Putting it to Work in Developing Countries - Nathan Associates

ENDNOTES
CHAPTER 1
1 United Nations Conference on Trade and
Development, World Investment Report 2006, p. 9.
(Referred to hereafter as WIR 2006.)
2 Alwyn Young, “The Tyranny of the Number:
Confronting the Realities of the East Asian Growth
Experience,” Quarterly Journal of Economics, 110, no. 3
(August 1995) is representative of the capital accumulation
position. William Easterly’s The Elusive Quest for
Growth, Economists’ Adventures and Misadventures in the
Tropics (Cambridge, MA: MIT Press 2001) sets forth
the total factor productivity side of the growth debate.
Barry Bosworth and Susan M. Collins in “The
Empirics of Growth: An Update,” [(Brookings
Institution, Washington D.C. 2003) (processed)]
points to a resolution of the discussion.
3 Research suggests that the three private development
finance flows are not correlated (e.g., there is no reason
to believe that a country receiving high amounts of
FDI is also receiving high amounts of loans). See Barry
P. Bosworth and Susan M. Collins, 1999, “Capital
Flows to Developing Economies: Implications for
Savings and Investment,” Brookings Papers on
Economic Activity: 1, Brookings Institution, pp.
151–152.
4 Data on FDI and other capital flows cited in this
chapter are reported in World Bank, Global
Development Finance 2006 (referred to hereafter as
GDF 2006) and the World Bank’s Global Development
Finance database (for years prior to 1998). GDF 2006
totals for FDI differ somewhat from data compiled by
WIR 2006. Orders of magnitude and trends are, however,
consistent between World Bank and UNCTAD
sources.
5 Reported in International Monetary Fund, Foreign
Direct Investment: Trends, Data Availability, Concepts
and Recording Practices (October 2004), p.3. Also established
in Organization for Economic Co-operation and
Development, Benchmark Definition of Foreign Direct
Investment, Third Edition, 1996.
6 The economy in which the parent enterprise is resident
is considered the “home country,” and the economy
in which the foreign affiliate is resident is considered
the “host country.”
7 While UNCTAD and others gather statistics on
cross-border M&A flows, no data exist on the annual
value of greenfield FDI flows. Hence greenfield FDI is
estimated here as a residual after subtracting cross-border
M&A from total recorded FDI inflows. But this
residual does not encompass greenfield FDI alone: it
includes all other FDI flows that follow an initial foreign
investment by a parent enterprise, such as reinvested
earnings in or intracompany loans to its foreign
affiliate. Though not precise, these figures demonstrate
that cross-border M&A appears to be the dominant
FDI flow globally and in developed countries, while
greenfield FDI is more important in the developing
world.
8 UNCTAD, WIR 2006, p.17.
9 Ibid., pp. 16–21.
10 World Bank, GDF 2004, pp. 86–90.
11 In addition to volatility arising from economic conditions,
host country and home country policies and
regulatory frameworks affect the composition of FDI.
Host country local ownership requirements that limit
project participation by foreign equity or repatriation
rules that constrain dividend flows both tend to
encourage intracompany loans in parent-foreign affiliate
financing flows. Home country tax policies that
provide for tax deferrals until dividends from foreign
affiliates are actually repatriated have the same effect.
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