Showing papers on "Foreign portfolio investment published in 1999"

Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela

Abstract: Governments often promote inward foreign investment to encourage technology 'spillovers' from foreign to domestic firms. Using panel data on Venezuelan plants, the authors find that foreign equity participation is positively correlated with plant productivity (the 'own-plant' effect), but this relationship is only robust for small enterprises. They then test for spillovers from joint ventures to plants with no foreign investment. Foreign investment negatively affects the productivity of domestically owned plants. The net impact of foreign investment, taking into account these two offsetting effects, is quite small. The gains from foreign investment appear to be entirely captured by joint ventures.

Foreign Investment and Productivity Growth in Czech Enterprises

Abstract: Foreign direct investment had a greater positive impact on total factor productivity in firms in the Czech Republic over a four - year period than joint ventures did, suggesting that parent firms transferred more know-how to affiliates than joint venture firms got from their partners. Firms without foreign partners experienced negative spillover effects, possibly because fewer training efforts made them less able to absorb and benefit from the diffusion of know-how. Firm-level data for the Czech Republic (1992-96) suggest that foreign investment had a positive impact on recipient firms' total factor productivity (TFP) growth. This result is robust to corrections for the sample-selection bias that prevails because foreign investment tends to go to firms with above-average productivity performance. This result is not surprising, given the presumption that foreign investors transfer new technologies and knowledge to partner firms. With some lag, this is likely to be reflected in greater TFP growth. Foreign direct investment appears to have a greater impact on TFP growth than joint ventures, suggesting that parent firms are transferring more know-how (soft or hard) to affiliates than joint venture firms get from their partners. Joint ventures and foreign direct investment together appear to have a negative spillover effect on firms that do not have foreign partnerships. This effect is relatively large and statistically significant. But if the focus is restricted to the impact of foreign-owned affiliates (foreign direct investment) on all other firms in an industry, the magnitude of the negative effect becomes much smaller and loses statistical significance. This result, together with the fact that joint ventures and foreign direct investment together account for significant shares of total output in many industries, suggests that more research is needed to determine how much knowledge diffuses from firms with strong links to foreign firms to firms that do not have such links. Especially important is the extent of spillovers among joint venture firms and between foreign affiliates and firms with joint ventures. Insofar as joint venture firms invest more in technological capacity (as suggested by their training efforts), those firms could be expected to be better able to absorb and benefit from the diffusion of know-how. The absence of such capacity may underlie the observed negative spillover effect on other firms in the industry. Longer time series and collection of data on variables that measure firms' in-house technological effort would help identify the magnitude and determinants of technological spillovers. This paper - a product of the Financial Economics Group - is part of a larger effort in the group to understand the transition process in the Czech Republic.

The location of foreign direct investment: an empirical analysis

Abstract: In this piece of research, those factors are analysed which determine the choice of location for FDI. The analysis is conducted using two models: a multicountry model, containing seven industrializ...

Foreign Portfolio Investors Before and during a Crisis

Abstract: Using a unique data set, we study the trading behavior of foreign portfolio investors in Korea before and during the currency crisis. Different categories of investors have significant differences as well as similarities. First, non-resident institutional investors are always positive feedback traders, whereas resident investors before the crisis were negative feedback (contrarian) traders but switch to be positive feedback traders during the crisis. Second, individual investors herd significantly more than institutional investors. Non-resident (institutional as well individual) investors herd significantly more than their resident counterparts. Third, differences in the Western and Korean news coverage are correlated with differences in net selling by non-resident investors relative to resident investors.

The performance of socially responsible mutual funds: incorporating sociopolitical information in portfolio selection

Abstract: Outlines increased interest from investors in corporate social policies over the last ten years and previous research comparing the investment performance of “socially responsible” (SR) portfolios with others. Measures performance for a US sample of SR and conventional mutual funds using a variety of methods (including Jensen’s Alpha, the Sharpe Ratio and the Treynor ratio), analysing the funds by investment strategy, size, systematic risk and the use of inclusion screens. Presents the results, which do not give a clear advantage to either group, but show that funds with inclusion screens consistently outperform those without. Calls for further research on the relationship between corporate social performance and portfolio performance and comparisons between SR and conventional funds.

