The next crisis? : direct and equity investment in developing countries / David Woodward.

Format:

Book

Author/Creator:

Woodward, David, 1959-

Language:

English

Subjects (All):

Investments, Foreign--Developing countries.

Investments, Foreign.

Developing countries.

Capital movements--Developing countries.

Capital movements.

Developing countries--Economic conditions--20th century.

Local Subjects:

Developing countries--Economic conditions--20th century.

Physical Description:

xiv, 240 pages : illustrations ; 22 cm

Place of Publication:

London ; New York : Zed Books, 2001.

Summary:

Foreign direct investment (and to a lesser extent portfolio equity investment) have been widely heralded as the key benefit that globalization now offers the South and the principal mechanism to kickstart economies into rapid growth. Certainly, this book argues, the 1990s have seen a dramatic increase in foreign capital invested in some developing countries. Equally true, it represents a completely different kind of capital injection from the massive lending by Western banks which led to the debt crisis of the 1980s. But how beneficial is the new wave of foreign investment likely to prove? In this careful and penetrating economic study, David Woodward analyses what is actually happening, its various impacts and just how little we still know about it.

Contents:

2. Capital Flows, Development and Debt Crises 5

North-South Capital Flows and Development 5

Capital Flows and Risk 7

A Historical Perspective 9

How Did the 1980s Debt Crisis Happen? 11

3. The Nature of Direct and Equity Investment and the Positive View 15

What Are Direct and Equity Investment? 15

Motivations for Direct and Equity Investment 16

Factors Influencing the Location of Direct Investment 18

Financing of Direct Investment 19

Production, Income and Expenditure 20

Profits, Capital Gains, Reinvestment and Remittances 21

Capital Flows and the Stock of Investment 24

The Positive View of Direct and Equity Investment 25

4. Recent Trends in Development Finance 27

The Changing Composition of Financial Flows 27

Implications of the New Paradigm 30

The Geographical Distribution of Direct and Equity Investment 32

The Sectoral Distribution of Direct Investment 37

Stocks of Direct and Equity Investment 40

The Importance of Direct Investment in Overall Investment, Production and Exports 44

5. Ignorance is Bliss (I): Data on the Stocks of Direct and Equity Investment 50

The Significance of Data Problems 50

General Problems: Definitions, Data Collections and Coverage 52

Major Statistical Sources 54

Cumulative Flow Estimates of FDI Stocks 59

6. Ignorance is Bliss (II): Data on Capital Flows, Profits and FDI-Related Trade 64

Capital Flows 64

Profits, Remittances and Reinvestment 69

Hidden Profits: Transfer Price Manipulation 72

FDI-Related Trade 76

Conclusion: What Do We Know about Stocks of Inward FDI? 76

7. The Foreign Exchange Dimension: General Principles 78

Why Foreign Exchange Effects Matter 78

Types and Phases of Investment 79

Types of Foreign Exchange Effect 80

Investment in Existing Capacity 83

Investment in New Capacity 85

Disinvestment 86

The Production Phase: Direct Investment 87

An Alternative Perspective 89

The Production Phase: Equity Investment 91

8. Foreign Exchange Effects of Direct and Equity Investment on the Host Country 93

Rates of Return on Direct and Equity Investment 93

Direct Investment by Purchase: Export Sector 94

Direct Investment by Purchase: Non-Tradeable Sectors 100

Direct Investment by Purchase: Import Substitutes 103

Direct Investment through Construction of New Productive Capacity 105

Direct Investment to Expand and Improve Existing Productive Capacity 106

Portfolio Investment in Existing Shares 108

Portfolio Investment in New Share Issues 112

9. Other Effects at the National Level 117

Effects on Investment 117

Effects on Employment 123

The Development and Transfer of Technology 124

Politics and Economical Policy 126

10. The Global Dimension: Competition for Direct Investment and Export Markets 128

Effects on Export Markets and Prices 128

Competition for Direct Investment 131

Official Encouragement 136

11. Net Transfers and the Build-Up of Investment Stocks 143

Equity Investment 143

Direct Investment 144

Net Transfers and the Stock of FDI: Two Country Examples 150

12. Surges and Cycles 156

The 1990s Surge in Equity Investment 156

Herd-like Behaviour 159

Temporary Factors Promoting Direct Investment 162

Procyclical Flows 164

Echoes of the Past 170

13. Was That It? (I): Direct Investment and Current Account Deficits in the Mexican and Asian Financial Crises 173

The Mexican and Asian Crises 173

Profits and Imports of Capital Goods 175

Trade Effects of Foreign Affiliates' Operations 181

FDI-Financed Production and Export Prices 184

14. Was That It? (II): Capital Flows of FDI and Equity Investment in the Mexican and Asian Crises 187

Speculative Bubbles 187

The Reversal of Portfolio Equity Investment Flows in the Asian Crisis 188

The Reduction of Direct Investment Flows in the Asian Crisis 189

Direct and Equity Investment in the Mexican Crisis 191

Portfolio Equity Investment and Contagion 192

The Last Crisis and the Next 195

15. Conclusions and Policy Implications 199

Summary: an Accident Waiting to Happen? 199

The Next Crisis and the 1980s Debt Crisis 201

Where are we Now? 1979 and 1997 206

The Multilateral Agreement on Investment 208

The IMF and Capital Account Liberalisation 209

Dealing with Crises: Lessons from the Asian Experience 211

I. Data Discrepancies and the Balance of Payments Effects of Direct Investment in Thailand 216

II. Balance of Payments Effects of Direct Investment in Malaysia: Data Limitations and Sensitivity to Assumptions 220

8.1 Assumptions for Illustrative Figures on Net Foreign Exchange Effects of Direct and Equity Investment

8.2 Export-Orientation of Direct Investment

9.1 Capital Inflows, Sterilisation and Local Investment

11.1 Rates of Return, Net Resource Transfers and the Stock of Inward Investment: a Numerical Illustration

4.1 Share of US Majority-Owned Affiliates in Total Host Country Exports, 1993 (%)

5.1 IMF and UNCTAD Estimates of Stocks of Inward FDI

5.2 Comparison of IMF Stock and Flow Data for Inward FDI ($m)

5.3 Non-Equity Financing and Cumulative Flow Estimates of the Stock of Direct Investment.

Notes:

Includes bibliographical references (pages 230-232) and index.

ISBN:

1856496694

1856496708

OCLC:

45784115