Fabian J. Baier

Bio: Fabian J. Baier is an academic researcher from University of Wuppertal. The author has contributed to research in topics: Brexit & Corporate tax. The author has an hindex of 3, co-authored 6 publications receiving 39 citations.

BREXIT and Foreign Direct Investment: Key Issues and New Empirical Findings

Abstract: This contribution takes a new look at the gravity equation model in relation to foreign direct investment (FDI) of leading industrialized countries which presents a useful basis for assessing certain potential impacts arising from BREXIT—the envisaged leaving of the EU by the United Kingdom. The gravity equation estimated subsequently allows one to consider the case of BREXIT and the broader role of EU membership and other variables. Looking at the period from 1985 to 2012 for a dataset which contains 34 OECD (Organisation for Economic Co-operation and Development) countries, Pseudo Poisson Maximum Likelihood (PPML) dyadic fixed estimations take into account a broad set of approaches and variables. Besides the traditional variables of the EU/EU single-market membership of the source country and of the host country, we further consider the role of trade openness as well as corporate tax rates and the ratio of inward FDI stock to total capital stock. The analysis shows that trade openness is a variable which can be largely replaced by the inward FDI stock/capital stock ratio so that gravity FDI modeling with a strong emphasis on trade openness is likely to overstate the role of trade and to understate the role of relative FDI accumulation effects. The implication for BREXIT analysis is that the UK will face three impulses for FDI inflows: (1) leaving the EU single market will strongly reduce FDI inflows; (2) if foreign ownership in UK capital stock should strongly increase in the run-up to the BREXIT year 2019, part of the dampening effects of leaving the EU will be mitigated by the increase of the FDI stock/capital stock ratio, which in turn is likely to reflect a Froot–Stein effect related to real pound depreciation for 2016–2018; (3) to the extent that the UK government will want to reinforce output growth through higher FDI inflows, a reduction of corporate taxation could generate high effects but could also stimulate a downward international corporate tax reduction game.

The UK’s banking FDI flows and Total British FDI: a dynamic BREXIT analysis

Abstract: The City of London has been the global leader for the provision of international banking services since the 1980s when Thatcher-era deregulation, followed by the EU single market program, stimulated big international FDI inflows – mainly of US banks – into the UK. The “single passport” rule allowed international banks in the UK to serve the whole of the EU28 market from London whose supply-side dynamics contributed to economic growth in the UK and a rising output share of the UK banking system in British GDP. With the expected BREXIT, there are serious challenges for the City since the passporting of banks will end and the regulatory framework will be adjusted; EU equivalence rules for UK banks that might be valid after the implementation of BREXIT cannot be a substitute for passporting so that lower FDI inflows and higher FDI outflows in the banking sector should be expected; inflow dynamics should also be shaped by international MA as regards the latter, quasi-tariff-jumping FDI outflows from the UK can be expected where the FDI of City of London banks could go primarily to the EU27/Eurozone or the US. The empirical findings confirm the expected FDI pattern for the UK banking sector – overall FDI inflows in the wake of the BREXIT referendum have increased, in line with the Froot-Stein effect, while FDI inflows to the UK banking sector have declined.

Foreign Direct Investment and Tax: OECD Gravity Modelling in a World with International Financial Institutions

Abstract: In this paper, bilateral OECD FDI flow data from 1985 to 2017 is evaluated and compiled to create a new dataset in order to clarify the controversial role (in the literature) of corporate tax levels on the decisions of firms regarding whether or not, and where, to undertake investments. In the course of our research we find the need to control for interaction with international financial institutions: Membership in BIS, EBRD, ADB and MIGA. Quantitative analyses via gravity models firstly provide findings which are consistent with previous studies and, secondly, expand the knowledge about FDI and tax by providing new results relevant for policymakers in the context of globalization and international institutions. It is shown that falling corporate tax rate levels lead to increasing FDI inflows, the effect is, however, smaller than expected; if deviation from international cooperation is chosen as a national strategy (i.e. unilateralism), the tax rate, however, gains in importance. On the other hand, unilateralism triggers various effects decreasing FDI inflows, as trade openness is likely to decrease, the opportunity costs for other nations to deviate decrease, and therefore bilateral tax differences are likely to decrease as well; which will further reduce the effect of low tax levels. Evidence for the phenomenon of implementing low corporate tax levels in order to keep domestic firms within the country and reduce their incentives to invest abroad is not found. (JEL C32, E65, F21, F23, G20)

