Transcript Document

The effects of FDI on host
country export performance
(Austria)
A presentation by; AJang Elvis Ngwesse
Supervised by; Prof. Joseph Francois
Overview
• Research objective and hypothesis
• Theoretical consideration
• Empirical evidence
• Trends in Austria
• The Austrian economy
• Data description
• Methodology
• Results and Conclusion
Research objectives and Hypothesis
• The main objective of this study is to investigate the impact of FDI on
export performance in Austria during the period (1970-2005).
• We hypothesize that the inflow of FDI has impacted export growth
positively during the period (1970-2005).
Theoretical considerations
 The New Growth Theory.
• It views technological progress as a product of economic activity. It also
suggests that knowledge and technology are characterised by increasing
returns (Cortright, 2001).
• Investment in human capital contributes to increasing returns, the more
resources devoted to R&D the faster the rate of innovation and the higher
the rate of growth (Teixeira and Fortuna , 2003).
• FDI is expected to generate growth by encouraging the incorporation of
new inputs and foreign technologies into host countries economy.
• The transfer of advanced technology strengthens the host country’s existing
stock of knowledge through labour training, skill acquisition, and the
introduction of better management practices (Sjoholm , 1999).
• As a consequence, FDI increases productivity in the recipient economy,
and FDI can be deemed to be a catalyst for domestic investment and
technological progress (Markusen, 1999).
The OLI Theory
 It seeks to explain why multinationals move across boarders.
 It argues that the combination of ownership, location, and internalization
advantages explains the decision to establish production subsidiaries
abroad (Cuervo-Cazurra, 2008).
 Ownership advantage, e.g. rights to a particular technology.
 Locational advantage, availability of endowments. At home or abroad?
 internalization advantage, advantages of not licensing or leasing but
internalizing e.g. risk of copying.
 Ownership (O) advantages, location (L) attraction, and internalization (I)
benefits interact to determine the extent of foreign production activities of
MNEs termed foreign direct investment (FDI).
Empirical evidence on FDI and economic growth
Author
Country
Data
Findings
Results
Zhang & Song China (19842000
1997)
Panel data on Export growth FDI
manufacturing & FDI
promotes
export
Jacorcik 2004
Lithuania
Firm level
panel data
MNC &
spillovers
effect
Existence
of positive
spillovers
Kutan and
Vukšic 2007
12 transition
economies
Panel data
analyses
FDI & export
performance
Positive
spillovers
by MNC
Jordaan 2008
Mexico
Manufacturin
g industries
Externalities
of FDI
Positive
externaliti
es
Trends in Austria
•
Austria´s exports have grown much faster over the period 1995-2005.
•
Percapita GDP has also been on a rise since the early 1970´s.
•
Unit labour productivity which represents Austria´s competitiveness in
manufacturing has been oon a decline.
•
Trading partners have increased since Austria joined the EU.
•
There have been a continues inflow of FDI with the inflow into service
industries surpasing the inflow into manufacturing.
•
There appear to be a number of contributing factors including FDI
inflows which have been rising consistently since the early 1990´s.
•
If FDI leads to export growth, then policicies in attracting FDI are
justified! We attempt to adress these issues in this study.
The Austrian economy
30
35
40
45
50
55
Exports % GDP (1970-2006)
1970
Source: WDI, 2009
1980
1990
Years
2000
2010
The Austrian economy
0
50000
100000
150000
Merchandise/Service exports Mill $ (1980-2007)
1980
1990
2000
YEAR
service exports
Source: UNCTAD
Merchandise export
2010
The Austrian economy
Productivity in manufacturing (trading partners)
Poland
Poland
Hungary
Hungary
Czech Rep
Czech Rep
Japan
Japan
Switzerland
Switzerland
UK
1
UK
Germany
Germany
Italy
Netherlands
Italy
Austria
Netherlands
France
Austria
Norway
Luxembourg
France
Norway
0
20
40
60
80
Source: World competitive year book 2008 (GDP per person employed per hour, in US$).
