Publication: New Voices in Investment : A Survey of Investors from Emerging Countries
Date
2015
ISSN
Published
2015
Author(s)
Gomez-Mera, Laura
Kenyon, Thomas
Margalit, Yotam
Reis, Jose Guilherme
Varela, Gonzalo
Abstract
One out of every three dollars invested
abroad in 2012 was originated in multinationals from
developing countries. This study sheds light on the
characteristics, motivations, strategies, and needs of
emerging market investors. By including information on
investors, potential investors, and non-investors, the study
identifies differentiating factors among them that are
associated with investment decisions. Results show that
emerging market investors are active players in
international trade markets; they operate predominantly in
manufacturing, and are publicly listed and larger than
non-investors. They exhibit a strong regional bias: they
invest more heavily in neighbors and in other countries in
their own regions. Outward FDI from emerging markets is
primarily market-seeking. Expanding regional and host
markets emerged as the most important factor influencing the
location of investments. However, emerging markets'
firms face binding costs of investing in distant, culturally
dissimilar markets, resulting, in practice in a trade-off
between market size and market familiarity. Transaction
costs associated with geographical and cultural differences
have a greater impact on services sector firms that exhibit
a stronger regional bias. Bilateral investment treaties
(BITs) partly offset these costs associated with investing
in faraway and/or unfamiliar markets. In addition,
international trade agreements increase the perceived
attractiveness of a host country to potential investors.
Political factors constitute binding constraints that deter
emerging markets' firms from investing in developing
markets. Yet, investors value political stability and
transparency more than corruption control, fair and regular
elections, and risk of expropriation in the host country.
IPAs play only a marginal role in raising awareness of
investment opportunities in developing countries, and may be
particularly ineffective in many African countries.
Nevertheless, IPAs appear to be a widely used and useful
resource for investors once they have made the decision to
enter a specific market. IPA services tend to be more
valuable for smaller and less productive firms. Overall, the
new TNCs from emerging economies do not appear to differ
dramatically from their predecessors from developed and
developing countries in previous waves of OFDI. Results
suggest that to attract FDI from emerging economies,
countries need to maintain market-friendly, liberal trade
and investment policies. In addition, joining international
trade and investment agreements can be benefitial to reduce
transaction costs associated with cross border investment.
Countries also need to provide a stable and predictable
political and institutional environment. Last and not least,
it is important to revamp IPAs and increase their
effectiveness in raising awareness of investment
opportunities and meeting investors' needs.
Citation
“Gomez-Mera, Laura; Kenyon, Thomas; Margalit, Yotam; Reis, Jose Guilherme; Varela, Gonzalo. 2015. New Voices in Investment : A Survey of Investors from Emerging Countries. A World Bank Study;. © Washington, DC: World Bank. http://hdl.handle.net/10986/20605 License: CC BY 3.0 IGO.”