 start-ups in China funded by VCs between 1991 and 2013 and exit information updated in 2018. I find that start-ups backed by GVCs are less likely to exit through domestic Initial Public Offerings (IPOs), oversea IPOs, and M&As. GVC backed start-ups are also less likely to list on the intermediate public market before companies go to IPOs. I explore three potential explanations. Firstly, I study whether GVCs and PVCs have different investment objectives. Evidence shows that GVCs support younger and innovation-oriented start-ups, yet propensity score matching analysis shows that this difference in investment objectives cannot fully explain the GVCs’ underperformance. Secondly, a lack of market discipline can lead to VCs’ lack of effort. I find that the performance gap between GVCs and PVCs narrows in more mature VC markets. Thirdly, political connections between VC managers and local governors can lead to inefficient investments. I exploit political turnover as an exogenous shock to political connections and find that deals made during times of political turnover by both GVCs and PVCs have a lower probability of successful exits. However, no significant evidence suggests that the performance gap varies during times of political turnover.
{"title":"(Under)performance of Government Venture Capitalists: New Evidence and Explanations","authors":"C. Fei","doi":"10.2139/ssrn.3456434","DOIUrl":"https://doi.org/10.2139/ssrn.3456434","url":null,"abstract":"I investigate the exit outcomes of start-ups backed by government VCs (GVCs) and private VCs (PVCs), using a sample of 8,106 start-ups in China funded by VCs between 1991 and 2013 and exit information updated in 2018. I find that start-ups backed by GVCs are less likely to exit through domestic Initial Public Offerings (IPOs), oversea IPOs, and M&As. GVC backed start-ups are also less likely to list on the intermediate public market before companies go to IPOs. I explore three potential explanations. Firstly, I study whether GVCs and PVCs have different investment objectives. Evidence shows that GVCs support younger and innovation-oriented start-ups, yet propensity score matching analysis shows that this difference in investment objectives cannot fully explain the GVCs’ underperformance. Secondly, a lack of market discipline can lead to VCs’ lack of effort. I find that the performance gap between GVCs and PVCs narrows in more mature VC markets. Thirdly, political connections between VC managers and local governors can lead to inefficient investments. I exploit political turnover as an exogenous shock to political connections and find that deals made during times of political turnover by both GVCs and PVCs have a lower probability of successful exits. However, no significant evidence suggests that the performance gap varies during times of political turnover.","PeriodicalId":388027,"journal":{"name":"PSN: Foreign Direct Investment (International) (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2019-08-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115776205","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Ana de Almeida, Teresa Sastre, Duncan van Limbergen, M. Hoeberichts
European Union (EU) integration has boosted inward EU foreign direct investment (FDI) into the United Kingdom (UK). Within the EU, the UK has a relatively significant stock of inward FDI, having reached 61% of its Gross Domestic Product (GDP) in 2017 and risen strongly since 2005. The exit of the UK from the EU and the Single Market will probably result in reduced FDI amongst both investment destinations. The aim of this study is to look at the “real-time” effects of the Brexit June 2016 referendum outcome and its aftermath on UK-related FDI activity. Although FDI flows are notably volatile and biased by periodic non-systematic outliers, and despite some caveats on data sources and availability of time series data, we find tentative evidence of a post-referendum slowdown in gross FDI flows between the UK and the EU, notably involving the big EU economies and Ireland. Regarding a very favoured form of FDI, greenfield FDI, we document a post-referendum fall in announced projects and capital expenditures into the UK by both other EU countries as well as one of the most important non-EU partners, the United States. A different approach is also used to analyse the Brexit effect on FDI activity, based on estimating the effect of two successive stages in the European integration process – EU membership and the Euro area launch – and considering Brexit effects as the reversal of the UK integration into the EU. By using a fixed-effect gravity model to estimate the effects of these integration processes on bilateral FDI activity with the UK, the empirical results suggest that, on the one hand, this country played a role as a gateway for a set of international investor countries outside the Euro area to enter European markets and, on the other, it acted as a hub that reallocated these inflows and those coming from Euro countries across the Euro area itself. Thus the disconnection of the UK from the EU may have further implications for FAI than just reverting the effect of EU membership. Larger trade barriers and lower integration between the UK and the Euro area countries’ markets will likely have a negative impact on FDI activity in the UK and might have, in the short run, a negative effect in the Euro area.
{"title":"A Tentative Exploration of the Effects of Brexit on Foreign Direct Investment Vis-À-Vis the United Kingdom","authors":"Ana de Almeida, Teresa Sastre, Duncan van Limbergen, M. Hoeberichts","doi":"10.2139/ssrn.3399942","DOIUrl":"https://doi.org/10.2139/ssrn.3399942","url":null,"abstract":"European Union (EU) integration has boosted inward EU foreign direct investment (FDI) into the United Kingdom (UK). Within the EU, the UK has a relatively significant stock of inward FDI, having reached 61% of its Gross Domestic Product (GDP) in 2017 and risen strongly since 2005. The exit of the UK from the EU and the Single Market will probably result in reduced FDI amongst both investment destinations. The aim of this study is to look at the “real-time” effects of the Brexit June 2016 referendum outcome and its aftermath on UK-related FDI activity. Although FDI flows are notably volatile and biased by periodic non-systematic outliers, and despite some caveats on data sources and availability of time series data, we find tentative evidence of a post-referendum slowdown in gross FDI flows between the UK and the EU, notably involving the big EU economies and Ireland. Regarding a very favoured form of FDI, greenfield FDI, we document a post-referendum fall in announced projects and capital expenditures into the UK by both other EU countries as well as one of the most important non-EU partners, the United States. A different approach is also used to analyse the Brexit effect on FDI activity, based on estimating the effect of two successive stages in the European integration process – EU membership and the Euro area launch – and considering Brexit effects as the reversal of the UK integration into the EU. By using a fixed-effect gravity model to estimate the effects of these integration processes on bilateral FDI activity with the UK, the empirical results suggest that, on the one hand, this country played a role as a gateway for a set of international investor countries outside the Euro area to enter European markets and, on the other, it acted as a hub that reallocated these inflows and those coming from Euro countries across the Euro area itself. Thus the disconnection of the UK from the EU may have further implications for FAI than just reverting the effect of EU membership. Larger trade barriers and lower integration between the UK and the Euro area countries’ markets will likely have a negative impact on FDI activity in the UK and might have, in the short run, a negative effect in the Euro area.","PeriodicalId":388027,"journal":{"name":"PSN: Foreign Direct Investment (International) (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2019-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124820696","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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