Foreign Trade, FDI, and Capital Flows Study

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Changing Foreign Direct Investment Dynamics and Policy Responses: White Paper for Japan’s G7 Presidency
(Washington, DC: World Bank, 2024-01-22) World Bank; International Finance Corporation
A new report from the World Bank Group focuses on the trends in foreign direct investment (FDI), which encompasses foreign investment in new or existing firms and production facilities. FDI is a subset of overall capital flows, but it is perhaps the most critical because of its potential development impact and stability relative to other cross-border capital flows. Foreign capital flows to developing countries fell to an estimated $662 billion in 2022 from an average of over $1 trillion in the decade preceding the COVID-19 pandemic. Declining investment flows to developing markets largely reflect weaker macroeconomic prospects, geopolitical tensions, as well as the lasting impact of the COVID-19 pandemic. The trend is also linked to the ongoing process of shifting global value chains and the transformation of investment in terms of modes of entry, sources, and sectors, among other dimensions. Growing climate change impacts, rising interest rates, and policy changes in advanced countries—such as incentives for green investments and localization of supply chains for key technologies—have also had far-reaching implications for the allocation of investment across the globe. The study seeks to provide a granular analysis of shifts in foreign direct investment flows and policy trends and suggests responses that developing countries may consider in order to reverse recent declines and to enable more private capital to support their development needs.
Trade Finance in the Mekong Region: A study of Cambodia, the Lao People’s Democratic Republic and Viet Nam
(IFC and WTO, 2023-12-18) IFC; WTO
Cambodia, the Lao People’s Democratic Republic and Viet Nam – the so-called Mekong-3 – have experienced rapid trade growth over the last ten years. However, growth could be boosted even further by improving access to trade finance, such as loans and guarantees, for locally owned businesses seeking to trade globally. This publication presents the results of two surveys undertaken by the IFC to determine the level of trade finance available to businesses in the Mekong region. An analysis of the data conducted by the WTO explores the potential impact of an expansion in trade finance and how this could lead to greater integration into world trade and more inclusiveness, with increased participation in global supply chains by small businesses and women-owned enterprises. The publication is intended to serve as a guide to how domestic financial sectors can reorient their operations to support cross-border trade and enhanced access to global markets.
Building a Dataset for Non-Tariff Measures and its Usage: The Case of Indonesia and Applicability for Other Countries
(World Bank, Washington, DC, 2023) Montfaucon, Angella Faith; Cali, Massimiliano; Agnimaruto, Bayu; Silberring, Jana Mirjam; Hasmand, Agnesia Adhissa; Lakatos, Csilla; Pasha, Mochamad
As import tariffs have been declining over the past decades, non-tariff measures (NTMs) have become the most frequently used measures in trade policy. The increasing use of NTMs in global trade has highlighted the need for timely, high frequency and accurate data in order to better understand the implications that NTMs have on products, firms and the economy. This manual describes the first high-frequency panel dataset built by the World Bank on the universe of NTMs applied by a country, i.e. Indonesia. The manual includes a comprehensive overview of the purpose, building procedures and usage of the data for Indonesia. The dataset expands on and improves on existing data on Indonesian NTMs collected by other institutions (UNCTAD and ERIA) by covering a broader source base, customizing the data, and by increasing the frequency of updates. By documenting the data collection and transformation process, the manual hopes to facilitate the construction of similar datasets in other countries.
The Trade Policy Strategy 2.0 for North Macedonia: Trade Competitiveness Diagnostic and State Aid Effectiveness Report
(Washington, DC, 2022-09) World Bank
For a small and landlocked country like North Macedonia, trade integration is particularly important to sustain the country's economic growth and transformation. The importance of trade became even more visible during a global crisis and in the post-pandemic recovery period. Trade integration has contributed to North Macedonia’s rise to the status of a middle-income country, but its trade strategy is showing signs of fatigue. The lack of trade diversification and economic transformation limits the role of trade in North Macedonia’s growth model. Also, trade openness in services has been weaker than for merchandise, highlighting the untapped potential for trade in services. North Macedonia's growth strategy should aim to diversify the economy and seek export oriented FDI that would have stronger spillover effects on the domestic economy. State aid provided through tax incentives to boost exports and attract FDIs will need to be redesigned to be more effective. A revamped trade strategy is needed that will allow North Macedonia to move further up the GVC ladder and expand its economic diversification through agriculture, agri-business, services, or more complex manufacturing, which will ultimately lead to greater job creation, business survival, and diversification of the economy as a whole. The proposed reform agenda needs to be considered as part of a broader strategy to improve the business climate and attractiveness for investment and raise productivity in the economy. Ultimately, the country’s ability to achieve greater economic diversification and upgrading will depend on a large number of different factors, including competition policy, investment policies, innovation, education policies.