The impact of transparency on foreign direct investment

Abstract: Non-transparency is a term given in this paper to a set of government policies that increase the risk and uncertainty faced by economic actors foreign investors. This increase in risk and uncertainty stems from the presence of bribery and corruption, unstable economic policies, weak and poorly enforced property rights, and inefficient government institutions. Our empirical analysis shows that the degree of non-transparency is an important factor in a country's attractiveness to foreign investors. High levels of non-transparency can greatly retard the amount of foreign investment that a country might otherwise expect. The simulation exercise presented in the statistical part of this paper reveals that on average a country could expect 40 percent increase in FDI from a one point increase in their transparency ranking. Pari passu, non-transparent policies translate into lower levels of FDI and hence lower levels of welfare and efficiency in the host country's economy. A nation that takes steps to increase the degree of transparency in its policies and institutions could expect significant increases in the level of foreign investment into their country. This increased investment translates into more resources, which in turn increases social welfare and economic efficiency.

Boon or Bane? Reassessing the Productivity of Foreign Direct Investment

Abstract: We assess the effects of foreign and domestic capital on economic growth using the latest data and better models of economic growth than those previously used. We explicitly consider the role of human capital in the process of economic development. We find no evidence that foreign direct investment harms the economic prospects of developing countries. The flow of foreign capital from 1980 to 1991 spurred growth in gross domestic product per capita, while the level of foreign stock, or foreign penetration, had no discernible effect. Indeed, new foreign investment was more productive dollar for dollar than was capital from domestic sources. Previous suggestions that foreign investment flows are less beneficial than domestic ones were based on a misinterpretation. Moreover, foreign direct investment stimulates investment from domestic sources. Consequently, developing countries have no reason to eschew foreign capital, as dependency theorists urge

Did the Asian Financial Crisis Scare Foreign Investors Out of Japan

Abstract: Foreigners became net sellers of Japanese equities during the Asian financial crisis in 1997. In this study, I examine whether this shift in aggregate foreign portfolio investment activity in Japan exacerbated the effect of the crisis on markets, or whether it simply reflected positive feedback trading behavior. The data draws from weekly reports to the Tokyo Stock Exchange of aggregate purchases and sales of Japanese equities by foreigners and local institutional and individual investors. I find evidence of consistent positive-feedback trading before and during the Asian crisis among foreign investors, while Japanese banks, financial institutions, investment trusts and companies were aggressive contrarian investors. There is no evidence that this trading activity by foreigners destabilized the markets during the crisis.

Regional integration and foreign direct investment : a conceptual framework and three cases

Abstract: The authors discuss how regional investment agreements may affect the inward and outward flows of foreign direct investments in the integrating region. After describing the multidimensional character of the issue, they provide a conceptual framework for analysis as well as three case studies focused on different kinds of regional integration: (1) North-North integration (Canada joining the CUSFTA); (2) North-South integration (Mexico's accession to NAFTA); and (3) South-South integration (MERCOSUR). They conclude that the response to an integration agreement will, in each case, depend on the environmental change brought about by the regional investment agreements, the locational advantage of the country or region, the competitiveness of local firms in the integrating region, and the motives for foreign direct investment in and by the country or region in question. The creation of the Canada-U.S. Free Trade Agreement (CUSFTA), for example, had relatively little influence on direct investment patterns in Canada, since much of the trade between Canada and the United States had been liberalized long before the CUSFTA was established. By contrast, the Mexican accession to NAFTA brought about significant policy changes, which helps to explain foreign multinationals' increasing interest in the country. Similarly, the establishment of the MERCOSUR Common Market is likely to significantly affect the region's policy environment, which suggests that it may have a notable (although varying) impact on foreign direct investment in the four member countries.

