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MIBE The economics of emerging economies

MIBE The economics of emerging economies. The role of Finance in economic development and the emerging economies Gianni Vaggi , April 2014 Finance 1-2 4-Foreign Direct Investments. Foreign Direct Investment.

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MIBE The economics of emerging economies

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  1. MIBEThe economics of emerging economies The roleof Finance in economic development and the emergingeconomies Gianni Vaggi, April 2014 Finance 1-2 4-Foreign Direct Investments

  2. Foreign Direct Investment Investment involving a LONG TERM relationship and reflecting a LASTING interest and control by a FOREIGN direct INVESTOR in an enterprise resident in an economy other than that of the foreign investor.

  3. FDI inflows, global and by group of economies, 1995–2012 (Billions of Dollars)

  4. FDI flows, by region, 2010-2012 (billions of Dollars and per cent)

  5. FDI flows by region, 2005-2010(Billions of Dollars)

  6. Top 20 host economies, 2012 (billion of dollars)

  7. SECTOR of investment Tendency towards SERVICES… SERVICES are important because increase competitiveness affect living standards (health, education, water, electricity)

  8. Sectoral Distribution of FDI Projects, 2011-2012 (Billions of Dollars and per cent)

  9. Modes of Entry Mergers & Acquisitions (M&A) Transfer of ownership - asset stripping No productive capacity added May reduce competition Threaten national sovereignty Greenfield Investments New production facilities Stimulate domestic entrepreneurship Bring in capital slower than M&A Crowding out

  10. Value and Number of M&A and Greenfield FDI Projects, 2003-2012

  11. Distribution of the value of greenfield FDI project by sector, 2012 (per cent)

  12. FDI in Africa, 2002-2012

  13. FDI inflows and their share in World Total, 2006-2012

  14. AFRICAFDI inflows, top 5 economies, 2010-2011 (Billions of Dollars)

  15. East and South-East Asia FDI inflows and their share in World Total, 2006-2012

  16. Distribution of FDI flows among economies, by range, 2012

  17. EAP- FDI flows, top 5, host and home economies, 2011-2012

  18. South Asia FDI inflows and their share in World Total, 2006-2012

  19. SA-FDI flows, top 5, host and home economies, 2011-2012

  20. Latin America and the Caribbean FDI inflows (billions of Dollars) and their share in world total, 2006-2012

  21. Distribution of FDI flows among economies, by range, 2012

  22. LAC-FDI flows, top 5, host and home economies, 2011-2012

  23. FDIs; PROs and Cons

  24. The Foreign Investor TNC conducts and controls productive activities in a specific sector (primary, manufacturing, services) in more than one country. N.B. TNC not in development business MAX RETURNS ON CAPITAL

  25. FDI source for DEVELOPMENT? Filling in gaps: CAPITAL flow TECHNOLOGY flow Gvt. Revenue (tax) Human capital skills (spillovers) Non debt creating

  26. FDI threat for DEVELOPMENT? Crowding out of local firms Influence gvt. policies badly Local resources allocated for socially undesirable projects Modes of entry Sector of investment (value added)

  27. Let’s consider… Type of investment Situation of the host country enterprise The sector The time-frame

  28. SERVICES POTENTIAL RISKS: SISTEMIC STRUCTURAL CONTINGENT

  29. SISTEMIC RISKS Lack of regulation Economic Instability Es. loose control over capital movements in and out of the country, volatility of the exchange rate, contagion effect in case of crises

  30. STRUCTURAL RISKS Monopoly sectors (Natural Monopoly, State Monopoly, public goods) Privatization (private monopoly) increase in prices

  31. CONTINGENT RISKS FDI in social or cultural relevant sectors (media, strategic sectors i.e financial) FDI in sectors with high environmental impact (Tourism)

  32. Scope for Governmental Policies Active policies to directly affect FDI (sectors, local capabilities, upgrading skills, technological capabilities, infrastructure) International Investment Agreements (IIA) – Multilateral, Regional & Bilateral levels

  33. References Global Development Finance (WB) World Investment Report (UNCTAD) Trade & Development Report (UNCTAD) Mold Andrew, December 2008, “The Fallout from the Financial Crisis: Implications for FDI to Developing Countries”, OECD Development Centre, Policy Insight, no.86 Nunnenkamp Peter, 2002, “ForeignDirectInvestment in DevelopingCountries: WhatEconomists (Don’t) Know and WhatPolicymakersShould (Not) Do!”, Cutsinternational press OECD press release, 24 June 2008, “FDI from OECD CountriesJumps 50% in 2007 but Set toFall in 2008”, www.oecd.org UN, 2009, “World Economic Situation and Prospects 2009”, UN Publication UNCTAD, 1999, “ForeignDirectInvestment and Development”, UNCTAD Series - on issues in International InvestmentAgreements  'FinancingDevelopment in a Post-Crisis World: The Needfor a Fresh Look‘, Global Development Network World Bank database available on the web

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