BREXIT and FDI: Key Issues and New Empirical Findings

Abstract: Summary -- This contribution takes a new look at the gravity equation model in relation to foreign direct investment of leading industrialized countries which presents a useful basis for assessing certain potential impacts arising from BREXIT. The gravity equation estimated allows considering the case of BREXIT and the broader role of EU membership and other variables. Looking at the period from 1985 to 2012 for a dataset which contains 34 OECD countries: The PPML dyadic fixed estimations take into account a broad set of approaches and variables, respectively. Besides the traditional variables of the EU/EU single market membership of the source country and of the host country, we further consider the role of trade openness as well as corporate tax rates and the ratio of inward FDI stock to total capital stock. The analysis shows that trade openness is a variable which can be largely replaced by the inward FDI stock/capital stock ratio so that gravity FDI modeling with a strong emphasis on trade openness is likely to overstate the role of trade and to understate the role of relative FDI accumulation effects. The implication for BREXIT analysis is that the UK will face three impulses for FDI inflows: (1) leaving the EU single market will strongly reduce FDI inflows; (2) if foreign ownership in the UK capital stock should strongly increase in the run-up to the BREXIT year 2019, part of the dampening effects of leaving the EU will be mitigated by the increase of the FDI stock/capital stock ratio which in turn is likely to reflect a Froot-Stein effect related to a real Pound deprecation 2016-2018; (3) to the extent that the UK government will want to reinforce output growth through higher FDI inflows, a reduction of corporate taxation could generate high effects - but could also stimulate a downward international corporate tax reduction game. Zusammenfassung -- Dieser Artikel leistet einen neuen Beitrag zur Analyso von Direktinvestitionsflussen fuhrender Industrielander mithilfe des Gravitationsmodells, was eine nutzliche Grundlage fur die Bewertung bestimmter potenzieller Auswirkungen von BREXIT darstellt. Die Gravitationsgleichung ermoglicht die Berucksichtigung des BREXIT-Falles, der umfassenderen Rolle der EU-Mitgliedschaft und anderer Variablen. Betrachtet wird der Zeitraum von 1985 bis 2012 fur einen Datensatz, der 34 OECD-Lander enthalt: Der dyadische PPML-Fixed-Effects Schatzer berucksichtigt eine breite Palette von Ansatzen bzw. Variablen. Neben den traditionellen Variablen der Mitgliedschaft der EU bzw. des EU-Binnenmarktes im Herkunfts- und im Empfangerland, betrachten wir die Rolle der Handelsoffenheit sowie der Korperschaftssteuersatze und des Verhaltnisses der FDI-Bestande zum gesamten Kapitalbestand. Die Analyse zeigt, dass die Handelsoffenheit eine Variable ist, die weitgehend durch die FDI-Aktien- / Kapitalstock-Quote ersetzt werden kann, so dass die FDI-Modellierung mit Schwerpunkt auf Handelsoffenheit die Rolle des Handels uberbewerten und die Rolle der relativen kummulierten FDI-Effekte unterbewerten. Die Analyse zeigt, dass der BREXIT fur das Vereinigte Konigreich drei Effekte fur die FDI-Zuflusse haben wird: (1) wenn der EU-Binnenmarkt verlassen wird, werden die FDI-Zuflusse stark sinken; (2) Sollte die auslandische Beteiligung am britischen Kapitalstock im Vorfeld des BREXIT-Jahres 2019 stark ansteigen, wird ein Teil der dampfenden Auswirkungen des EU-Austritts durch die Erhohung der FDI-Aktien-/Kapitalstockquote gemildert, dies reflektiert einen Froot-Stein-Effekt, der sich auf eine reale Pfund-Abwertung 2016-2018 bezieht; (3) In dem Mase, in dem die britische Regierung das Produktionswachstum durch hohere FDI-Zuflusse verstarken will, konnte eine Senkung der Unternehmensbesteuerung hohe Auswirkungen haben - konnte aber auch eine Senkungsspirale des internationalen Steuersatzes stimulieren.

Shaping the World Economy. Suggestions for an International Economic Policy. By Jan Tinbergen. New York: The Twentieth Century Fund, 1962. pp. xvii, 330. Index. 4.00, cloth.

Abstract: textabstractIn Dutch: Naar een Nieuwe Wereldeconomie: voorstellen voor een internationaal economisch beleid, Rotterdam University Press, Rotterdam, 1965, XV + 335 p. In Spanish: Hacia Una Economia Mundial: sugerencias para una politica economica internacional, Series Biblioteca de Economia No.7, Orbis, Barcelona, 1985, 242 p.

