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Responsible Consumption and Production
Current trends in private financing of water and sanitation in Asia and the Pacific
The present paper shows the current trends in private sector investment in the water and sanitation sector. After peaking in 2007 private investment in the water and sanitation sector has been volatile. The decline in private investment has also been accompanied by a shift in the type and size of investments taking place. Post-2007 private investment is increasingly concentrated in a few large and wealthy countries and municipalities; and are bankrolled and developed by smaller regional-based investors. This is especially worrying for low-income countries which stand to benefit the most from private investment but have been receiving less than 1 per cent of the total project allocations in the sector. The huge financing gap requires more innovative financing that can only come by attracting private sector capital to improve water and sanitation services in the Asia-Pacific region especially for the least developed and low-income emerging economies.
Tapping capital markets and institutional investors for infrastructure development
The present paper is focused on using capital markets in the Asia-Pacific region to channel more resources for infrastructure development while mobilizing assets managed by institutional investors such as pension funds and insurance companies. To this end the paper is structured as follows. First an analysis of the level of capital market development in the region is conducted which indicates that markets remain at a nascent stage in many economies. Banks continue to dominate private financing in the region. Second a review is carried out on the size of institutional investors from which it is suggested that prudential regulation might need to be adjusted to enable greater infrastructure investment. Third different modalities for investors seeking infrastructure exposure are highlighted and initiatives launched by different countries to support the development of infrastructure-related instruments are presented. Fourth a review is made on the actions to support capital market development which is critical for greater involvement of institutional investors. Fifth ways to address constraints hindering infrastructure investments are presented. Finally the paper concludes with proposals of strategies that are adapted to each country’s circumstances and designed to further tap this source of financing for infrastructure development.
Impact of food inflation on headline inflation in India
A commonly held belief in the 1970s was that price indices rise because of temporary noise and then revert after a short interval (Cecchetti and Moessner 2008). Accordingly policy should not respond to the inflation because of these volatile components of the price indices. This led to the development of the concept of core inflation (Gordon 1975) which is headline inflation excluding food and fuel inflation. It was strongly believed that in the long run headline inflation converges to core inflation and that there are no second round effects (that is an absence of core inflation converging to headline inflation). In recent years however major fluctuations in food inflation have occurred. This has become a major problem in developing countries such as India where a large portion of the consumption basket of the people are food items. Against this backdrop in the present paper an attempt is made to measure the second round effects stemming from food inflation in India using the measure of Granger causality in the frequency domain of Lemmens Croux and Dekimpe (2008). The results of empirical analysis show significant causality running from headline inflation to core inflation in India and as a result the prevalence of the second round effects. They also show that food inflation in India is not volatile and that it feeds into the expected inflation of the households causing the second round effects. This calls for the Reserve Bank of India to put greater effort in anchoring inflation expectations through effective communication and greater credibility.
Valuing the digital economy of New Zealand
The present paper provides estimates of the value of the digital economy of New Zealand through the use of the supply-use tables. By design no changes are made to the production boundary as the products being assessed are already included within the production boundary and gross domestic product (GDP). The approach is a practical attempt at using the framework first presented in the paper entitled “Measuring digital trade: towards a conceptual framework” and in particular the “nature” component of the framework. This is extended to the whole economy to identify “digital” transactions in the country’s National Accounts Commodity Classification. The main finding from this paper is that the “digitally ordered” and “digitally delivered” aspects of the framework were able to be broadly applied. However the significant material assumptions and the broad nature of the product classification at the aggregate level meant that our estimates were not of high quality. For the year ending March 2015 the estimate of the value of gross output of New Zealand that can be delivered digitally was 27.9 billion New Zealand dollars (NZ$) (US$18.8 billion) while for digitally ordered gross output it was NZ$109.2 billion
Petroleum consumption and economic growth relationship: Evidence from the Indian States
This paper reveals that over the period 1985-2013 the wealthier states of India experienced a prevalence of the feedback hypothesis between real gross domestic product growth and petroleum consumption in the short run and the long run. Over the short term the whole (major) 23 Indian state panels show support for the conservative hypothesis. Regarding the panels comprising low- and middle-income Indian states although there appeared to be significant bidirectional effects in the long run none of the results suggest that energy consumption increases economic growth. This implies that growth in energy demand can be controlled without harming economic growth. The results however indicate that for the low- and middle-income states increases in petroleum consumption could adversely affect economic activity in the short and long run. These findings relate to the aggregate data on petroleum. Examining the short-run and long-run energy-growth linkages using disaggregated data on petroleum consumption reveals that only a few types of petroleum products have stable long-run relationships with economic growth. In fact with disaggregated petroleum data the vector error correction model (VECM) and cointegration results support the neutral hypothesis for high-incomes states. For the low- and middle-income groups while the conservation effect is found to prevail in the short run and the long run higher economic growth appears to reduce consumption of selected types of petroleum products.