Post Covid-19 - Building a Resilient and More Sustainable Recovery in El Salvador, Guatemala, and Honduras: Central America Competitiveness Report
(Washington, DC : World Bank, 2022) World Bank
The Coronavirus (Covid-19) pandemic has had widespread negative effects in developing countries around the world, generating an unprecedented shock. Latin America and the Caribbean (LAC) was a particularly affected region, recording a significant contraction in regional GDP and international trade in 2020. This report focuses on the impact of Covid-19 and recovery in El Salvador, Guatemala and Honduras. These three Central American countries (CA3), albeit unique in their history and characteristics, share many similarities in their economic context and challenges for achieving sustained growth. The region includes one of the poorest countries in the Western Hemisphere, with low economic growth rates relative to other Latin American countries.
Special Economic Zones and Industrial Parks in South Asia: An Assessment of Their Regulatory Structures
(World Bank, Washington, DC, 2021-11-10) Galal, Rami
This paper reviews the policies and regulations for special economic zones and other spatial development modalities in the countries within proximity of the Eastern Corridor in South Asia, and it assesses whether those policies and regulations are effectively designed. The assessment finds mixed results. On the positive side, governments in these countries exhibit a strong political commitment to the zones’ success, providing them with dedicated policies of both fiscal incentives and regulatory concessions, combined with administrative simplification to help zone developers and tenant enterprises. However, these arrangements include some notable shortfalls. For example, some incentives are inconsistent with the zone objectives, violate some international regulations, or miss necessary business facilitation measures. Moreover, there is no mechanism to evaluate the effectiveness and cost-efficiency of different incentives. Zone tenancy requirements are not always well specified, feasible, or consistent with zone objectives. As for the regulatory and institutional structures of zone programs, there are some common shortfalls, especially in terms of (a) clarity of zone objectives, (b) the roles of different agents, (c) the autonomy and inclusivity of those agents, and (d) the agents’ authority to carry out their responsibilities, and there are some shortfalls in the resources that agents need to manage operations effectively. To maximize the benefits from these zones, governments of the region could adopt reforms to ensure that incentives and tenancy requirements are aligned with zone objectives and that regulatory frameworks are clear, fair, and effective.
Trade as an Engine of Grow in Somalia: Constraints and Opportunities
(World Bank, Washington, DC, 2021-05) World Bank
International trade can promote efficiency, knowledge diffusion, technological progress, and—what ultimately matters most—inclusive growth and poverty reduction. Boosting export competitiveness is inextricably linked with rebuilding the productive sectors of Somalia’s economy, generating jobs and incomes, and reducing the country’s large structural trade deficits, which have averaged over 80 percent of GDP since 2015. Somalia supplies a limited number of exports to a relatively small set of markets. Its top five export products in 2018 accounted for more than 83 percent of total goods exports. Dominated by live animals, these exports are primarily unprocessed primary commodities that do not generate spillovers to other sectors of the economy and are vulnerable to weather and other shocks. Somalia also exports to a small set of countries: 82 percent of its exports were sold to just five destinations in 2018, mainly the United Arab Emirates, Oman, and Saudi Arabia. Somalia’s annual goods export revenues could be increased significantly by expanding sales of current exports to new markets and markets where potential remains untapped. Export growth opportunities are greatest for sesame seed and fish. There is also some potential to increase livestock exports by seeking new markets, although econometric analysis suggest that some markets in the Gulf may be saturated. Gums and resins (frankincense and myrrh), fruit, and meat also show potential for increased sales. Countries in East and South Asia present the greatest opportunities for growth. These export opportunities could be prioritized in Somalia’s national trade strategy. Limited or unreliable domestic supply constrains many of Somalia’s exporters. The World Bank’s 2018 Country Economic Memorandum (CEM) presents recommendations for sustainably increasing output of fish, sesame seed, animals, and other commodities that Somalia already exports. To break into new markets, Somali exporters must also invest in gathering information about consumer preferences and policies in unfamiliar markets and establish business relationships with new buyers, shippers, and other partners. The 2018 CEM identifies important roles for public and private sectors in strengthening systems to ensure animal and plant health and developing logistical arrangements to support increased trade flows, which could be reflected in the national trade strategy.
