Human Capital and FDI Inflows to Developing Countries: New Empirical Evidence

In this book, Yasheng Huang makes a provocative claim: the large absorption of foreign direct investment (FDI) by China is a sign of some substantial weaknesses in the Chinese economy. The primary benefits associated with China's FDI inflows are concerned with the privatization functions supplied by foreign firms, venture capital provisions to credit-constrained private entrepreneurs, and promotion of interregional capital mobility. Huang argues that one should ask why domestic firms cannot supply the same functions. China's partial reforms, while successful in increasing the scope of the market, have so far failed to address many allocative inefficiencies in the Chinese economy.

Selling China : Foreign Direct Investment During the Reform Era

textGuoyong Liang is completing his Ph.D. in international business and works at the
Rotterdam School of Management, Erasmus University. His current research interests
include the theory of the multinational enterprise, business strategy, and
business/government interaction. Before his Ph.D. study in the Netherlands, Guoyong
Liang was a lecturer at the Shanghai University of Finance and Economics. He was also a
fellow at Shanghai Securities and Futures Institute. He has managerial experience in
China’s financial and ICT sector.

New Competition; Foreign Direct Investment and Industrial Development in China

Using the case of Chinese Family Business Groups (FBGs) in East Asia, this paper examines the relationship between the strategic behaviour exhibited by an organisational form and it's administrative heritage. To do so, we trace the origins of the strategic behaviour that scholars commonly attribute to FBGs to the environmental conditions prevailing during their emergence in the turbulent post-Colonial era of East Asia. We explain how fundamental changes brought about by shifts in the post-Cold war environment of East Asia have confronted FBGs with new opportunities and organising imperatives which their administrative heritages have left them ill-equipped to deal with. In concluding, we explain how the lack of fit between a dominant organisational form and contemporaneous environmental conditions may have significant implications for the organisations themselves and the economies whose landscapes they dominate.

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Strategic Innovation and the Administrative Heritage of East Asian Family Business Groups

This paper uses the term, capital management techniques, to refer to two complementary (and often overlapping) types of financial policies: policies that govern international private capital flows and those that enforce prudential management of domestic financial institutions. The paper shows that regimes of capital management take diverse forms and are multi-faceted. The paper also shows that capital management techniques can be static or dynamic. Static management techniques are those that authorities do not modify in response to changes in circumstances. Capital management techniques can also be dynamic, meaning that they can be activated or adjusted as circumstances warrant. Three types of circumstances trigger implementation of management techniques or lead authorities to strengthen or adjust existing regulations: changes in the economic environment, the identification of vulnerabilities, and the attempt to close loopholes in existing measures. The paper presents seven case studies of the diverse capital management techniques employed in Chile, China, Colombia, India, Malaysia, Singapore and Taiwan Province of China during the 1990s. The cases reveal that policymakers were able to use capital management techniques to achieve critical macroeconomic objectives. These included the prevention of maturity and locational mismatch; attraction of favoured forms of foreign investment; reduction in overall financial fragility, currency risk, and speculative pressures in the economy; insulation from the contagion effects of financial crises; and enhancement of the autonomy of economic and social policy. The paper examines the structural factors that contributed to these achievements, and also weighs the costs associated with these measures against their macroeconomic benefits. The paper concludes by considering the general policy lessons of these seven experiences. The most important of these lessons are as follows. (1) Capital management techniques can enhance overall financial and currency stability, buttress the autonomy of macroeconomic and microeconomic policy, and bias investment toward the long-term. (2) The efficacy of capital management techniques is highest in the presence of strong macroeconomic fundamentals, though management techniques can also improve fundamentals. (3) The nimble, dynamic application of capital management techniques is an important component of policy success. (4) Controls over international capital flows and prudential domestic financial regulation often function as complementary policy tools, and these tools can be useful to policymakers over the long run. (5) State and administrative capacity play important roles in the success of capital management techniques. (6) Evidence suggests that the macroeconomic benefits of capital management techniques probably outweigh their microeconomic costs. (7) Capital management techniques work best when they are coherent and consistent with a national development vision. (8) There is no single type of capital management technique that works best for all developing countries. Indeed our cases, demonstrate a rather large array of effective techniques. There are sound reasons for cautious optimism regarding the ability of policymakers in the developing world to build upon these lessons. In particular, we are heartened by the growing understanding of the problems with capital account convertibility in developing countries; by the increasing recognition of the achievements of capital management techniques by important figures in academia, the IMF and the business community; and by the potential for some developing countries (such as Chile, China, India, Malaysia and Singapore) to play a lead role in discussions of the feasibility and efficacy of various capital management techniques.

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Yan Wang Schilling

Papers

Managing capital flows in East Asia