FDI & GROWTH: DISCUSSION

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Lorena Miranda Douglas
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1 FDI & GROWTH: DISCUSSION Sébastien Miroudot OECD Trade and Agriculture Directorate CEPR-Modena Conference on Growth in Mature Economies Modena, May 2015

2 Outline 1. Assessing the impact of FDI on growth in mature economies: some unanswered questions 2. The role of trade openness 3. Is FDI the right concept? Global value chains and growth OECD Trade and Agriculture Directorate 2

3 FDI openness and increase in FDI flows: but where is growth in mature economies? Real GDP growth in OECD countries (10-year moving average) OECD Trade and Agriculture Directorate 3

4 How to reconcile the results from microdata with the macro evidence? FDI has a positive impact on growth but not a major determinant of overall growth? Some issues with empirical surveys? Econometric issues: selection and simultaneity Micro literature typically focuses on a single country and selected industries Services industries generally not included (while most of FDI is in services) OECD Trade and Agriculture Directorate 4

5 Results from meta-analysis (1) Vertical productivity spillovers: Havranek and Irsova (JIE, 2011) 3,626 estimates of productivity spillovers from foreign affiliates to local firms in upstream or downstream sectors (>100 studies) Spillovers to suppliers economically significant (but coefficients smaller) Spillovers to buyers statistically significant but economically small Spillovers more important for developing countries Horizontal productivity spillovers: Havranek and Irsova (World Development, 2013) 1,205 estimates of productivity spillovers for domestic firms within the same sector (from 52 studies) Horizontal spillovers are on average zero A publication bias? Strong in the case of vertical spillovers, negligible in the case of horizontal spillovers 5

6 Results from meta-analysis (2) FDI and growth: Iamsiraroj and Doucouliagos (Economics ejournal, 2015) 946 estimates from 140 empirical studies 47 percent of the estimates are positive and statistically significant 27 percent of the estimates are positive and statistically insignificant 7 percent of the estimates are negative and statistically significant 19 percent of the estimates are negative and statistically insignificant. Robust positive correlation between FDI and growth (but does growth attract FDI?) Growth is slightly more correlated with FDI in developing countries OECD Trade and Agriculture Directorate 6

7 Is the impact different in mature economies? FDI spillovers seem less important for developed countries Fewer spillovers are received by domestic firms in services compared with manufacturing Specialisation in services activities = less productivity? Beaumol s disease? Measurement issue or real concern? Financialisation? (Stockhammer, 2010) Global frontier firms less keen on sharing knowledge? (especially with competitors from developed countries) OECD Trade and Agriculture Directorate 7

8 The role of trade openness Trade-investment-competition nexus FDI can lead to dominant positions in the absence of trade openness and competition enforcement Greater spillovers are received by countries that are open to international trade (another result from meta-analysis) Exposure to foreign technologies Access to the same inputs A services issue again for mature economies? (more restrictions to trade in services) OECD Trade and Agriculture Directorate 8

9 Is FDI the right concept? Many things behind FDI : Trade in services Mergers & acquisitions Special purpose entities FDI is not the whole story for growth through productivity spillovers: contractual relationships, arm s length trade non-equity or minority equity (i.e. non-fdi) relationships FDI preferred when firms are precisely trying to not share their technologies Switching to GVCs? Gains from specialisation and the international division of labour (i.e. gains from globalisation) The empirically robust productivity spillovers are vertical OECD Trade and Agriculture Directorate 9

10 Global value chains and growth The link between GVCs and growth: Already there in the trade literature: Trade in tasks (Grossman and Rossi-Hansberg, 2008) Productivity effect analogous to factor-augmenting technological change Already there in the growth literature (Jones, 2011): Linkages between firms through intermediate goods deliver a multiplier similar to the one associated with capital accumulation in a neoclassical growth model A theory behind global value chains : Costinot, Vogel and Wang (RES, 2013) Based on the probability of making mistakes in different production stages Fally and Hillberry (working paper, 2014) A Coasian model based on transaction costs OECD Trade and Agriculture Directorate 10

11 Some policy implications Consistent policies covering trade, investment and competition for a positive impact of openness on growth (i.e. maximising the gains from specialisation and technology transfer/spillovers) For example, FDI incentives may be counterproductive when firms move to contractual relationships Trade & investment & competition agreements Regional trade agreements or international investment agreements to be reassessed when they introduce distortions across these three policy areas. Grossman & Helpman (2015): the question of what policies can be used to promote growth in particular countries and settings is far from settled. OECD Trade and Agriculture Directorate 11

12 For more information OECD Trade and Agriculture Directorate visit our website download our publications connect with us contact us 12

Vivianne Ventura-Dias LATN (Latin American Trade Network)

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