Inward FDI in Germany and its policy context
With a stable economic and political system, open capital markets, the largest domestic market in Europe, and European Union (EU) membership, Germany has attracted competitive and export-oriented multinational enterprises (MNEs) since the 1960s. In the 1990s —after German unification and the opening up of Eastern Europe— inward foreign direct investment (IFDI) grew more slowly than expected despite the increased market potential. In recent years, the German economy strengthened and the wage and cost gaps against its main competitors narrowed, contributing to higher IFDI. With the financial and economic crises, German IFDI declined considerably in 2008 but started to rise again in 2009. At the end of 2008, Germany ranked among the top four developed countries as host for IFDI. Germany's open investment regime was tightened in 2009, in reaction to the emergence of sovereign wealth funds (SWFs). Trends and developments Country-level developments The successful reintegration of Germany into the world economy after the Second World War, as well as the European unification process, stimulated IFDI in Germany. Already in the 1960s, many of the largest MNEs worldwide (like General Motors or IBM) had established affiliates in Germany. In 1990, the year of the German reunification, the consolidated primary and secondary IFDI stock amounted to US$ 111 billion. 1 Since then, it has risen six-fold, to reach US$ 666 * Thomas Jost (thomas.jost@h-ab.de) is Professor of Economics at the University of Applied Sciences Aschaffenburg. The author wishes to thank Alexandra Angress, Jörn Kleinert and Beatrix Stejskal-Passler for their helpful comments. The views expressed by the author of this Profile do not necessarily reflect opinions of Columbia University, its partners and supporters. Columbia FDI Profiles is a peer-reviewed series. 1 The German inward FDI stock figures that are used most for analysis in this article are consolidated primary and secondary direct investment stock figures. This is a very special calculation done by Deutsche Bundesbank, looking through dependent (majority foreign owned) holding companies in Germany and including their direct investment enterprises in Germany. These figures are not comparable with the figures of most other countries, taking only primary FDI into account. The primary FDI stock in Germany is much higher than the consolidated primary and secondary one, because FDI in dependent holding companies is much higher than the FDI stock in their direct investment enterprises, which replace the dependent holding companies by consolidation. The reason for this is that the holding companies receive …
Sovereign Wealth Funds: Size, economic effects and policy reactions
The emergence of Sovereign Wealth Funds (SWFs) and some spectacular investments of these funds in recent years have caused widespread attention on international financial markets. Most SWFs are domiciled in Arabian countries, East Asia and Russia. Their low transparency led to concerns that SWFs could threat national security and the economic order of industrialised countries. This paper describes t he growth and the investment strategy of SWFs, the impact of their investments on host and i nvesting countries as well as policy reactions of selected countries. Several internatio nal organisations (European Union, OECD, the IMF together with the International Working Group of Sovereign Funds) have already undertaken initiatives that will help to improve th e transparency and accountability of SWFs and to develop best practices for investing countri es as well as for recipient countries. National policy reactions of several host countries , like the tightening of rules for cross-border investments in the United States and in Germany, were therefore rather counterproductive.
Driving and Countervailing Forces: A Rebalancing of National FDI Policies
The threat of rising foreign direct investment (FDI) protectionism is worrying policy-makers, investment promotion agencies (IPAs), and multinational enterprises (MNEs). The Heads of State or Government of the G20 underlined this in their Declaration of November 15, 2008 when they agreed on a one-year moratorium on the introduction of new protectionist investment measures. This was in response to increased incidents of cross-border merger and acquisitions (M&As) being questioned or denied, contracts between MNEs and host countries being renegotiated or cancelled, or laws and regulations being introduced that make the business environment less hospitable for FDI. At the same time, though, the regulatory framework governing FDI in some countries has been made more welcoming, IPAs have been set up in others, and investment flows into some countries have broken previous records. In fact, world FDI flows reached $1.8 trillion in 2007, above the all-time high of $1.4 trillion in 2000 (in current dollar terms).Are these signs of FDI protectionism straws in the wind or do they indicate a storm in the making? Will political risk and regulatory vulnerabilities slow down or even stop the growth of FDI flows, especially in light of the worldwide recession? Will the forces that drive the expansion of FDI continue to trump the risks? Is the regulatory pendulum swinging back from protection and liberalization toward control?