Foreign direct investment in Europe: Is there redirection from the South to the East?

Buch, Claudia M.; Kokta, Robert M.; Piazolo, Daniel

doi:10.1016/s0147-5967(02)00013-6

Cited by 66 publications

(15 citation statements)

References 17 publications

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“…Traditional determinants of FDI such as market potential, low relative unit labor costs, and relative factor endowments have plausible effects. Buch, Kokta, and Piazolo (2003) do not find significant evidence for the relocation of FDI to Eastern Europe. Bevan and Estrin (2000) present evidence that country risk, unit labor costs, host market size and gravity factors determine FDI.…”

Section: Introductioncontrasting

confidence: 56%

Foreign Direct Investment in the Enlarged EU: Do Taxes Matter and to What Extent?

Wolff

2007

Open Econ Rev

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Abstract:Foreign direct investment is of increasing importance in the European Union. This paper estimates the effect of taxes on foreign direct investment (FDI) flows and on three sub-components of these flows for the countries of the enlarged European Union. The model in the spirit of gravity equations robustly explains FDI flows between the 25 member states. Sample selection needs to be addressed in the estimation. We show that the different subcomponents of FDI should and indeed do react differently to taxes. After controlling for unobserved country characteristics and common time effects, the top statutory corporate tax rate of both, source and host country, turn insignificant for total FDI and investment into equity. However, high source country taxes clearly increase the probability of firms to re-invest profits abroad and lower the percentage of debt financed FDI. This might reflect profit re-allocation to avoid taxes. Market size factors have the expected signs for total FDI.Non-productivity adjusted wages as determinants of FDI are less robust. Keywords:Foreign direct investment, FDI, corporate taxes, sample selection model, profit re-allocation JEL-Classification: F3, F2, F4, E6, H2, H8 Non Technical SummaryForeign direct investment (FDI) is of increasing importance in the European Union. FDI flows among the old EU 15 have substantially increased, but also investments into the now 10 new member states (NMS) have significantly increased. Recently, the 10 NMS have also started to invest abroad. FDI flows are sub-divided into three sub-components by Eurostat: investment into equity, re-invested profits, and other (mostly credits) investments.We discuss the relevance of corporate taxes for the different parts of FDI.While in principle high corporate taxes should deter FDI, the reaction of the sub-components of FDI might differ. In particular, we argue that equity FDI reflects fundamental decisions on where to locate production, while credit extensions and re-invested profits are also tools to allocate profits. Accordingly, we expect credits and re-invested profits to depend more strongly on corporate tax rates.The paper then estimates the effect of taxes on FDI flows and on these three sub-components for the countries of the enlarged European Union. The model in the spirit of gravity equations robustly explains FDI flows between the 25 member states. Statistical tests show that sample selection needs to be addressed in the estimation. We show that the different sub-components of FDI indeed react differently to taxes.In the regressions without country and time dummies, we find the standard results confirmed: High host country tax rates deter investment flows while high source country tax rates increase the probability of observing FDI flows. After controlling for unobserved country characteristics and common time effects, the top statutory corporate tax rates of both, source and host country, turn insignificant for total FDI and investment into equity. Market size factors have the expected signs for tot...

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Section: Introductioncontrasting

confidence: 56%

Foreign Direct Investment in the Enlarged EU: Do Taxes Matter and to What Extent?

Wolff

2007

Open Econ Rev

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“…Thereafter, Chinese scholars tried to use the same method to analyze spatial distributions in social and economic areas. For example, Buch et al [19] used the barycenter model to investigate the foreign investments flowing among European regions. They concluded that these investments were not redirected between regions.…”

Section: Barycenter Modelmentioning

confidence: 99%

Dynamic Factor Analysis of Trends in Temporal–Spatial Patterns of China’s Coal Consumption

Sun

Chen

et al. 2015

Sustainability

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This paper analyzes coal consumption in the 31 provinces and regions of China from 1995 to 2012. Using spatial analysis in Arc geographical information systems (ArcGIS) and the concept of the center of gravity in physics, we explore the regional differences in temporal-spatial coal consumption and the factors influencing them. The results show that China's coal consumption increased yearly, especially after 2003. It exhibits a marked spatial clustering phenomenon; consumption in the south and east exceeded that in the north and west respectively. Moreover, the center of gravity of consumption gradually moved toward the southwest, indicating reducing gaps in coal consumption between the north-south and the east-west regions. Both the level of economic development and coal consumption are positively related with regional coal production. Promoting urbanization and increasing the proportion of the tertiary industry can effectively reduce coal consumption and help readjust coal consumption patterns to sustainable levels.

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“…In the sense, that GDP per capita may be negative or positive depending on the strategic factors of FDI outflow. For example if FDI outflow seeking domestic service market (market-seeking FDI form), so GDP per capita should be positive since it would signal a higher purchasing power see Buch et al (2003) and Limao and Venables (2001). On the other hand, if FDI motivated to produce and to export to other countries (efficiency-seeking FDI form).…”

Section: Source and Measurements Of Independent Variablesmentioning

confidence: 99%

Financial Crises and Bilateral Foreign Direct Investment Flows

Mahmoud

2011

SSRN Journal

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Abstract.Despite impressive studies on financial crises consequences and foreign capital flows, by large the research done has examined these economic phenomenons separately without addressing their nexus.This paper aims at bridging this gap by examining the impact of financial crises on bilateral foreign direct investment (BFDI). Financial turmoil reshapes the perception and magnitude of BFDI flows in both host and home countries; host countries governments see in FDI a mean for overcoming the sluggish economic situation and hence become eager to stimulate FDI inflows, while for the same reasons home countries governments, and investors become more cautious about their decisions to invest abroad. This paper addresses in particular the impact of financial crises on FDI in both host and home countries. To that end the paper uses a panel data covering the period 1985-2008 on home countries, as presented by the six largest FDI outflow, and 42 host countries. Empirical analysis applies the system GMM estimator to a gravity model of BFDI flows. The key findings in this paper are that financial crises exerts a negative impact on BFDI, a generalized fact that applies to all financial disturbances that took place during the last 23 years. Second the magnitude of the negative shock of financial crises on FDI differs by type and origins causing the financial crises.

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Foreign direct investment in Europe: Is there redirection from the South to the East?

Cited by 66 publications

References 17 publications

Foreign Direct Investment in the Enlarged EU: Do Taxes Matter and to What Extent?

Foreign Direct Investment in the Enlarged EU: Do Taxes Matter and to What Extent?

Dynamic Factor Analysis of Trends in Temporal–Spatial Patterns of China’s Coal Consumption

Financial Crises and Bilateral Foreign Direct Investment Flows

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