Foreign Direct Investment and the Political Economy of Protection

Abstract: This paper makes the point that an import-competing industry may not want maximal protection. The reason is that a high level of protection encourages inward foreign direct investment, which could be even less desirable than import competition. A government captured by the domestic import-competing industry consequently will set the level of protection low enough to limit direct foreign entry. This paper also establishes results regarding the form of protection. Voluntary export restraints are shown to be the domestic industry's desired means of protection, because leaving export rents with foreigners inhibits foreign direct investment.

Indirect employment effects of Foreign Direct Investment into the UK

Abstract: This paper examines some of the employment consequences, broadly defined, associated with foreign inward investment. A foreign firm entering an industry in the UK will have a degree of firm-specific advantage oover the incumbent firms. This advantage is assumed to manifest itself in terms of a productivity differential over the domestic sector. As such, foreign entry will create factor market disequlibrium in the domestic sector. It is shown that such investment generates 'employment substitution' away from UK firms, equivalent to approximately one-fifth of all the jobs created by inward investment.

Foreign direct investment, other capital flows, and current account deficits : what causes what?

Abstract: This paper is part of a larger effort to study the determinants and impact of foreign direct investment. The authors examine flows of foreign direct investment to 46 developing countries to test whether such flows are autonomous or accommodating vis-a-vis the current account and other capital flows. Using Granger-casualty tests, they find that: 1) requirements to surrender exports proceeds to the monetary authorities and the existence of special exchange rates for some capital account transactions reduce the probability that foreign direct investment is independent; 2) the more liberal a country's foreign exchange system, the more foreign direct investment is likely to be independent or exogenous; and 3) foreign direct investment is associated with a larger increase in capital formation when it is independent than when it is Granger-caused by other capital flows.

Japanese multinationals in Asia: Drivers and attractors

Abstract: This paper studies the choice by Japanese multinationals of Asia and of specific Asian countries as investment destinations. High costs in Japan exert a general push towards investing in Asia. Unlike investment in the US and Europe, trade barriers do not drive Asian investment. While domestic markets of host countries are important, conditions for efficient production in the host country also determine its attractiveness. In Asia, firms have looked for industrially literate workers, though the new Japanese investment is being guided more by low wages. Japanese investors also stake out early positions in growing markets. The inability to repatriate earnings is the strongest disincentive to Japanese investment. A favourable foreign direct investment policy is desirable but its importance declines as a firm gains experience in a country.

Multinational Investment Attraction: Principal-Agent Considerations

Abstract: Government agencies are becoming increasingly involved in the process of providing investment supports to attract foreign direct investment (FDI).This paper focuses on the problem of how best to structure the investment supports. Five different types of investment supports are theoretically and empirically analysed. In each case the effect of the principal-agent relationships between the MNE investor and the agency charged with attracting FDI are assessed in the strategic context. Theoretical analysis suggests that in some cases, governments may prefer support schemes that appear to be more expensive, but have better incentive or risk-sharing implications. Empirical analysis suggests that MNE firm characteristics are related to the type of investment support package obtained.

Excessive FDI Flows Under Asymmetric Information

Abstract: In Razin, Sadka and Yuen (1998, 1999a), we explored the policy implications of the home-bias in international portfolio investment as a result of asymmetric information problems in which domestic savers, being 'close' to the domestic market, have an informational advantage over foreign portfolio investors, who are 'far away' from the domestic market. However, FDI is different from foreign portfolio investment, concerning relevant information about domestic firms. Through the stationing of managers from the headquarters of multinational firms in the foreign direct establishments in the destination countries under their control, FDIors can monitor closely the operation of such establishments, thus circumventing these informational problems. Futhermore, FDI investors not only have an informational advantage over foreign portfolio investors, but they are also more informed than domestic savers. Because FDI entails direct control on the acquired domestic firm, which the typical domestic savers with ownership position in the firm do not have. Being 'insiders' the FDIers can 'overcharge' the uninformed domestic savers, the 'outsiders', when multinational subsidiaries shares are traded in the domestic stock market. Anticipating future domestic stock market trade opportunities, in advance, foreign investment becomes excessive. However, unlike the home-bias informational problem, which leads to inadequate foreign portfolio capital inflows, but may be correctable by Pigouvian taxes such as tax on non-resident income, tax on interest income and corporate tax (see Razin, Sadka, and Yuen (1998, 1999a)), excessive FDI flows under the insider-outsider informational problem call for a non-tax corrective policy. First, because they are governed by unobservable variables (such as the productivity level which triggers default, according to the firm contract with its lender). Second, because there exist self- fulfilling expectations equilibria which cannot be efficiently corrected by taxation. The corrective policy tool that is left available is then simply quantity restrictions on FDI.