Luxembourg
The Austrian economy
Export Destination by country in %
Hungary
Hungary
US
1
US
Switerland
Switerland
France
France
Italy
Italy
Germany
Germany
EU
EU
0
10
Source:OeNB 2007
20
30
40
50
60
70
Inward FDI share by industry (1999-2006)
Year
1999
2000
2001
2002
2003
2004
2005
2006
35
35
37
39
19
19
23
19
Mining and quarrying
257
286
336
332
345
373
386
336
Food, beverages and tobacco
378
631
647
878
297
244
2,643
300
Textiles, clothing and leather
232
252
262
243
245
215
246
246
22
50
53
47
43
53
51
62
803
783
777
1,099
1,130
1,191
1,323
1,629
2,641
2,529
2,527
3,732
3,074
4,223
3,302
3,017
Non-metallic mineral products
409
468
539
540
572
508
634
690
Metal and metal products
504
584
622
668
673
684
807
801
Machinery and equipment
730
1,149
1,189
1,358
1,110
1,107
1,137
1,254
1,240
2,286
2,941
2,425
2,226
2,143
1,614
1,115
387
412
497
487
434
426
376
539
Other manufacturing; recycling
74
86
78
60
61
25
41
21
Electricity, gas and water supply
32
30
31
34
187
220
854
1,323
Construction
81
80
48
70
106
72
77
56
5,430
6,449
6,401
8,848
10,468
9,020
10,748
12,074
202
262
274
243
164
195
175
182
Transport, storage and communication
1,191
1,439
1,649
1,457
813
744
2,187
3,702
Banking Insurance
2,895
6,556
7,046
6,446
8,089
10,874
14,465
20,804
Real estate, renting, IT, R&D
6,647
9,066
13,632
13,699
15,512
19,495
28,793
36,040
72
60
127
106
69
85
95
127
24,261
33,493
39,713
42,811
45,635
51,915
69,977
84,337
7,824
9,661
10,585
12,012
10,520
11,503
13,514
11,408
16,437
23,832
29,129
30,798
35,114
40,412
56,463
72,930
Agriculture, Forestry, Fishing
Wood and wood products
Paper and paper products; printing
Chemicals, rubber and plastic products
Electrical, electronic and optical equipment
Motor vehicles and other transport equipment
Trade and repair
Hotels and restaurants
Public and other services
Total
Production of goods
Services
Source.OeNB
20
40
60
80
Inward FDI in Goods & Services
0
Annual %
Inward FDI by share of Goods & Services.
1998
2000
2002
Years
goods
Source: OECD
2004
Services
2006
The Austrian economy
Inward FDI (Mill. Euros)
Belgium
Japan
U.S.A
Belgium
Germany
France
Russia
Italy
Switzerland,
Netherlands
Liechtenstein
Hungary
Sweden
Germany
Slovenia
Spain
United Kingdom
United Kingdom
Slovenia
Spain
Hungary
Sweden
Switzerland, Liechtenstein
Netherlands
Russia
Italy
France
U.S.A
Japan
Source:OeNB
Data
• All of the data used in this study are from secondary sources.
• Some data sources include
UNCTAD,IMF,WDI,WIFO,OeNB,OECD,UNESCO.
• The period covered is from 1970-2005
• Some data have missing values e.g Terms of trade
• Most data are aggregate data (FDI) making further findings not possible.
• Poxy for HC Primary/Secondary enrolmenet was not available.
Summary Statistics
stats |
FDI
EXP
TOT
REEX
GDP
mean |
.9063889
36.53833
98.9929
.3666667
2.581143
max |
4.4
53.2
104.52
13.6
6.21
min |
.15
28.89
90.46
-13.8
-.36
variance |
1.016527
44.08881
9.098932
33.79657
2.88094
skewness |
1.867783
1.059393 -.7489629 -.0682148
.1361214
kurtosis |
5.896101
3.122904
3.516625
3.42861
2.365281
range |
4.25
24.31
14.06
27.4
6.57
cv |
1.112359
.1817253
.0304713
15.85495
.6575898
Methodology
 Model specification.
 We try to capture the effect of FDI on export by using the following
specification.