China’s international investment strategy by Julien Chaisse (editor)
Chinas international investment law and policy have been the subject of detailed study since the liberation endeavour of the late 1970s which was a landmark change in the countrys development path and integration into the global economy. The countrys active participation in the global economy is mirrored by its evolving profile of cross border capital flows with China both a prominent source of and destination for foreign investment. Indeed Chinas rise as a global investor has made its approach to international investment an important issue on which a considerable amount of literature has already been published. The recent past has nevertheless seen several important events within China as well as bilateral regional and global events influencing Chinas approach towards international investment and adding new perspectives thereto.
Estimating the fiscal effects of base erosion and profit shifting: data availability and analytical issues
The multilateral efforts led by the Organisation for Economic Cooperation and Development (OECD) to address base erosion and profit shifting (BEPS) have attracted much attention from tax policy makers practitioners and academics. In 2012 the OECD/G20 BEPS Project was launched to address BEPS through a range of international tax policy measures. A key part of the BEPS package was the Action 11 report which considered the fiscal and economic impacts of BEPS and produced an empirical estimate of the global corporate income tax (CIT) revenue losses arising from BEPS of between 4 per cent and 10 per cent of global CIT revenues. This research note highlights some of the data-related and methodological challenges facing researchers attempting to estimate the fiscal impacts of BEPS discusses some of the methodological approaches that have recently been applied to this end and provides a preview of the forthcoming release of the first edition of the OECD Corporate Tax Statistics.
Transfer pricing and state aid: The unintended consequences of advance pricing agreements
An advance pricing agreement (APA) is a formal arrangement between a tax authority and a multinational enterprise (MNE) in which the parties jointly agree on the MNE’s transfer pricing methodology estimated taxable income and tax payments for a fixed period thus reducing the likelihood of an income tax dispute. We argue that APAs which were developed by governments to solve MNE-state problems in one realm (international taxation of related party transactions) have had unintended consequences for both parties due to the spillover impacts of APAs into other policy realms. We explore this argument in the European Union state aid cases where in the context of competition policy APAs can be viewed as hidden discretionary policies that can be misused by lower-tier governments to attract or retain inward foreign direct investment by offering individual MNEs preferential tax treatment. Our paper contributes to this literature by analyzing the unintended consequences of APAs and recommending policy changes to reduce these negative spillovers.
Keeping faith with nature
Three childhood experiences set me on the course to working to restore degraded land through helping to connect people to nature. My mother’s strong and unwavering faith helped me to appreciate that life was about more than what we could accumulate in the present and that we could trust a loving heavenly father for all our needs. The abuse of beautiful forests and mountain streams seemed to be an expression of greed and disregard for future generations. Watching news programs showing children just like me going hungry seemed mad in a world of plenty.
Book review: Navigating Global Business: A Cultural Compass by Simcha Ronen and Oded Shenkar
The world has changed dramatically over the last two decades moving through two distinct phases of globalization. Tapping into the rapid growth of goods and services trade (WTO 2016a) the first wave of globalization was propelled by value chains enhancing specialization productivity and access to markets (Reeves and Harnos 2017; OECD 2017). The second is marked by digitalization and it is characterized by the flow of ideas information and innovation which has further enabled the exploitation of global business opportunities through internet applications.
