Dang: Similarities Attract – Political Regimes and Foreign Direct Investments

Abstract:

According to a well-established and substantively significant finding in the international political economy literature, democratic host countries are better able to attract foreign direct investment (FDI). However, I show that the supposed association be-tween democracy and FDI disappears once I control for a selection bias in which FDI tends to originate from democratic home countries. I then provide empirical evidence to support a novel claim that it is not democracy by itself but political similarity be-tween the home and host countries that attracts FDI. Additionally, I suggest a causal explanation for why FDI tends to flow between politically similar countries.

Available for download here.

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Chilton, Milner & Tingley: Public Opposition to Foreign Acquisitions of Domestic Companies – Evidence from the United States and China

Abstract:

The flow of capital across borders is one of the core subjects of International Political Economy research, but there has been little research into the determinants of support for and opposition to inward foreign direct investment (FDI) flows. This is an important oversight because cross border investments are a growing area of international economic activity, and increasingly the subject of important international negotiations. In order to study this topic, we embedded a conjoint experiment in a survey that we fielded in the United States and China. Our experiment asked respondents to evaluate hypothetical acquisitions of domestic companies by foreign firms, and produced several important results. First, Chinese respondents were less opposed to foreign acquisitions of domestic firms than American respondents. Second, reciprocity matters; respondents were consistently more likely to oppose foreign acquisitions when the foreign firm’s home country does not provide reciprocal market access. Third, in both countries, economic factors had a smaller influence on the levels of opposition to foreign acquisitions than non-economic factors.

Available for download here.

Jorge E. Viñuales: International investment law and natural resource governance

Abstract:

This paper analyses the implications of contemporary international investment law for the regulation of natural resources. Natural resources are unevenly distributed across different regions and countries and that makes access a very important question. In turn, access to resources located in the territory or within the jurisdiction of a country and, more generally, any activities conducted in connection with such resources, are subject to the regulatory powers of the host State. Although such powers are above all a matter of sovereignty, understanding them through this prism alone would miss an important point, namely that the interests of a host State and a foreign investor may be aligned not only in pursuance of public welfare but also to the detriment of it. The latter phenomenon has been called the “resource curse” – i.e. a situation where a rapacious government exploits the country’s natural resources for its own benefit depriving the population of its due. Foreign investors may be involved in such phenomenon either deliberately (i.e. through a close connection with the rapacious government) or as a mere result of their activity in the host State (i.e. by making the exploitation profitable for the government irrespective of any explicit complicity). Thus, questions of ‘access’, ‘sovereignty’ and ‘distribution’ are closely interrelated in ways that require sustained analysis. The first section of the paper provides a brief overview of the basic architecture and building blocks of international investment law, from a structural and dynamic perspective. The focus then turns to the core subject matter, namely the specific implications of this body of law for the governance of natural resources, particularly as regards access, sovereignty and distribution. In conclusion, some observations and recommendations regarding possible avenues for reform are put forward for consideration and future research.

Available for download here.

Das & Banik: Outbound Foreign Direct Investment from China and India – The Role of Country-specific Factors

Abstract:

Chinese and Indian enterprises have been increasingly involved in international business thereby attracting global attention since the turn of the 21st century. This article examines outbound investment experiences of Chinese and Indian multinationals and compares and contrasts the investment development trajectory for  both the countries. The comparisons and contrasts are made with respect to government policy, motivations for outbound investment, financing of investment, success rate in overseas  acquisition, sectoral composition, characteristics of multinational enterprises (MNEs) and the challenges and impact of such investments in the light of differences in economic and institutional parameters between the two countries. It can be observed that there are more differences than similarities in the trajectory of outbound investments by Chinese and Indian enterprises. These differences arise due to the economic and institutional structure and the development path chosen by the two countries. Due to the differences  between Chinese and Indian economic development trajectories, which are unique in many ways, it is not meaningful to make a straightforward comparison of outbound foreign direct investment (FDI) experience of the two countries. Nevertheless, the main differences with regard to outward investment by Indian and Chinese enterprises can be observed in areas such as the degree of involvement of the public sector enterprises, financing of overseas investments, success rate of proposed mergers and acquisitions (M&A), sectoral composition of such investments, investment motives and so on. Various challenges facing outward FDI from China and India are highlighted, some of which could be addressed by specific economic and institutional reforms. The tale of the two countries examined in this article taken together contains important insights for emerging country enterprises and governments on the challenges and opportunities of global business,

Available for download here.