Macroeconomic and health care aspects of the coronavirus epidemic: EU, US and global perspectives

Abstract: The novel coronavirus (COVID-19) epidemic represents a major challenge for the world economy. While a detailed longer-term diffusion path of the new virus cannot be anticipated for individual countries, one may anticipate international supply shocks and declining GDP growth in many OECD countries and China in 2020; and one should expect falling asset prices in Asia, the United States and the European Union plus the United Kingdom – except for the price of risk-free government bonds. In the course of 2020/21 the US, the EU and the UK, as well as other countries, will face both an increasing number of infected patients as well as a higher case fatality ratio. Health care expenditures in the US could increase more than in the Eurozone and the EU in the medium term, a development that undermines the international competitiveness of the United States. The analysis suggests that per capita income is a positive function of the effective trade openness and of the new Global Health Security Index indicator from the NTI/Johns Hopkins University. A rising health care-GDP ratio in the US is equivalent to a rising US export tariff. As regards the coronavirus challenge, the ratio of acute care beds to the elderly in OECD countries shows considerable variation. Due to international tourism contraction alone, output growth in the Eurozone, the US and China can be expected to fall by about 1.6% in 2020. The COVID-19 challenge for the US Trump Administration is a serious one, since the lack of experts in the Administration will become more apparent in such a systemic stress situation – and this might well affect the November 2020 US presidential election which, in turn, would itself have considerable impacts on the UK and the EU27 as well as EU-UK trade negotiations. Integrating the health care sector into macroeconomics, which should include growth analysis, is an important task. The role of health quality - and health insurance coverage - for endogenous time horizons and economic welfare, respectively, is emphasized.

Does corruption matter for FDI flows in the OECD? A gravity analysis

Abstract: In this paper, the effect of corruption on foreign direct investment (FDI) flows is analyzed. The literature is thus far divided regarding the effects of corruption: One hypothesis argues that corruption greases the wheels of government and is therefore beneficial while the other hypothesis argues that it sands the wheels of government leading to suboptimal results in an economy. For the empirical analysis, a dataset consisting of bilateral FDI data from the OECD and the control of corruption measure from the World Governance Indicators of the World Bank is compiled. To further analyze the effects of corruption the Panama Papers revelation is used as a corruption increasing event and the implementation into law of the OECD Anti-Bribery Convention is used as a corruption decreasing event. Finally, the difference between corruption levels in the target and the origin country, will be examined. Then, a gravity model with dyadic and time-fixed effects is employed to analyze the data. Findings are ambiguous in that corruption is positively correlated with FDI inflows in the target country and negatively correlated with FDI inflows in the origin country. The Panama Papers variable shows strong evidence, that the release of the Panama Papers resulted in a drop in FDI flows. Therefore, it seems that corruption has complex country specific effects and that target and source countries have to adopt varying policies with regards to corruption. The general effect of corruption harms FDI flows, as shown by the Panama Papers revelation.

The international financial implications of Brexit

Abstract: This paper analyzes the international monetary and financial implications of the UK's potential exit from the European Union, focusing on the impact on cross-border capital flows, on London's status as an international financial center, on the roles of sterling and the euro as international and reserve currencies, and on the roles of the UK and EU in the institutions of global governance (the International Monetary Fund, World Bank, Group of Seven, Group of Twenty, and Financial Stability Board. All such conclusions are necessarily speculative at this stage, but the implications are potentially farreaching.

Trump’s Trade Policy, BREXIT, Corona Dynamics, EU Crisis and Declining Multilateralism

Abstract: Since 1991 there has been a reinforcement of the World Market Economy, not least since China and the, then new Russian Federation have joined the World Trade Organization and because of EU Eastern enlargement and ASEAN integration deepening, while the Transatlantic Trade and Investment Partnership (TTIP) and Trans-Pacific Partnership (TPP) negotiations seemed to indicate stronger regional integration dynamics. With the Trump Administration, the situation has changed dramatically as President Trump is supportive of neither multilateralism in general nor of the EU, which is weakened through BREXIT, in particular. Trump’s focus on the US merchandise trade balance deficit is ill-placed and import tariffs imposed on China seem to be excessive as the optimum tariff rate is miscalculated on the basis of the traditional formula – while a new adequate formula would include the role of sectoral US outward FDI stocks. Asia, the EU and the US could define fighting the Corona World Recession as a global public good, but the United States is weakened in the corona pandemic crisis; the EU is facing serious problems in avoiding a Euro Crisis 2 problem and the €750 billion EU loan package could undermine the Eurozone’s stability while being inadequate to minimize the risk of a Euro Crisis 2. At the same time, the prospects for EU cooperation are declining due to political disappointment concerning the national corona pandemic policy in some member countries. An effective anti-corona pandemic policy would mean to organize a consistent EU-ASEAN cooperation or a G20 cooperation with a later extension to UN Organizations, including the IMF, the World Bank and the WHO. Post-corona, global governance could change strongly because of the long-term political scarring effects of the pandemic shock which could undermine EU and Western stability. Networked international leadership in support of multilateralism is an innovative – but difficult - option for EU-ASEAN-Mercosur.