Foreign Trade, FDI, and Capital Flows Study

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  • Publication
    Moldova Trade Study: Note 4. The Performance of Free Economic Zones in Moldova
    (Washington, DC, 2016-03-03) World Bank
    In 1995, Moldova introduced free economic zone (FEZ) legislation with the aim of accelerating socioeconomic development by attracting domestic and foreign investment, promoting exports, and creating employment. Since then, seven free economic zones offering tax and customs benefits have been established. This note assesses the static and dynamic economic benefits of the program in Moldova. The free economic zones have been successful in attracting investment from both domestic and foreign sources. The economic zones have become true export platforms, generating a five-fold increase in exported industrial production from the zones between 2004 and 2014. On average, employment in the economic zones had a robust growth in the last seven years and almost doubled since 2008. Evidence suggests that the economic zones have significantly contributed to the diversification of exports and to the changing structure of the Moldovan economy. The effect of the economic zones on domestic firms appears to be modest, however, and unlikely to contribute to the technological upgrading and sophistication of the Moldovan economy. Free economic zones tend to attract industrial activities requiring intensive use of human resources for certain operations. The economic impact of Moldovan free economic zones is ambiguous. Moldovan legislation provides sound and transparent provisions, but the main issue is how this legislation is implemented. The majority of recommendations are focused on streamlining the implementation process, making it easier for companies to operate. Here are the main recommendations for improving the zones : (i) the importance of fiscal incentives should be downgraded by shifting to targeted services for businesses; (ii) reduce corruption and increase accountability by establishing one-stop-shop procedures and elements; (iii) establish a proper mechanism for monitoring and reporting with the zones residents and administrator; (iv) empower the regulator with additional relevant institutional capacities and capabilities; (v) the role of residents in appointing the administrator should be determinant; and (vi) establish a proper mechanism for compensating residents of the zones for restrictive treatment of the real assets.
  • Publication
    Reshaping Economic Geography of East Africa : From Regional to Global Integration, Volume 2. Technical Annexes
    (Washington, DC, 2012-06) World Bank
    Five East African countries Burundi, Kenya, Rwanda, Tanzania, and Uganda have made solid progress on integrating regionally in the East African Community (EAC) since 1999. Such advances are crucial, as integration in East Africa has the potential for higher than usual benefits: Burundi, Rwanda, and Uganda are landlocked, with very high costs to their economies. Successful integration will transform the five countries into one coastal, regional economy, slashing such costs. Looking at the East African integration through the lens of economic geography helps to improve sequencing of the integration process and to develop new policies to complement ongoing efforts, maximizing their benefits. Reducing disparities in provision of social services will increase the chances of workers from the inland parts of the EAC to find jobs, especially as administrative obstacles to labor mobility are being removed under the Common Market Protocol. Implementing and deepening the current program of regional infrastructure improvements will ensure that consumers and producers throughout the region are better connected to each other and to global markets. Integration policies facilitating greater economic activity in the coastal areas will help the EAC take advantage of the global demand for manufactured goods and thus to promote employment. That will also generate substantial demand for services and agricultural goods produced inland, amplifying the benefits of the customs union.
  • Publication
    Reaping Benefits of FDI and Reshaping Shanghai's Economic Landscape
    (Washington, DC, 2011-01) World Bank
    Foreign Direct Investment (FDI) has played a significant and positive role in driving economic growth and upgrading economic structure in Shanghai. The shift in the pattern of FDI over the last decade towards services has been particularly crucial. Given its importance, Shanghai municipal government may continue to devote efforts to attract FDI and have foreign funded enterprises help reshape Shanghai's economic landscape. The main importance of FDI to Shanghai lies less in its capital finance, and more in the extent to which foreign funded enterprises (FFEs) help move the city up the value chain and generate high-end jobs. In the post-financial crisis era, developing countries will take a much larger role in leading world growth while enhanced competition will accelerate the pace of service revolution. Possessing strong geographic advantages, Shanghai has the potential to become an international business and financial hub and to have the high-tech industries and services being the driving force of the growth. Shanghai has strong potential in reaping the benefits of FDI and reshaping its economic landscape in 12th Five Year Plan period. In terms of the three conditions to succeed good opportunity, favorable geographic location and harmonious society, Shanghai is already in a good position. This note seeks to provide insights to help the Shanghai government make the right decisions and trade-offs to better reap the benefits of FDI in the context of a changing global context.
