Global Foreign Direct Investment: Structural Changes in the Current Crisis
DOI:
https://doi.org/10.17059/ekon.reg.2021-3-21Keywords:
foreign direct investment, global crisis, transnational corporation, economic globalisation, coronavirus pandemic, international trade, internationalisation, scientific and technological progress, mergers and acquisitionsAbstract
The current crisis, as well as complicated economic relations between countries, sustainable development risks of global value chains (GVCs), and international trade protectionism cause changes in the modern system of global foreign direct investment (FDI). Due to the complexity of these risks and the vulnerability of the world economy to future global recessions, it is necessary to develop a new concept of cross-border capital flows in the form of FDI. The research aims to identify structural changes in global FDI in the context of international trade and capital market challenges. Structural and dynamic analysis and a descriptive assessment were conducted to examine global foreign direct investment in the system of international capital movement, taking into account the unstable economic environment. A test of the impact of the current coronavirus crisis revealed that the retrospective transformation of global FDI occurred due to changes in the internationalisation of companies, cross-border mergers and acquisitions, and regional structure of FDI. Corporate disinvestment and the growing importance of intangible assets also played an important role. As a result, the slowdown in global FDI led to a decline in reinvested earnings in many economic sectors. As the long-term recovery of the world economy will be largely determined by the dynamics of global FDI, transnational companies (TNCs) should consider local crises and strive to geographically distribute capital investment. The research revealed that the differentiation of national GVC strategies and new approaches to foreign outsourcing of TNCs are the main risks of regionalisa-tion or nationalisation of global value chains and a corresponding decrease in FDI. The findings can be used to modify well-known FDI concepts, taking into account their impact on modern international economic relations.References
Borga, M., Flores, P. I. & Sztajerowska, M. (2020). Drivers of divestment decisions of multinational enterprises — A cross-country firm-level perspective. OECD Working Papers on International Investment, No 2019/03. OECD Publishing, 56. DOI: https://doi.org/10.1787/5a376df4-en.
Drapkin, I. M., Lukyanov, S. A. & Bokova, A. A. (2020). Influence of foreign direct investment on domestic investment in the Russian economy. Voprosy ekonomiki, 5, 69–85. (In Russ.)
Borodushko, I. V. & Kuzminykh, Yu. V. (2018). Direct foreign investment in the modern world economic mechanism. Putevoditel predprinimatelya [Entrepreneur’s Guide], 37, 20–28. (In Russ.)
Kirillov, V. N. & Miller, Ya. V. (2021). Global Value Chains and New Challenges Facing the Global Economy. Rossiyskiy vneshneekonomicheskiy vestnik [Russian Foreign Economic Journal], 2, 86–97. (In Russ.)
Andronova, I. V. & Sokolan, D. S. (2018). Foreign Direct Investment of China in EU. Vestnik Tikhookeanskogo gosudarstvennogo universiteta [Bulletin of PNU], 4(51), 67–78. (In Russ.)
Kazantsev, S. V. (2020). Sanctions and foreign direct investment: Damage to Russia and sanctioning countries. Mir novoy ekonomiki [World of the New Economy.], 14(1), 44–53. (In Russ.)
Shakhovskaya, L. S. & Bezlepkina, A. A. (2017). Foreign direct investment is a mechanism in the integration process of the CIS countries. Izvestiya Volgogradskogo gosudarstvennogo tekhnicheskogo universiteta [Izvestia Volgograd state technical university], 2(197), 23–26. (In Russ.)
Sosnov, F. G. & Pasko, A. V. (2020). Online platforms in the system of modern international digital trade. E-Management, 2, 63–69. (In Russ.)
Smirnov, E. N. & Lukyanov, S. A. (2019). Assessment of the transforming impact of global value chains on international trade. Upravlenets [The Manager], 10(3), 36–46. (In Russ.)
Kirillov, V. N. (2009). The role of accumulated knowledge in the formation of the competitiveness of companies. Rossiyskiy vneshneekonomicheskiy vestnik [Russian Foreign Economic Journal], 4, 68–74. (In Russ.)
Andersson, M. & Saiz, L. (2018). Investment in intangible assets in the euro area. ECB Economic Bulletin, 7.