Equation 1. Suppy capacity equation (captured by GDP)
LX t  0  1LREEXt  2LTOTt  3LGDPt  4X t 1  D1  D2  
Equation 2. FDI-Specific effect equation (captured by FDI)
LX t  0  1LREEXt  2LTOTt  3LGDPt  4 X t 1  5LFDIt  D1  D2  
X represents Exports, REEX represents the real effective exchange rate, GDP
represents gross domestic product, FDIG represents Foreign Direct
Investment, TOT represents Terms of Trade, D1 represents Dummy for EU
membership, D2 represents Dummy for adoption of Euro, Ε represents Error
term.
Results of Unit Root test for Variables in levels
Variable
DF
PP
ADF
Order
Intergration
X
-0.728
1.473
1.348
I(I)
GDP
-5.185*
-3.704*
-5.198*
I(0)
TOT
-3.044**
-3.043**
-3.030**
I(0)
FDIG
-3.059***
-2.836***
-2.831***
I(0)
REXC
-4.061 *
-5.181*
-5.218*
I(0)
*, **, *** are Significance levels at 1%, 5%, and 10% respectively
of
Results of unit root test for transformed variables in
first difference
Variable
DF
PP
ADF
Order of integration
dxg
-4.476*
-4.365*
-4.457*
I(0)
dGDI
-11.306*
-6.060*
-9.015*
I(0)
dFdig
-10.190 *
-12.996
-5.044*
I(0)
drexg
-8.219 *
-10.248 *
-6.139*
I(0)
dtot
-6.025 *
-6.155*
-3.089*
I(0)
*, **, *** are Significance levels at 1%, 5%, and 10% respectively
Co-integration Tests
Result for Unit root tests for the residuals (ECT)
Variable
DF
PP
ADF
Order of integration
residuals
-3.502**
-3.079**
-3.200**
I(0)
*, **, *** are Significance levels at 1%, 5%, and 10% respectively
Regression results for Supply-Capacity equation
Variables
Coefficient
Standard error
dGDP
0.0534952
0.1100093
X_1
-0.272413**
0.1035256
dTOT
-0.0683159
0.086801
dREEX
-0.05448415***
0.0314684
D1995
2.419701*
0.7283057
ECT
.3222161**
.1261245
Constant
9.234293
3.443196
F-Statistics
3.61
P-Value
0.0114
R-Square
0.4850
Breusch-Pagan / Cook-Weisberg
test(Hettest)
0.6852
Breusch-Godfrey LM test for
autocorrelation
0.3428
Durbin-Watson d-statistic
2.058662
Autoregressive conditional (Hettest)
0.0563
Observation
30
***,**,*, represent statistical significant levels at 1%, 5% and 10% respectively
Regression results for FDI-Specific effects
Variables
Coefficient
Standard error
dGDP
0.0004822
0.0904994
X_1
-0.4770149*
0.1014271
dTOT
-0.1399077***
0.0731762
dFDI
1.485494*
0.4128616
dREEX
-0.052764***
0.0255359
D1995
2.098149*
0.5975733
ECT
.5793396 *
.1248056
Constant
16.03983
3.373497
F-Statistics
6.55
P-Value
0.0003
R-Square
0.6758
Breusch-Pagan / Cook-Weisberg test(Hettest)
0.9686
Breusch-Godfrey LM test for autocorrelation
0.2941
Durbin-Watson d-statistic
1.642557
Autoregressive conditional (Hettest)
0.2625
Observation
30
***,**,*, represent statistical significant levels at 1%, 5% and 10% respectively
Conclusion
• We find evidence that FDI inflows in the period (1970-2005) contributed to
export growth of the Austrian economy.
•
GDP was insignificant. This variable was expected to capture increases in
the supply capacity of the economy due to FDI inflows.
• Thus FDI did not contribute in increasing the supply capacity. Reasons
being most FDI was directed to the service sector while most Austrian
exports was from the manufacturing sector.
• Never the less, results show that FDI was significant in increasing exports
through spill-over effects i.e. Positive externalities of FDI.
Thanks
for your
attension