Renato Garcia (p), Veneziano Araujo, Suelene Mascarini, Emerson Gomes Santos, Ariana Costa, Sarah Ferreira

Magdolna Sass

Inward Foreign Direct Investment (FDI) can generate important knowledge spillovers on local economies, fostering regional innovation, especially in developing countries. In this paper, we analyze how regional industrial structure shapes the effects of inward FDI spillovers on the innovative performance of Brazilian regions. Prior literature has analyzed the effects of FDI spillovers on the productivity of host countries’ firms, while less attention has been given to the corresponding effects on regional innovation. Thus, we use data on the investments of Multinational Companies (MNCs) in Brazilian regions for 2003–2014 and relate these data to the innovative performance measured by patents. Our results show that inward FDI positively influences innovation at the regional level since Brazilian regions that receive inward FDI present stronger innovative performance. In addition, the positive effects of inward FDI on local innovation are reinforced by the diversity of the regional industrial structure. Diversified regions that receive inward FDI are therefore better able to leverage the benefits of inward FDI spillovers.

Magdolna Sass (p), Imre Fertő

Renato Garcia

FDI round-tripping is occurring increasingly often around the world. Round-tripping is defined as an investment in the home country of the multinational company, by use of an intermediary in a foreign country. Round-tripping is important from an economic policy perspective, because it is a way to avoid certain taxes and regulations, and it is important from a business perspective as well, as the “round-tripped” FDI-related company is not foreign-owned in reality. Furthermore, it is relevant in terms of having a distorting impact on “traditional” FDI data and thus our understanding of the geographic breakdown of FDI flows. According to the literature, round-tripping may be motivated bytax differences and preferential treatment given to foreign firms as well as by political and institutional factors such as access to foreign capital markets, to better financial services or concealment of the true identity of the investor. Round-tripping can even serve “system escape” purposes to avoid excessive state control or uncertainties in general. The literature analysed round-tripping motives at an individual country level (country case studies on Russia and China mainly), or econometric studies, where roundtripping is lumped together with transhipment, but little is known about its importance and characteristics from a country of origin perspective.
We present short country case studies in order to find possible explanations for round-tripping for Austria, Czechia and Hungary. Furthermore, our study examines the determinants of round-tripping of FDI using a novel database compiled from BPM6-BMD4 FDI data for 21 OECD-member economies for the period 2013-19. We estimated our models with robust Driscoll-Kraay standard errors. We show that the share of round-tripping related FDI in total inward FDI increases with the level of GDP per capita of the country of origin, decreases with its size (measured by the population). It increases with entry barriers and with tax levels. More restrictive FDI environment goes together with less round-tripping. Our results are novel as they separate roundtripping from other flows of FDI and they show the relevance of taxes, usually not found significant in empirical, but found important in country case studies and theoretical approaches. These factors are relevant for mid- to highly developed countries. In the case of emerging economies, explanatory factors of course may differ from these – this is one possible avenue for further research.
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