Corrado, C. A. & Hulten, C. R. (2010). How do you measure a “technological revolution”? American Economic Review, 100(2), 99–104.
Haskel, J. & Westlake, S. (2018). Capitalism without Capital: The Rise of the Intangible Economy. Princeton, N. J.: Princeton University Press, 288. ISBN: 9780691175034.
Döttling, R. & Ratnovski, L. (2021). Monetary Policy and Intangible Investment. Working Paper Series, No 2444, European Central Bank, Frankfurt am Main, July, 53.
Brown, J. R., Fazzari, S. M. & Petersen, B. C. (2009). Financing innovation and growth: Cash flow, external equity, and the 1990s R&D boom. Journal of Finance, 64(1), 151–185.
Cecchetti, S. & Schoenholtz, K. (2018). Financing intangible capital. VoxEU. Retrieved from: https://voxeu.org/article/financing-intangible-capital (Date of access: 11.03.2021).
Döttling, R. & Ratnovsky, L. (2021). Technological progress reduces the effectiveness of monetary policy. VoxEU. Retrieved from: https://voxeu.org/article/technological-progress-reduces-effectiveness-monetary-policy (Date of access: 20.03.2021).
Smirnov, E. N. (2020). «The World Economy of Coronavirus”: Search for Optimal Ways to Overcome the Consequences of the Crisis. Vestnik MGIMO-Universiteta [MGIMO Review of International Relations], 13(3), 243–266. (In Russ.)
Seric, A., Görg, H., Mösle, S. & Windisch, M. (2020). How the pandemic disrupts global value chains. Industrial Analytics Platform, UNIDO. Retrieved from: https://iap.unido.org/articles/how-pandemic-disrupts-global-value-chains#fn-163–0 (Date of access: 22.01.2021).
Georgieva, K. (2020). Confronting the Crisis: Priorities for the Global Economy. IMF. Retrieved from: https://www.imf.org/en/News/Articles/2020/04/07/sp040920-SMs2020-Curtain-Raiser (Date of access: 15.01.2021).
Seric, A. & Hauge, J. (2020). COVID-19 and the global contraction in foreign direct investment. OECD. Retrieved from: https://oecd-development-matters.org/2020/06/29/covid-19-and-the-global-contraction-in-foreign-direct-investment/ (Date of access: 15.01.2021).
Celik, S., Dimertas, G. & Isaksson, M. (2020). Corporate Bond Market Trends, Emerging Risks, and Monetary Policy. OECD Capital Market Series, Paris. Retrieved from: https://www.oecd.org/corporate/corporate-bond-market-trends-emerging-risks-and-monetary-policy.htm (Date of access: 18.12.2020).
Alfaro, L. & Chen, M. (2012). Surviving the Global Financial Crisis: Foreign Ownership and Establishment Performance. American Economic Journal: Economic Policy, 4(3), 30–55.
Desai, M., Foley, C. F. & Forbes, K. J. (2008). Financial Constraints and Growth: Multinational and Local Firm Responses to Currency Depreciation. Review of Financial Studies, 21(6), 2857–88.
Cadestin, C., de Backer K., Desnoyers-James, I., Miroudot, S., Ye, M. & Rigo D. (2018). Multinational enterprises and global value chains: New Insights on the trade-investment nexus. OECD Science, Technology and Industry Working Papers, No. 2018/05. OECD Publishing, Paris, 36. DOI: https://doi.org/10.1787/194ddb63-en.
Global Corporate Divestment Survey. (2019). Ernst & Young GMLimited, 26.
Cohen, M. A. & Lee, H. L. (2020). Designing the Right Global Supply Chain Network. Manufacturing & Service Operations Management, 22(1), 15–24. DOI: https://doi.org/10.1287/msom.2019.0839.
Le Maire, B. (2020). European industrial sovereignty. Minister Bruno Le Maire’s speech. International press conference. Retrieved from: https://www.gouvernement.fr/sites/default/files/locale/piece-jointe/2020/04/2108_-_bruno_le_maires_speech_-_international_press_conference_-_english_version.pdf (Date of access: 02.02.2021).
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2021 Evegenii N. Smirnov, Sergey A. Lukyanov
This work is licensed under a Creative Commons Attribution 4.0 International License.
