presentation: foreign direct investment and development ... · the twelve principal channels for...
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FOREIGN DIRECT INVESTMENTFOREIGN DIRECT INVESTMENT
AND DEVELOPMENT:AND DEVELOPMENT:
LAUNCHING A SECONDLAUNCHING A SECOND
GENERATIONGENERATION
OF POLICY RESEARCHOF POLICY RESEARCH
Theodore H. MoranPeterson Institute for International Economics
June 1, 2011
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Foreign Direct InvestmentForeign Direct Investment (FDI)(FDI)
Comes in Four Forms
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FDI in Extractive Industries
FDI i I f t tFDI in Infrastructure
FDI in Manufacturing and A blAssembly
FDI in Services
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Each Brings gSuch Distinctive Benefits,
Th tThreatens Such Distinctive Harms, ,
Poses S h Di i i P li Ch llSuch Distinctive Policy Challenges
ThatThat Each must be l d iAnalyzed on its Own.
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Using Data StreamsUsing Data Streams that Combine
all Four FDI Flows To try to find y
One Relationshipbet een FDI andbetween FDI and
Host Welfare, or TFP, or Growth Rate
Makes No Logical SenseMakes No Logical Sense.
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It is like askingIt is like askingthe Common Relationship p
Between the Impact of FDIi th Oil I d t f Ni iin the Oil Industry of Nigeria Where the Outcome dependsp
upon Policies related t th R Cto the Resource Curse
and Dutch Diseaseand Dutch Disease
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The impact of FDI in the Electrical Power Industryin the Electrical Power Industry
of Indonesia h th O t d dwhere the Outcome depends upon
Polices related to the Mismatch between
Foreign Currency ObligationsForeign Currency Obligationsand Revenues in Local Currency.
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The impact of FDI in the Electronics Industry
of Malaysia where the Outcomeof Malaysia where the Outcome depends upon
Policies related to Backward Linkages and Vertical Spilloversa d Ve t ca Sp ove s
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The impact of FDI by Wal Martby Wal-Mart
in the Retail Service Sectorof Mexico
Where the Outcome dependsWhere the Outcome dependsupon Policies R l d hRelated to the
Crowd-in/Crowd-out Investment debate
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This is not just ja Methodological point.Mi i FDI fl dMixing FDI flows data
leads toleads to Inaccurate Substantive
Conclusions, dand
Misguided Policy ImplicationsMisguided Policy Implications.
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I.I.FDI in Extractive Sector
and the Challenge of Creating aCreating a
Level Anti-Corruption pPlaying Field for Investors
of All Nationalitiesof All Nationalities
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II.II.Using FDIg
in Manufacturing to Upgrade and Diversify
h P d ithe Production and Export Baseand Export Base of Host Countryof Host Country
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III.New AgendaNew Agenda
for Corporate Social Responsibility
andand Sustainable Development
NGO ipro-poor NGO community
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IVIV.FDI in Extractive Sector
and the Challenge of Creating aCreating a
Level Anti-CorruptionPlaying Field
forfor Investors of All Nationalities
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Dodd-Frank offersDodd-Frank offers First Genuine Opportunity
to Level Anti Corruption Playing FieldAnti-Corruption Playing Field
between OECD and Chinese,
RussianRussian, Indian investors
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From the Resource Curse Correlation of
J ff S h d A d WJeff Sachs and Andrew WarnerThrough the Extractive IndustryThrough the Extractive Industry
Transparency Initiative
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O t f FDIOutcome from FDIin Extractive Sector
depends upon ifi fcase-specific pressures for
Transparency and AccountabilityTransparency and Accountabilityin which WBG, NGOs, d I h land Investors themselves
have Crucial Roles to Playhave Crucial Roles to Play.
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Dodd-Frank and EU TransparencyDodd Frank and EU Transparency Directive Requirement
f i i d ifor extractive industry companies to Publish what Payments They make to y y
Governments will have great positive impact inwill have great positive impact in
advancing Transparency and Accountability.
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But a Gap remains between OECD investors and Chinese, Russian,
and Indian companies.pOf the sixteen largest Chinese mining companies with overseas operationscompanies with overseas operations,
eleven do not have listingsoutside of Chinaoutside of China.
T f h h lTwo of the three largest Indian oil companies
are not listed in the United States.
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Next step is fordeveloped and developing
country governmentscountry governments,World Bank Group, and NGOs p
to make Host Government P blication of In estor B In estorPublication of Investor-By-Investor
Payments mandatory y yfor EITI compliance.
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Mining InvestorsMining Investors Get This
(it is in their interest),
Oil C i d tOil Companies do not.
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Using FDI in Manufacturing d d i ifto Upgrade and Diversify
Prod ctionProduction and Export Baseand Export Baseof Host Countryof Host Country
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Sweatshop issues remainSweatshop issues remainHighly Important.
Low-skill Intensive Operations like production oflike production of
Garments and Footwear d NOT tit tdo NOT constitute
the predominant thrust of pFDI in Manufacturing and
Assembly todayAssembly today.
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The flow of Manufacturing FDI to Medium-Skilled activities
such as Industrial Machinery,such as Industrial Machinery, Electronics, Auto Parts,
d M di l D i iand Medical Devices is FOURTEEN TIMES LARGER
each year than the flow to low-skilled labor-than the flow to low-skilled, labor-
intensive operations.
