What Is Real and What Is Not in the Global FDI Network?

Damgaard, Jannick; Elkjaer, Thomas; Johannesen, Niels

doi:10.5089/9781513521527.001

Cited by 120 publications

(138 citation statements)

References 32 publications

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“…We have deliberately refrained from modelling more FDI specificities that-according to the literature-also have an impact on FDI. Examples are the industry differences in foreign investment strategies (market-seeking, resource-seeking and global value chains), biases due to tax routing of FDI (Damgaard, Elkjaer, & Johannesen, 2019), or the firm-level interaction between investment and trade strategies (e.g., Conconi, Sapir, & Zanardi, 2016). Such factors may cause additional variance in bilateral FDI patterns.…”

Section: Estimation Of the Structural Gravity Modelmentioning

confidence: 99%

“…Tax routing refers to bilateral FDI that may be 'phantom FDI' traffic, which is attracted either by countries with low tax rates (tax havens), or by countries that facilitate special-purpose-enterprises (letter-box companies) that are frequently used in private or corporate tax evasion. Damgaard et al (2019) estimate that most of the world's 'phantom' FDI is in a small group of offshore centres: Luxembourg ($3.8 trillion), the Netherlands ($3.3 trillion), Hong Kong SAR ($1.1 trillion), British Virgin Islands ($0.8 trillion), Bermuda ($0.8 trillion), Singapore ($0.8 trillion) and the Cayman Islands ($0.7 trillion). In recent years, the OECD is asking member states to provide FDI statistics that distinguish between the immediate and the ultimate FDI destination country.…”

Section: Kox and Rojas-romagosamentioning

confidence: 99%

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How trade and investment agreements affect bilateral foreign direct investment: Results from a structural gravity model

Kox¹,

Rojas‐Romagosa

2020

World Economy

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foreign direct investment, preferential trade agreements, gravity model 1 | INTRODUCTION We estimate the potential impact of preferential trade agreements (PTAs)-and other bilateral policies that affect trade and investment-on the bilateral FDI stocks and flows between the countries signing these agreements. Our key results are based on a structural gravity model of FDI that is applied to bilateral FDI data from UNCTAD (2014), while controlling for the presence, heterogeneity and depth of preferential trade agreements (PTAs), and other time-varying bilateral policies. Starting in the 1990s, the world economy has experienced a large increase in the number of PTAs, and also in their 'depth'-measured by the number of their operative provisions. 1 While stimulating bilateral trade is the main focus of most PTAs, recent preferential trade agreements increasingly contain provisions on bilateral investment between member states. However, the impact of PTAs on the magnitude of foreign direct investments is not straightforward. Trade and FDI can either complement or substitute each other, depending on the investment motivation (i.e., horizontal and vertical), the specific industry and on the way in which the FDI provisions are shaped in the PTA. From a theoretical point of view, horizontal FDI-where firms replicate domestic activities in a foreign country-is associated with FDI substituting for trade. Thus, in the presence of horizontal FDI, PTAs are expected to decrease FDI flows. On the other hand, vertical FDI-where firms split activities between different geographical regions-creates a complementary relationship between trade, PTAs and FDI (cf. Markusen, 2002). More recently, and, in part, due to the expansion and complexity of global value chains (GVCs), other motives for FDI have been identified. For instance, export-platform FDI where MNEs produce to export to third markets (Ekholm, Forslid, & Markusen, 2007; Hanson, Mataloni, & Slaughter, 2005). Yeaple (2003) classifies mixed FDI motives as 'complex FDI'. Baldwin and Okubo 1 + jit 1 + ijt .

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Section: Estimation Of the Structural Gravity Modelmentioning

confidence: 99%

Section: Kox and Rojas-romagosamentioning

confidence: 99%

How trade and investment agreements affect bilateral foreign direct investment: Results from a structural gravity model

Kox¹,

Rojas‐Romagosa

2020

World Economy

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“…1 and Fig. 2 present the estimates by Damgaard et al (2019), who identify genuine origin of foreign investments. While these graphs indicate that flows from the EU are somewhat overstated, it remains by far the premier provider of FDI into Russia.…”

Section: Overview and Origin Of Fdi Inflowsmentioning

confidence: 99%

An analysis of EU FDI inflow into Russia

Domínguez-Jiménez¹,

Poitiers²

2020

RUJEC

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This paper analyzes the trends and drivers of inward foreign direct investment in Russia between 2009 and 2019. The EU is the premier provider of FDI into Russia, even though we find that reported values overstate its role given the use of Special Purpose Entities (SPEs). Key drivers of Russian FDI flows are the price of oil and natural resource markets, macroeconomic volatility, monetary policy, sanctions and trade impediments. As FDI is highly concentrated in natural resource rich regions, we argue that a sectoral decomposition understates the importance of fossil fuel extraction. Based on this analysis as well as the literature on growth effects of FDI, we argue that Russia needs more investment into higher-value added activities.

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“…We believe that FDI data issues and several factors not fully captured by gravity determinants play a role. Damgaard et al (2019) estimate the large role played by SPEs or "phantom FDI" in recent years as multinational firms seek to limit their worldwide tax payments. They estimate that the explanatory power of the gravity model can be improved by about 25 percent by dropping phantom FDI and focusing on "real FDI" alone.…”

Section: Origin-country Specific Effectsmentioning

confidence: 99%

“… OECD (2015, p. 2) defines SPEs as "entities that have little or no employment, physical presence, or operations in a country but that provide important services to the MNE, such as holding assets and liabilities or raising capital. "18 SPEs, whichDamgaard et al (2019) refer to as "phantom FDI", are established with no apparent activities aside from holding and financing, and hence are strongly linked to corporate tax avoidance strategies.…”

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confidence: 99%

Japan's outward FDI potential

Greaney

Kiyota

2020

Journal of the Japanese and International Economies

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While Japan's outward FDI stock is historically high, it is not necessarily clear whether there is untapped growth potential, given the economic size of Japan and that of partner countries. This paper examines whether Japan's actual outward FDI stock is high or low relative to the FDI predicted by the gravity model using the outward FDI patterns of all OECD nations, which we call counterfactual FDI. The results indicate that the ratio of Japan's actual to counterfactual FDI is the highest among the OECD countries as of the year 2015. The regional distribution of Japan's actual to counterfactual FDI favors Southeast Asian nations, South Africa and the US. These results imply that Japan has no unrealized potential for outward FDI.

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What Is Real and What Is Not in the Global FDI Network?

Cited by 120 publications

References 32 publications

How trade and investment agreements affect bilateral foreign direct investment: Results from a structural gravity model

How trade and investment agreements affect bilateral foreign direct investment: Results from a structural gravity model

An analysis of EU FDI inflow into Russia

Japan's outward FDI potential

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