  • Publication
    Deepening Trade Reforms in Syria for Improving Competitiveness and Promoting Non-Oil Exports
    (Washington, DC, 2010-09) World Bank
    Syria made promotion of non-oil exports one of the main objectives of its development strategy to counter the emerging twin balance of payments and fiscal deficits resulting from secular decline of oil production and exports. To realize this objective, the Government has implemented a number of trade policy reforms and took complementary measures in other policy areas during the 10th five-year plan to improve competitiveness of Syrian products in international markets. Non-oil exports responded strongly to the policy improvements. There is now a wide recognition of the need for further reforms to maintain this momentum. This paper tried to assess the achievement so far, identify the remaining gaps in the trade regime, and recommend follow up measures for broadening and deepening the trade reforms. The principal recommendations are presented in the attached policy matrix. The objective of export incentives is to reduce the costs of exported products with policy instruments consistent with World Trade Organization (WTO) rules.
  • Publication
    Africa’s Trade in Services and Economic Partnership Agreements
    (World Bank, 2010-07-20) World Bank
    Trade can play a crucial role in the development of services sectors in Africa. Services offer new dynamic opportunities for exports, especially for land-locked countries, while opening up to imports of services and foreign direct investment is a key mechanism to increase competition and drive greater efficiency in the provision of services in the domestic economy. Lower prices, higher quality and wider access to services raises productivity improves competitiveness and is critical for poverty reduction. But trade opening may need to be coordinated with regulatory reforms, to ensure efficient outcomes, while additional policies may be required to ensure that public policy objectives regarding equity are achieved. This places emphasis on the capacity to define and implement sound regulatory policies for services sectors, capacity that is limited in many African countries. Regulatory and trade reforms in Africa need to be supported with technical and financial assistance. Such assistance should be available to all African countries that wish to reform their services sectors, whether they negotiate and sign an Economic Partnership Agreement (EPA) or not. An independently managed fund for services trade reform in Africa, organized around common priority sectors, that would allocate resources to support implementation of reforms and consultants according to expertise, not nationality, will be the most appropriate vehicle for providing technical assistance and building capacity.
  • Publication
    Exports, Export Destinations, and Skills
    (2010-05) World Bank
    This paper explores the links between exports, export destinations and skill utilization by firms. The authors identify two mechanisms behind these links, which we integrate into a unified theory of export destinations and skills. First, exporting to high-income countries requires quality upgrades that are skill-intensive (Verhoogen, 2008). Second, exporting in general, and exporting to high-income destinations in particular, requires services like distribution, transportation, and advertising, activities that are also intensive in skilled labor (Matsuyama, 2007). Both theories suggest a skill-bias in export destinations: firms that export to high-income destinations hire more skills and pay higher wages than firms that export to middle-income countries or that sells domestically. The authors test the theory using a panel of manufacturing Argentine firms. The data cover the period 1998-2000 and thus span the Brazilian currency devaluation of 1999. The authors use the exogenous changes in exports and export destinations brought about by this devaluation in a major export partner to identify the causal effect of exporting and of exporting to high-income countries on skill utilization. The authors fine that Argentine firms exporting to high-income countries hired a higher proportion of skilled workers and paid higher average wages than other exporters (to non high-income countries) and domestic firms. Instead, the authors cannot identify any causal effect of exporting per se on either skill utilization or average wages.
  • Publication
    The Service Revolution in South Asia
    (Washington, DC, 2009-06) World Bank
    The story of Hyderabad, the capital of the Indian state Andhra Pradesh, is truly inspiring for late-comers to development. Within two decades, Andhra Pradesh has been catapulted straight from a poor and largely agricultural economy into a major service center. It has transformed itself from a lagging into a leading region. Fuelled by an increase in service exports of 45 times between 1998 and 2008, the number of information technology companies in Hyderabad increased eight times, and employment increased 20 times. Service-led growth has mushroomed in other parts of India and South Asia as well. Indeed, growth in the services sector has enabled South Asia to grow almost as fast as East Asia in this century, with growth of just under seven percent annually between 2000 and 2007. Growth rates in South Asia and East Asia have converged. The two fastest growing regions in the world, however, have very different growth patterns. While East Asia is a story of growth led by manufacturing, South Asia has thrived on service-led growth. The promise of the services revolution is that countries do not need to wait to get started with rapid development. There is a new boat that development late-comers can take. The globalization of service exports provides alternative opportunities for developing countries to find niches, beyond manufacturing, where they can specialize, scale up and achieve explosive growth, just like the industrializes. The core of the argument is that as the number of goods and services produced and traded across the world expand with globalization, the possibilities for all countries to develop based on their comparative advantage expand. That comparative advantage can just as easily be in services as in manufacturing or indeed agriculture.