Foreign Direct Investment and Economic Growth: Evidence from Ten East Asian Economies

Abstract: The boom of inward foreign direct investment (FDI) in East Asia since the mid-1980s and the recent Asian financial crisis raise the critical question of how FDI affects host economies. While there is considerable evidence on the link between FDI and economic growth, the causality between the two variables has not been investigated in a reasonable theoretic framework with a reliable procedure. This paper examines the issue by using data for ten East Asian economies. Although the impact of foreign portfolio investment on East Asian economies is uncertain, FDI might be expected to boost host economic growth via technological upgrading and knowledge spillovers. The empirical results suggest that FDI seems to enhance economic growth in the long run for five economies (China, Hong Kong, Indonesia, Japan, and Taiwan) and in the short run for one country (Singapore).

Institutional Investment in Central and Eastern Europe: Investment Criteria of Western Portfolio Managers

Abstract: This study provides detailed evidence on the recent transition state of Central and Eastern Europe (CEE) countries. It draws on data from a survey conducted among portfolio managers of Western investment funds thereby making use of the knowledge of experts in CEE markets. The approach of the study is two-fold: First, criteria for portfolio investment and current barriers to higher investment in CEE coumtries are identified. Second, the CEE portfolio structure is explained making use of detailed grading data from the survey. The results suggest that a reduction in general and macroeconomic risk temds to increase investment and that the potential of high returns and low risk from the setting of financial markets contributes to significantly higher investment in some countries.

Private and public information for foreign investment decisions

Abstract: Previous studies have found that foreign direct investment is significantly related to the stock of existing investment in the area. The present paper makes an additional contribution by providing evidence that investment decisions are positively correlated to the firm’s own previous investment in the area as well as to the current/planned investments by competitors. In addition, it is found that these two channels are primarily substitutes, i.e., investment by competitors comes less important when the firm already has experience in the market. The results are statistically significant and robust to various changes in model specification.

Investment, Growth and Employment: Perspectives for Policy

Abstract: Investment - in both facilities and know-how - is essential for growth. Economists try to understand the forces that determine investment, but investment behaviour is unruly; often the term animal spirits is used to explain the resulting volatility. This volume presents studies to explain international investment behaviour and assess its impact on growth and jobs. The authors also examine policy measures to reverse the climate of low investment that has characterised recent decades. The contributors examine how well standard models of investment work, the role of finance constraints, the effect of risk and uncertainty, the impact of alternative forms of corporate governance, the forces shaping the adoption of new technology, the impact of foreign direct investment, the effect of investment on the NAIRU and the causal structure of investment and growth. Editors introductions to the different sections of the book provide comprehensive overviews of the main theories of investment, the impact of investment on growth and employment and examine the main questions raised for policy makers.

Taxation of Foreign Direct Investment - An Introduction

Abstract: Preface. 1. The Phenomenon of Foreign Direct Investment. 2. General Principles of International Taxation. 3. Establishing a Foreign Investment. 4. Operating a Foreign-Invested Undertaking. 5. Taxing Foreign Investment in the 21st Century. Bibliography. Index.

Excessive FDI flows under asymmetric information

Abstract: In Razin, Sadka and Yuen (1998, 1999a), we explored the policy implications of the home-bias in international portfolio investment as a result of asymmetric information problems in which domestic savers, being "close" to the domestic market, have an informational advantage over foreign portfolio investors, who are "far away" from the domestic market. However, FDI is different from foreign portfolio investment, concerning relevant information about domestic firms. Through the stationing of managers from the headquarters of multinational firms in the foreign direct establishments in the destination countrie under their control. FDIors can monitor closely the operation of such establishments, thus circumventing these informational problems.