Hanemann & Huotari: Chinese FDI in Europe and Germany – Preparing for a New Era of Chinese Capital

From the Executive Summary:

We are entering a new era of Chinese capital: China’s policy liberalization and adjustments to its growth model will turn the country from a nobody to a driving force in global cross-border investment in the coming decade. Projections see China tripling its global assets from currently $6.4 trillion to almost $20 trillion by 2020 – a catch-up process that will have significant implications for host economies and global markets. This shift in China’s global investment position will require political leaders around the globe to    adjust their economic policy configuration towards China both to reap the  benefits of this next stage of global integration as well as minimizing potential new risks. This is particularly true for the countries of the European Union, whose economies are now intimately linked up with China following three decades of trade integration and significant investment of European businesses in China.

Available for download here.

Soofi: China’s Foreign Direct Investments – Challenges of Due Diligence and Organizational Integration

Abstract:

This paper critically reviews Chinese companies’ foreign
direct investment practices of recent years. Using case studies involving
overseas Greenfield as well as merger and acquisition (M&A) of Chinese
enterprises, we aim to draw lessons from these experiences. However,
because of increasing importance of outbound acquisitions by Chinese
companies, this paper focuses on Chinese M&A activities. After
presenting the theoretical discussions of post-acquisition organizational
integration, this paper identifies factors that have contributed to less
than expected performances of Chinese foreign investments. Three
main factors are identified as the plausible causes of the less than
satisfactory outcomes: inadequate due diligence, not considering
political and country risks, and cultural differences. In all cases,
inexperience of Chinese enterprises in foreign direct investment, either
in Greenfield form or M&A, has attributed to the problems. Therefore,
summing the experiences of the Chinese enterprises that have foreign
direct investment is essential for those Chinese investors that intend to
invest overseas. Conduct of meaningful, in-depth due diligence before
serious negotiations for investment or acquisition, inclusion of risk
premium for political risk in cash flow analysis, and early post-merger
integration planning are essential for avoidances of bitter outcomes
many Chinese investors experienced overseas.

Available for download here.

Zhou: Asian Capital Investing in US Real Estate

Abstract:

Asian capital investment in the United States real estate market is becoming increasingly popular. This article analyzes the patterns and preferences of Asian investors in the US real estate market by examining transaction history and aggregating consensus data to provide the reader an overview of the growing trend.

Available for download here.

 

Virkar: Globalisation, Investment, and Global Economic Growth – Examining the Causes of Recent Banking Crises

Abstract:

For any economy to be healthy, a strong financial system is required to efficiently move funds from unproductive to productive economic agents. Banks play an important role in this respect as their presence and structure reduces the problems of adverse selection, moral hazard, and asymmetric information. Recent decades have been overshadowed by a series of systemic banking crises that have left many parts of the developing world gasping for breath. In particular, economies like Mexico and the East Asian tigers have been hit hard both during and in the aftermath of such financial misadventures. This chapter thus attempts to examine the causes of banking crises in the light of available evidence. More specifically, the research enumerates and analyses the role of both macroeconomic and microeconomic factors in precipitating such crises through a critical examination of the existing literature, and illustrates each factor with examples from key pan-global financial catastrophes.

 

Available for download here.

Bano & Tabbada: Foreign Direct Investment Outflows – Asian Developing Countries

Abstract:

Foreign Direct Investment originating from East, Southeast, and South Asian developing countries has increased significantly since 1980. This paper examines the extent and determinants of Foreign Direct Investment outflows from these countries between 1980 and 2011. We use selected home country-specific macroeconomic variables and identifies the key determinants of Foreign Direct Investment outflows using correlation and regression analysis. The results show that Foreign Direct Investment outflows are closely associated with high levels of Gross Domestic Product, high domestic savings, large foreign reserves, export orientation, and relatively large Foreign Direct Investment inflows in the source countries, with the strength and importance of each factor varying with the level of development. Our main conclusion is that, although non-traditional Foreign Direct Investment outflows have so far been confined to a limited number of developing countries, mostly Asian, other developing countries could also become capital exporters with a supportive international environment and appropriate domestic policies.

Available for download here.