In February a report was published in France by the Council of Economic Analysis on the relationship between inward and outward investment. The economists who did this study, Lionel Fontagné and Farid Toubal, did voluntarily exclude the financial in- and outflows and thus considered only material inward and outward FDI. The « score » is impressioning: there is 14 times more outward than inward investment in France, a country considered very attractive, even on a world scale. However, the economists underline that the outward investment is no delocalisation. In fact, the companies investing abroad do this to increase their competitive advantage and thus are able to maintain also their business and create jobs in France. Read more about this topic (in French..): http://purl.manticoretechnology.com/MTC_COMMON/mtcVAWSrv.aspx?ID=7175&Key=EE8740C6-65B0-4C41-8B46-FC2EAC501CEC&URLID=&CID=22591169&CSecKey=5E1ED032-ACC4-46D4-97D1-BB6577C2697E&VAWEmailID=53578&EGUID=c3d0d5be-2216-df11-9b0a-000423e08c67&LID=263718

The international magazine ‘International Living’ designated France as the best country to live in for its quality of life (http://www.internationalliving.com/Internal-Components/Further-Resources/quality-of-life-2010). You can get a free copie once your name is registered.

Am I reviving old debates by wondering if quality of life is an important criterium for site location?

A lot of FDI profesionnal underline this fact over and over again: to attract FDI to your region, you’ll have to deliver information. And very well qualified information, and easily accessible. This is true for all economies, even the less developed. Research published with an article published in the Journal of African Business last year confirms this. Below you can read the abstract and you’ll find the weblink.

« Sub-Saharan Africa’s (SSA) foreign direct investment (FDI) share has persistently averaged 1% of global flows. The location decision and perceptions of investors are therefore instructive for policy making. This article factor analyses a survey of perceptions, operations, and motivations of 758 foreign investors in 10 SSA countries. Wefind that the provision of transaction cost-reducing information on industries and markets and utility services to investors before and after a firm’s FDI decision are significant factors. FDI location decision in SSA is influenced strongly by political economy considerations. Labor and production input variables are not influential. »

source: http://cat.inist.fr/?aModele=afficheN&cpsidt=22085260

It is largely recognized that attracting FDI is a quite advanced stage of development for a third world economy. And thus, that countries starting to attract FDI are developing well. Professor Huang argues the contrary for China: the  large inflow of FDI over the years reflects weaknesses rather than of the Chinese economic system. Interested in this theory: read the following book, Selling China: foreign direct investment  during the reform era. References at: http://www.amazon.com/Selling-China-Foreign-Investment-Cambridge/dp/0521608864%3FSubscriptionId%3D0HWPT6332HEYTZB5FW82%26tag%3Dksm000550-20%26linkCode%3Dxm2%26camp%3D2025%26creative%3D165953%26creativeASIN%3D0521608864

There it is, the WIR 2009. And indeed, its forecast of a 22% decline in FDI flows to the developing world (see my post earlier this year: http://www.western-france.info/sophie/?p=118 ) has been realized, and even worse: 2008 counted officially a 29% decline of investments into the developed world. The good news is that its prediction of an increase in the share of FDI to transition economies and developing countries has been realized too. However, this is not going to continue, if we may believe UNCTAD, as they predict a global decline for 2009 in all sectors…You definitely need to download this report at: http://www.unctad.org/Templates/Webflyer.asp?intItemID=1397&docID=12171

While doing some research on the IBM-PLI website (http://www-935.ibm.com/services/us/index.wss/offering/bcs/a1001639 ), I re-read the 2008 Global Location Trends report. It was funny to read how ‘innocent’ we all were just before the outbreak of the financial crisis, thinking that the widening and deepening of the global economy would continue, logically. As such, I am really looking forward to their 2009 annual report, to state the changes and maybe indicate new ways of development od FDI flows. IBM-PLI bases their research on their own FDI data base (GILD), which distinguishes by its focus on recording especially ‘mobile’ greenfield investment, so as to be able to underline the attractiveness of different locations BECAUSE they have been chosen after a comparaison with other locations.

Which are the most competitive countries? Where should we invest? The Global Competitiveness Report 2009-2010 gives an answer: the overal winner is Switzerland! The USA have been pushed away from the number one position because of last year’s weakenings in its macroeconomic and financial systems. Europe still has a predominant position in this report, maybe even giving back some glory to some of them who have been severely challenged in the past by the Asian « tigers ». Singapore for example, which is still in the top ten. Follow the link to download the entire report: http://www.weforum.org/en/initiatives/gcp/Global%20Competitiveness%20Report/index.htm

On his blog, Ed Burghard http://www.strengtheningbrandamerica.com/blog/?p=153 stated that the US’s global FDI flow is declining over time and edited a table with the FDI numbers for the different US States. http://www.strengtheningbrandamerica.com/brand-america/database.php Numbers can be tricky! If attractiveness is measured only by the inflow of FDI, the most attractive state of the USA is: Alaska… followed by Texas! You probably guessed that their FDI numbers outgrow the other states because of their richness of natural ressources, exploited also by foreign firms.

What do the large financial crises of the past century have in common? Restrictive FDI measures. The OECD published a short report in April, to encourage governments to learn from the past and to prefer long term benefits of an open market economy in stead of the short term benefits of restrictive FDI measures.

To read it your self: http://www.oecd.org/dataoecd/27/23/42602587.pdf 

In my region we mostly want to attract FDI for job creation. However, there is an important other aspect in the benefits of FDI: the possibilities for technology transfer. However, this is a often contested statement. I recently found an article published in 2006 by Rajneesh Ranula from Reading University and Brian Portelli from the University of Oslo on the subject. They noticed that certain conditions increase the possibility of technology transfer. The narrower the technology gap, the better the transfer. Read the full article at: http://www.informaworld.com/smpp/content~db=all~content=a749203694~tab=content