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66 QUANTIFICATION OF BENEFITS FROM ECONOMIC COOPERATION IN SOUTH ASIA joint ventures had authorised capital of NR 100 million and above. Some illustrations have been given in Table 8.5. There have not been any specific investments in Pakistan from India. However, of late, some signs of possible investment are visible. Reliance Industries is at an advanced stage of negotiations to acquire the petrochemical business of ICI Pakistan (around US$ 300 million). ICI Pakistan which comprises 5 Pakistan businesses of polyester, soda ash, chemicals, life sciences and paints is one of the largest quoted companies on Karachi, Lahore and Islamabad stock exchanges. The $ 2.2 billion Indian software services major Tata Consultancy Services (TCS) has taken the first steps to set up a base in Pakistan. If it succeeds, TCS will become the first Indian IT company in the market. Dabur India will soon have a foothold on Pakistan soil for it will be setting up a manufacturing joint venture with a Pakistani firm by the end of this year, Ayurvedic products will be the fulcrum of their joint ventures in Pakistan. Some illustrations have been given in Table 8.5. Table 8.5 Successful Examples of Intra SAARC FDI and Technical Collaborations: Nepal Indian Company Nepalese Company Type of Collaboration Sector Mahanagar Telephone United Telecom Ltd. (UTL) Joint venture company in collabora- Telecom Nigam Limited (MTNL) tion with Telecom Consultants India Limited (TCIL), Videsh Sanchar Nigam Limited (VSNL) and NVPL (Nepal Ventures Pvt. Ltd., a Nepalese Company) Life Insurance Corpo- Life Insurance Corporation Joint venture in collaboration with Life Insurance ration of India (LIC) (Nepal) Vishal Group Limited Table 8.6 Successful Examples of Intra SAARC FDI and Technical Collaborations: Pakistan Indian Company Pakistani Company Type of Collaboration Sector Hewitt ,India Arwen Tech HR skills assessment and strategy IT for training of call centre personnel Compare, India Creative Chaos Joint venture IT Table 8.7 Successful Examples of Intra SAARC FDI and Technical Collaborations: Sri Lanka Indian Company Sri Lankan Company Type of Collaboration Sector Tata Infotech John Keells Institute of Infor- Technical collaboration IT mation Technology (Pvt) Ltd Aptech Ltd., India Mackwood Infotec (Pvt) Ltd Technical collaboration IT CEAT India CEAT-Kelani Associated Joint Venture between RPG Goenka Tyre manufacturer Holdings Ltd Group, India, and the Associated Motorways Group, Sri Lanka Bengal Waterproof Ltd, Bensiri Rubber Products (Pvt) Ltd Wholly owned subsidiary Rubber Calcutta, India Ishar Group, Indore, GTB Colombo Corporation Subsidiary of Ishar Group Alloy and special steel India Pvt Ltd Gujarat Ambuja Cement, Ceylon Ambuja Cement and Wholly owned subsidiaries Cement India Midigama Cement Indian Hotels Co Ltd Taj Lanka Hotels Ltd Subsidiary Hotels Asian Paints Ltd Asian Paints Lanka Ltd Subsidiary Piants Nilkamal Plastics, Nilkamal Easwaran Plastics Joint venture between Nilkamal Property development, Bombay, India (Pvt) Ltd Plastics, Bombay, India and the import and export trad- Easwaren Brothers Group, Sri Lanka ing, and manufacturing activities Gujarat Glass Ltd Ceylon Glass Company Ltd Owned by acquisition Glass NIIT Ltd, India Unisoft Institute of Technology (Pvt) Ltd Joint Venture IT
I MPACT OF SAFTA ON INWARD AND OUTWARD FOREIGN DIRECT INVESTMENTS 67 IMPACT OF SAFTA ON INWARD FDI INTO SOUTH ASIA Very few studies exist that estimate the impact of regional trade agreement on FDI inflows and none as yet for South Asia. Banga (2004) estimates the impact of two regional trade agreements, agreement reached among the APEC members, i.e. non-binding investment principles (NBIP) and investment area agreement (AIA) reached by Association of Southeast Asian Nations (ASEAN). The study finds a positive and significant impact of NBIP on inward FDI into these countries though the AIA did not have a significant impact as the in the period of analysis the agreement was relatively new. The fact that SAFTA is still in its infancy makes it difficult to estimate its impact on FDI into the region. Alternatively, the impact of tariffs of each member country vis-à-vis other SAARC countries on inward FDI into the country has been estimated, on the basis of which impact of SAFTA on inward FDI into the region is assessed. To estimate the impact of SAFTA on inward extraregional FDI into South Asia, a panel data analysis is undertaken where inward FDI into seven member countries of SAFTA is considered over a period of 1980 to 2006. The impact of intra-regional tariffs and intraregional trade on inward FDI flows is estimated after controlling for other determinants of FDI. The methodology used and results are as follows. Methodology and Data Inward FDI into member countries of SAFTA will be attracted by some economic fundamentals of the country like domestic market, availability of skills, labour costs, etc. Drawing on the vast existing literature on the economic fundamentals that have been considered as determinants of inward FDI, we control for the market variable (i.e. potential market size), cost variables (i.e. cost of labour in