Browsing by Subject "FDI"

The determinants of FDI have been a topic of interest in economics since the 1980s and this paper aims to contribute to this field. This study aims to measure how associated FDI is with the political risk as well as to see the extent of this relationship in Turkey in the years 1996–2017. The political risk is measured as a change in indexes that are provided by the World Bank, Freedom House, and Transparency International. These political indicators are Political Rights, Civil Liberties, the Corruption Perceptions Index, Regulatory Quality, Voice and Accountability, Rule of Law, Government Effectiveness, Control of Corruption, and Political Stability. The earlier literature on FDI and political risks is mostly empirical and there has not been much theoretical research. Chakrabarti analyzed the past studies on FDI and its determinants in 2001 and found out that in the earlier research, almost every explanatory variable of FDI except the market size was sensitive to small changes in the conditioning information set, casting doubt on the robustness of the results. There have also been conducted studies that address political risk or equivalent concepts. The 2005 research of Busse and Hefeker had the same topic as this paper but their data consisted of many countries and they employed two different panel models. One was a fixed-effects panel analysis while the other utilized a generalized method of moments estimator. I selected three model specifications for the time-series regression analysis. All three specifications have market size as a control variable and the other two also have the economy’s growth rate and trade openness. The third has the inflation rate as the final control variable. The data have a small number of observations which limits the options available for the empirical part of the study. Out of the nine political indicators, Regulatory Quality is the only political indicator that is not associated with FDI, while the results on the Corruption Perceptions Index and Control of Corruption are inconclusive. The rest six are associated with FDI. The Rule of Law index has the highest estimated coefficient value of the World Bank indicators and the Political Rights index has the highest estimated coefficient value of the Freedom House’s indicators.

During recent years, concerns have been expressed about foreign investors, especially state-owned enterprises, acquiring companies in Europe due to strategic motives. In October 2020, Regulation (EU) 2019/452 entered into force, establishing a framework for the screening of foreign direct investments into the Union. Despite these developments, foreign direct investment screening is largely left to the Member States discretion. In Finland, the Act on the Screening of Foreign Corporate Acquisitions (172/2012) applies to acquisitions of defence industry enterprises, companies that produce or supply critical products or services related to the statutory duties of Finnish authorities essential to the security of society and organisations or business undertakings that are considered critical in terms of securing functions vital to society on the basis of their field, business or commitments. Essentially, the objective of the Act is to screen, and, should a key national interest so require, restrict the transfer of influence to foreigners in the entities subject to screening. The purpose of this study consists of three elements. First, the purpose of the study is to provide a review of the EU framework for the screening of foreign direct investment and the national foreign direct investment screening mechanism. In essence, the review will thoroughly cover the key elements of the applicable EU regulation and the national act, supported by various illustrations and summaries. Secondly, the purpose of the study is to provide an analysis of the legal grounds for the screening and restriction of foreign direct investment. The analysis will cover the grounds 'security or public order' included in the EU framework, as well as the ground 'key national interest' included in the national act. Thirdly, the study will provide observations on the application of the foreign direct investment screening mechanisms. The observations will provide practical information on how the respective mechanisms have been used during recent years, as well as a time-bound account of the types of investments that have been subject to screening.

Foreign direct investment (FDI) saw a large increase in the EU in the years 1990–2015. A significant and contested topic in economic and industrial policy and a continuing interest to researchers has been the productivity effect of this increased foreign presence on host economies. Theories of economic growth and industrial organization predict a role for FDI, or the increased presence of multinational enterprises, as a catalyst of knowledge diffusion and other productivity effects. Findings from empirical literature support the existence of productivity effects from FDI within industry and through vertical linkages across industries. There is also support in the literature for the role of absorptive capacity as necessary for host country firms to benefit from knowledge diffusion. The scope of this study is to measure first the effect of FDI on productivity and secondly the role of absorptive capacity in mediating this effect. Data from Eurostat is extracted to construct a sample of output, factor inputs and FDI for aggregated industry level data for the years 2008–2012. Absorptive capacity is measured in three categories of intangible assets: research and development (RD), information and communications technology (ICT) and organizational competencies (OC). A production function approach with fixed effects is used to estimate the impact of FDI on productivity. The main findings are that an increase in foreign presence has a positive contemporaneous effect on productivity within industry, but a negative effect through vertical forward linkages. The results from the main specification imply that a 10 % increase in FDI is associated with a 0.5 % increase in productivity within industry and a -0.34 % decrease in customer industries. Absorptive capacity or technology gap in terms of intangible assets is closely related to the presence of these productivity effects. The finding of a positive effect of FDI on productivity within sector is consistent with knowledge spillovers or other positive factors such as increased competition. The negative effect in customer sectors may be explained by adjustment and transaction costs from the breaking down of existing domestic supply chains. The results indicate that FDI is associated with productivity gains within industry, but negative effects on productivity dominate through vertical forward linkages in the short term. From an industrial and economic policy standpoint, FDI is not unambiguously beneficial for productivity of domestic industries, but more research is needed to assess long-term effects and the economic implications for the EU as a whole.