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WHATWHAT YOU
EXPORTEXPORT MATTERS!MATTERS!
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Countries that Diversify andCountries that Diversify and Upgrade their export base
th th l ti frather than merely exporting more of the Same Kinds of Goods and Services
enjoy more rapid Growth Rates, more advanced levels of Productivitymore advanced levels of Productivity,
greater Domestic Welfare, and higher Standards of Living
than countries that do not.than countries that do not.
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FDIin more
sophisticated man fact ringsophisticated manufacturing Offers
greater opportunities ffor
Backward Linkages c w d gesand
i di S l Ch iindigenous Supply Chains.
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Using FDIUsing FDIto Upgrade and pg
Diversify Exportsdoes not come
E il N llEasily or Naturally. Important MarketImportant Market
Failures and ImpedimentsFailures and Impediments.
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This is the New Frontier for FDI in Manufacturing.
Ho to p t togetherHow to put together Reform Packages g
that includeI t t P tiInvestment Promotion,
Infrastructure Development, s uc u e eve op e ,Skilled Worker Training, L b M k Fl ibili ?Labor Market Flexibility?
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World Bank GroupWorld Bank Group
(IFC and MIGA)
K Plare Key Players.
USG Agencies are NOTUSG Agencies are NOT.
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IVIV.
New Agenda for CSR,
S t i bl D l tSustainable-Development
pro-poor NGOsp p
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CSR agenda is vast and varied, but Predominant Thrustbut Predominant Thrust
is pressure to “Give Back” more to Communities -- Form Public-
Private partnershipsPrivate partnerships to surround FDI plants
with Schools and Clinics.
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Corporate Social Responsibility and Sustainable Development advocatesSustainable Development advocates
will discover that they can C t ib t M tContribute More to
Broad-based Host Welfareif they reshape their agenda
around the Main-Line Core activitiesaround the Main-Line Core activitiesof multinational corporations
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Refashion Codesand Indexes: Does yourDoes your
Extractive Company p ysupport
Investor-By-Investor Publication ofPublication of
Revenue Payments?y
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Does your ManufacturingDoes your Manufacturing Company have a
designated Talent-Scoutt tto spot
Local Suppliers,Local Suppliers, or a
Vender-Development Program t t B k d Li k ?to promote Backward Linkages?
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Is your Company engaged in lobbying Congress and the Administration
to energizeto energize MCC, OPIC, TDA, US AID
t h l b ildto help build Industrial Parks and
attract middle-skill FDI for Manufacturingfor Manufacturing
and Agricultural Exports from Africa and Central America?
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Is your Company engagedy p y g gin lobbying Congress
and the Administrationand the Administration to direct OPIC
to shift to a Net-Benefits TestNet Benefits Test
from a N t O Si l US J b Di l d t tNot-One-Single-US-Job-Displaced test
in providing p gpolitical risk insurance?
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THE TWELVE PRINCIPAL CHANNELS FOR FOREIGN
DIRECT INVESTMENT’S IMPACT ON “DEVELOPMENT”DIRECT INVESTMENT’S IMPACT ON “DEVELOPMENT”
Channel 1. FDI in extractive sector: Resource rents to
fund host country economic and social expenditures.
E i t l d t liti ( itiEnvironmental and governance externalities (positive or
negative).
Channel 2. FDI in infrastructure: Cheaper, more reliable,
expanded access to electricity water sewage telecomexpanded access to electricity, water, sewage, telecom,
transport. Environmental and governance externalities
(positive or negative).
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Channel 3. FDI in manufacturing and assembly : More or less efficient use of host country resources andor less efficient use of host country resources and greater or lesser real income generated in the host economy (as measured by economic or social y ( ycost/benefit analysis of individual projects).
Channel 4. FDI in manufacturing and assembly: horizontal spillovers and externalities.
Channel 5. FDI in manufacturing and assembly: vertical spillovers and externalities.spillovers and externalities.
Channel 6. FDI in manufacturing and assembly: horizontal and vertical export externalities.
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Channel 7. FDI in manufacturing and assembly: compensation premia and training premiacompensation premia and training premia.
Channel 8. FDI in manufacturing and assembly: g ylabor market externalities. Labor institution externalities.
Channel 9. FDI in manufacturing and assembly: Diversification of the production and export baseDiversification of the production and export base. Expansion along the extensive frontier. Entrepreneurship externalities, “ideas” (PaulEntrepreneurship externalities, ideas (Paul Romer), “self‐discovery” (Ricardo Hausmann, DaniRodrik), contribution to “what you export matters”.
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Channel 10. FDI in manufacturing and assembly: U di f th d ti d t b f lUpgrading of the production and export base from low‐skill intensive to higher‐skill intensive activities. . Expansion along the extensive frontierExpansion along the extensive frontier. Entrepreneurship externalities, “ideas” (Paul Romer), “self‐discovery” (Ricardo Hausmann, Dani Rodrik), y ( , ),contribution to “what you export matters”.
Channel 11: FDI in services: improve the productivity of specific service sectors. Horizontal and vertical spillovers and externalitiesspillovers and externalities.
Channel 12. FDI and higher or lower host economicChannel 12. FDI and higher or lower host economic growth rates.