  • Publication
    Liberia - Tapping Nature’s Bounty for the Benefits of All : Diagnostic Trade Integration Study, Volume 1. Main Report
    (Washington, DC, 2008-12) World Bank
    Liberia is a rich country, badly managed. This is a favorite comment of President Ellen Johnson-Sirleaf and an accurate one. The bad management is well-known, though perhaps not its duration and depth. Created in 1847, the country is far older than almost all others in sub- Saharan Africa. But for most of this time, it was ruled by an elite descended from African-American settlers who ignored or exploited the indigenous people. The result was growth without development, stark inequality, social tension and the seeds of unrest. The political order was turned upside down in a bloody coup in 1980, but bad management continued. Within ten years the country descended into civil war from which it only emerged in 2003. The 90 percent decline in Gross Domestic Product (GDP) is possibly the most extreme economic collapse ever experienced in the world. This study lays out a comprehensive pro poor trade strategy in support of the medium-term growth agenda of Liberia. The new Poverty Reduction Strategy (PRS) for Liberia recognizes all this. Indeed, this Diagnostic Trade Integration Study (DTIS) and the PRS were developed in parallel and with considerable cross-fertilization. A joint workshop was held on the productive sectors in February 2008. The role of this study is therefore to reinforce the message contained in the PRS, deepen the analysis, and offer some practical next steps.
  • Publication
    Sovereign Wealth Funds in East Asia
    (Washington, DC, 2008-06-30) World Bank
    The massive size, rapid growth, and high-profile investments of Sovereign Wealth Funds (SWFs) in the U.S. and elsewhere in 2007 has attracted the attention of the media, politicians, regulators, and academics over the past year. Some of the SWF investments have been viewed as market stabilizing, for instance the substantial equity investments in large U.S. financial institutions that were recently in financial trouble after the sub-prime mortgage crisis. However, there is great suspicion from many political and academic quarters that SWFs are politically motivated with many SWFs in Asia now at the center of the storm. Although SWFs have been in existence for many decades worldwide, most SWFs in the East Asia and Pacific Region (EAP) are relatively new. The emergence of the SWFs in Asia is largely a by-product of the strong economic development at East Asian countries and the attendant accumulation of foreign exchange reserves, however, there are other types of SWFs in the region. The Governments have taken a concerted strategy to enhance the returns on these excess reserves. The EAP region is an ideal region to take a look at the issues surrounding SWFs since Asia has the full range of funds from long-established funds to brand new funds; from passive portfolio investors to more aggressive strategic investors; from resource-backed funds to foreign reserve-backed funds; and, based in the largest, most highly developed economies to the smallest, poorest economies in Asia. Therefore, the objective of this report is to document the status of Sovereign Wealth Funds in the East Asia Region and to understand the implications of their rapid growth. Many developing countries have recently shifted a higher proportion of their foreign currency earnings from official foreign currency reserves to sovereign wealth funds. Sovereign wealth funds have an estimated $600 billion in assets under management in developing countries, dominated by China ($200 billion held by the Chinese Investment Corporation and $68 billion held by the Central Huijin Investment Company) and Russia ($130 billion held in the Reserve Fund and $33 billion held by the Fund of Future Generations). It should be noted that this amount is small relative to the total level of reserves held by developing countries (estimated at $3.7 trillion at end 2007).
  • Publication
    Burkina Faso : The Challenge of Export Diversification for a Landlocked Country
    (Washington, DC, 2007-09) World Bank
    The objective of the Diagnostic Trade Integration Study (DTIS) is to build the foundation for accelerated growth by enhancing the integration of its economy into regional and global markets. Burkina Faso is one of the best economic performers in West Africa, yet its integration into the world economy, as measured by its trade and foreign investment performance, is among the lowest. Economic growth has been strong, higher than all other countries in the sub-region. This has been achieved in spite of droughts and cricket invasions, and the turmoil in Cote d'Ivoire, and without significant oil or mining exports. Macroeconomic management has been consistently strong, and inflation low. At the same time, its export to gross domestic product (GDP) ratio is only one-third that of Senegal or Mali, while foreign directs investment inflows are far below the average for sub-Saharan Africa. At a time when globalization is determining the fate of nations, Burkina Faso seems to be on the sidelines and doing fairly well. If the country is to raise economic growth rates to the levels necessary to make major inroads on poverty, and reduce its aid dependence, it will need to improve its performance on exports and foreign investment. Implementation of a weighing program to fight against overloading of merchandise, coordinated along all the corridors.The challenge for Burkina Faso is to step up efforts to consolidate this sound performance in order to accelerate growth and deepen the fight against poverty. These efforts will be deployed on three fronts. The first consists in maintaining macroeconomic stability to improve the international competitiveness of the economy; the second, diversifying exports to expand trade and stimulate growth; and the third, strengthening social sectors and small operators in order to make growth inclusive and to maximize its impact on poverty reduction. This study focuses on the second challenge, taking into account the importance of participation by small operators.