Russia Integrates: Deepening the Country’s Integration in the Global Economy
(World Bank, Washington, DC, 2020-12-14) World Bank; Emelyanova, Olga; Winkler, Deborah; Gillson, Ian; Muramatsu, Karen; Li, Yue
Russia’s early development successes resulted from undertaking ambitious structural reforms, a commodity cycle boom, and taking steps to promote greater economic openness, including becoming a member of the WTO in 2012. Between 2000 and 2012, Russia’s gross domestic product (GDP) rose on average by 5.2 percent a year, slightly below the 5.8 percent average for all upper middle-income countries over the same period, but above the 2.9 percent average for the global economy as a whole. Per capita GDP in real terms grew by about 80 percent between 2000 and 2012 (from 14,615 US Dollars to 26,013 US Dollars in purchasing power parity (PPP), 2017 prices). Since 2003, Russia has been the sixth largest economy in the world in PPP terms, moving up from ninth position in 2000. A favorable external environment and strong macroeconomic fundamentals facilitated inclusive growth throughout the 2000s. Structural policies were also key drivers of growth, reflecting the impact of reforms and structural changes launched during this time. Breaking the 2000s decade into early and late periods reveals that structural policies were the key driver of growth in the early 2000s (2000 to 2005). With better terms of trade, the contribution of the external environment to growth improved significantly from 2005 to 2010. Prudent macroeconomic management and booming oil revenues facilitated fiscal surpluses, a reduction in external debt, and a rise in reserves. This helped Russia to respond with strong countercyclical policies to the recession during the 2008–09 Global Financial Crisis, limiting its impact on the economy. Meanwhile, potential growth estimates for Russia show that it peaked before the Global Financial Crisis and has since continued to decline. The estimated potential growth rate — the rate at which the economy can grow when labor and capital are fully employed — was 3.8 percent in 2000–09 and 1.7 percent in 2010–17.2 This deceleration was due to a slowdown of productivity growth and a shrinking potential labor force, rather than a shortfall in capital accumulation. In 2014, the economy suffered from adverse oil price shocks and the imposition of economic sanctions, which led to Russia becoming more insular and less integrated globally. One manifestation of this has been reduced foreign direct investment (FDI) inflows since 2014. Although economic activity in Russia has continued to recover from the 2015-16 recession, potential growth has continued to decline. A weakness in potential growth is not specific to Russia. Potential growth has been adversely affected in both advanced economies, where it was evident even before the Global Financial Crisis, and emerging markets and developing economies, especially since 2010-12. However, a faster-than-average decline in Russia’s potential growth has raised concerns about its medium-term prospects and the risks of stalled convergence in GDP per capita with advanced economy levels.
Monitoring Small-Scale Cross Border Trade in Africa: Issues, Approaches, and Lessons
(World Bank, Washington, DC, 2020-09) World Bank
This report synthesizes the work carried out as part of a World Bank ASA (Advisory Services and Analytics) activity to identify better systems and practical strategies that countries can use for improved monitoring of small-scale cross border trade (SSCBT). Large amounts of goods are known to be traded through cross border channels in Africa, yet SSCBT is poorly counted leading to a misrepresentation of the true state of regional integration and possible misalignment of trade and development policies. The study assesses the strengths and limitations of existing SSCBT data systems in East Africa to understand the feasibility and cost effectiveness of different data collection methods. It also looks at conditions along trade corridors in other regions of Africa where SSCBT data are only starting to be monitored to identify common bottlenecks and potential solutions for improved trade data collection in different environments. The analysis draws on fieldwork carried out during July and August 2019, as well as subsequent consultations with local counterparts, including with respect to the impact of the COVID-19 pandemic. Through this work, the study aims to inform policy in countries where SSCBT is important and where the establishment of monitoring systems will be relevant and desirable. The project also contributes to discussions and negotiations on regional integration by raising the profile of SSCBT and drawing attention to the importance of addressing barriers that limit this trade. In addition to this report, findings of the ASA are also being shared with a diverse audience of policymakers, economic analysts, and civil society representatives through short policy notes, working papers, and dissemination events.
Vietnam: Deepening International Integration and Implementing the EVFTA
(World Bank, Hanoi, 2020-05-01) World Bank
Following from Vietnam’s ratification of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in late 2018 and its effectiveness from January 2019, and the European Parliament’s recent approval of the European Union-Vietnam Free Trade Agreement (EVFTA) and its subsequent planned ratification by the National Assembly in May 2020, Vietnam has further demonstrated its determination to be a modern, competitive, open economy. As the COVID-19 (Coronavirus) crisis has clearly shown, diversified markets and supply chains will be key in the future global context to managing the risk of disruptions in trade and in supply chains due to changing trade relationships, climate change, natural disasters, and disease outbreaks. In those regards, Vietnam is in a stronger position than most countries in the region. The benefits of globalization are increasingly being debated and questioned. However, in the case of Vietnam, the benefits have been clear in terms of high and consistent economic growth and a large reduction in poverty levels. As Vietnam moves to ratify and implement a new generation of free trade agreements (FTAs), such as the CPTPP and EVFTA, it is important to clearly demonstrate, in a transparent manner, the economic gains and distributional impacts (such as sectoral and poverty) from joining these FTAs. In the meantime, it is crucial to highlight the legal gaps that must be addressed to ensure that national laws and regulations are in compliance with Vietnam’s obligations under these FTAs. Readiness to implement this new generation of FTAs at both the national and subnational level is important to ensure that the country maximizes the full economic benefits in terms of trade and investment. This report explores the issues of globalization and the integration of Vietnam into the global economy, particularly through implementation of the EVFTA.