terms of efficiency wages) and human capital (i.e. literacy rate) in the economy. Studies have found market variables and quality of human capital to have a positive impact while cost variables are expected to be negatively related to FDI inflows. It is argued that higher trade in the region will attract higher extra-regional FDI into the region. To capture the impact of SAFTA we use weighted average of MFN tariffs of each member country of SFATA with respect to other member countries as a group. The variable has been constructed using TRAINS dataset (UNCTAD). The sign of the variable is expected to be negative. Low regional tariffs between the member countries will attract efficiency-seeking FDI which may then follow product fragmentation within the region or cater to markets of member countries by basing itself in the least-cost location and appropriating the benefits of economies of scale. To test whether FDI into the region may follow product fragmentation or not we estimate the impact of other trade-related variables on inward FDI. These are exports of each member country of SAFTA to other member countries as a group and imports of each member country of SAFTA from other member countries as a group. If higher share of SAARC in trade of a country attracts higher FDI it indicates that FDI may seek economies of scale and choose to locate in the country with higher access to the SAARC market. However, since the exports and imports may be of finished goods it may not reflect vertically-integrated FDI. We estimate the impact of imports of intermediate goods in a country from other member countries on inward FDI into the country. Positive impact here will indicate that a country which has higher share of imports from SAARC in its total imports will attract vertically-integrated FDI which may choose it as its destination. In other words, the probability of inward FDI may have higher product fragmentation within the region increases. Exports and imports variables have been normalised by taking them as a ratio of GDP of the country as well as ratio of total exports and imports from other member countries. Along with these trade-related variables trade policy variable has also been used which is number of bilateral investment treaties (BITs) signed by a country. The variable is cumulative in nature. There has been a substantial increase in number of BITs that have been signed and brought to force in the last two decades and particularly in the 1990s. In general, BITs deal exclusively with investments and lay down specific standards of investment protection and transfer of funds. They contain provisions for the settlement of disputes both between the treaty partners and between investors and the host state. BITs also cover a number of other areas, in particular, non-discrimination in the treatment, and in some cases the entry of foreigncontrolled enterprises, and other related fields. An important characteristic of BITs is a considerable uniformity in the broad principles underlying the agreements (UNCTAD 1999), coupled with numerous variations in the specific formulations employed. BITs generally recognise the effect of national law on FDI and accept the right of governments to regulate entry
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QUANTIFICATION OF BENEFITS FROM ECO
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QUANTIFICATION OF BENEFITS FROM ECO
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Preface Our consultations with seni
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viii CONTENTS 7. Revenue and Welfar
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Executive Summary OBJECTIVE This st
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EXECUTIVE SUMMARY xiii Table 1 EAMA
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EXECUTIVE SUMMARY xv India A full S
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EXECUTIVE SUMMARY xvii indicates th
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EXECUTIVE SUMMARY xix ments on basi
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Part I BENEFITS FROM TRADE, INVESTM
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15 Prospects for the Telecommunicat
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APPENDICES
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Appendix 8 Intra SAARC FDI Collabor
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Appendix 11 Table A11.1 On an Emplo
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Appendix 12 Original Commitments/In
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Appendix 14 Table A14.1 Telecommuni
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Appendix 15 REFERENCE PAPER Scope T
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Bibliography Abelson, P. (1996),
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BIBLIOGRAPHY 241 Cuba (2002), Negot
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BIBLIOGRAPHY 243 (2004), Impacts of
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BIBLIOGRAPHY 245 Silva, Patricia an
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BIBLIOGRAPHY 247 (1998), Tourism Se
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