Japanese multinationals in Asia : capabilities and motivations

Abstract: Using a specially designed survey, the authors identify the characteristics of Japanese firms likely to invest world wide and in key Asian countries and country characteristics associated with Japanese investment in Asia. Investment abroad is related negatively to research and development (R&D) undertaken but positively to export propensity, indicating that the intangible assets conducive to foreign investment derive not from research but from marketing networks and production skills. Among the foreign investors, those investing in Asia are less prone to R&D. They are also less export-oriented, suggesting that Asian Investment is not driven by trade barriers, unlike investment in the United States and Europe. Firms investing in Asia look to the human capital of the host, though interest in low wages expands the greater and more diverse the investment. The behavior of competitors is a strong guide to the direction of investment. Whether earnings can be repatriated is the factor most conducive to foreign investment, although its importance declines as a firm gains experience in a country.

Foreign direct investment in Ukraine since transition

Abstract: Since independence Ukraine has attracted very little foreign direct investment, both in absolute terms, and relative to other transition economies. This is the case when we analyse the ratio of FDI to GDP and exports, and the amount of FDI per capita. This paper examines the causes of the low level of FDI, and offers some policy prescriptions which may help to reverse this unfavourable trend.

Resolving the Credibility Problem of an Honest Government: A Case for Foreign Investment Subsidy

Abstract: We develop a simple model of direct foreign investment where the host country government cannot credibly signal its honest intention such as to stick to the contracted tax rate. The foreign firm has some prior belief regarding the ex post discretionary policies of the local government. Since the investment is completely irreversible, such a belief pattern might not induce the firm to invest in a country which badly needs it. It is shown that the host government can design a subsidy scheme which might attract foreign investment by removing the credibility problem.

Foreign Direct Investment to Developing Countries

Abstract: One of the premises of the case for a Multilateral Agreement on Investment (MAI) is that it would promote increased flows of foreign direct investment (FDI) to developing countries. As the Fitzgerald Report puts it, ‘for developing countries, membership (of the MAI) would bolster the confidence of not only foreign but also domestic investors by ensuring that the policy regime is unlikely to shift in the future due to cost of withdrawal of a multilateral agreement of this type’ (Fitzgerald, 1998). This may be so. But does FDI necessarily promote development objectives everywhere and anywhere? Is FDI a tested and tried instrument of development? Is the ability of FDI to promote development constrained or enhanced by the rules and regulations on its entry and operations widely used by developing countries? These and other issues have been the focus of much debate and discussion. Indeed, there may be no other area of economic inquiry where so much has been written and yet we know so little.

Financing investment with external funds

Abstract: by Na tha l i e M o y e n B . S c . (Economie) , Univers i t e de M o n c t o n M . A . (Economics) , Queen's Un ive r s i t y at K i n g s t o n A thesis submi t t ed i n pa r t i a l fulfil lment of the requirements for the degree of D o c t o r of Ph i lo sophy i n the Facu l ty of Gradua t e Studies the Facu l ty of Commerce and Business A d m i n i s t r a t i o n W e accept this thesis as conforming to the required s tandard

Should U.S. Investors Invest Overseas

Abstract: Interest in foreign investment has been high among U.S. investors in recent years. Many investors know that geographic diversification can improve investment returns without increasing risk. However, whether or not to invest abroad and, if so, how much weight to give to foreign investment, are questions often subject to heated debate. Whether or not to invest abroad is part of the larger question of how to assemble a portfolio that is appropriate for the investor's circumstances and degree of risk tolerance. ; This article examines the question of international investing within the broader context of using portfolio optimization by individual investors. The author illustrates the concept by constructing portfolios from index funds based on major asset classes, including two foreign indices, European and Pacific, in addition to domestic stocks, bonds, and Treasury bills. She uses different measures of historical returns on these assets to construct optimal portfolios for various levels of risk; she finds that the results of portfolio optimization are highly sensitive to input parameters and, thus, to the way historical returns are measured.