Research methods in international business by Lorraine Eden, Bo Nielsen and Alain Verbeke
Neighbours with different innovation patterns: The implications of industrial and FDI policy for the openness of local knowledge production
This article shows evidence that FDI policies during the catch-up process may leave a trace in the openness of innovation activities in latecomer economies based on a comparative analysis between the Republic of Korea and China. The past industrial policies of the Republic of Korea favoured creating local technological competence based on the transfer of foreign knowledge in codified form leading to a low level of global connection in local knowledge creation. By contrast Chinese policies encouraged the entrance of foreign firms in the Chinese market leading to a higher level of global interaction in innovation activities. Based on the findings the article presents policy recommendations and suggests avenues for future research.
Does tax drive the headquarters locations of the world’s biggest companies?
In recent years policy-makers have given paramount attention to “competitiveness” working to ensure that domestic economies attract investment jobs and tax revenues. Toward this end countries have steadily lowered corporate tax rates in an attempt to attract mobile international businesses. This paper discusses the desirability of this policy stance in light of data on the world’s biggest companies. Using Forbes lists of the top “Global 2000” companies over the period 2003–2017 the paper analyzes companies’ headquarters locations focusing on economic geographic and policy determinants. The paper then relates these findings to larger policy questions.
How subsidiaries influence innovation in the MNE value chain
As multinational enterprises increasingly disaggregate their value chains and assign functional responsibilities to foreign subsidiaries they are increasingly focused on augmenting spatially distant activities and resources. At the same time despite subsidiary managers operating at the “middle” of the organization and having awareness of operational and strategic contexts they have received significant criticism for hindering the successful coordination and integration of value chain activities. This appears counterintuitive as on the one hand MNEs are increasingly disaggregating their value chains and on the other subsidiary managers act as frontline managers at the intersection of their local context and the MNE. We examine the resource stocks of six subsidiaries and the activities of subsidiary managers locally and across global value chains. The results indicate that integration responsibilities are decentralized as properties of subsidiary mandates and that the subsidiary managers’ connectivity activities significantly affect the strategic influence that they subsidiary can exercise locally and globally. The results also contain important information for policymakers.
UNCTAD insights: FDI in the digital economy: A shift to asset-light international footprints
The digital economy is becoming an ever more important part of the world economy. It is revolutionizing the way we do business and it has important implications for foreign direct investment (FDI). However little systematic analysis has been done to investigate the investment patterns of digital multinational enterprises (MNEs). This study conducted in the context of UNCTAD’s World Investment Report 2017 (WIR17) is an attempt to fill some of the gap in knowledge and to provide an impetus for future research. It proposes a new interpretative framework for the digital economy builds an extensive sample of digital and ICT MNEs and profiles their international operations. Its main findings are that MNEs in highly digitalized industries have a “lighter” FDI footprint than traditional MNEs; they tend to concentrate their operations in a few highly developed countries and their investment patterns are shaped by fiscal and financial motives more than those of traditional MNEs. As digital technologies and business models tend to disseminate across the broader economy this may suggest the onset of a new era of international production and MNE internationalization paths. This paper sheds light on the methodology underpinning the analysis in WIR17 to ensure full replicability and to prepare the ground for further work in the area. It also builds further on the discussion in WIR17 proposing broader implications for international business and new avenues for future research.
An FDI-driven approach to measuring the scale and economic impact of BEPS
This paper explores the link between foreign direct investment (FDI) and the BEPS (base erosion and profit shifting) practices of multinationals (MNEs). It puts the spotlight on the outsize role of offshore investment hubs as major players in global corporate investment a role that is largely due to MNEs’ tax planning although other factors contribute. The paper shows that tax avoidance practices enabled by FDI through offshore hubs are responsible for significant leakage of development financing resources. In policy terms these findings call for enhanced cooperation and synergies between international tax and investment policymaking.
Sharing the corporate tax base: Equitable taxing of multinationals and the choice of formulary apportionment
How can academic-policy collaboration be more effective? A stewardship approach to engaged scholarship in the case of SME internationalization
In response to calls for more policy-relevant academic research this paper undertakes a stewardship approach to examine an engaged scholarship policy programme targeted at supporting the internationalization of Small and Medium-Sized Enterprises (SMEs) in Scotland namely the Global Companies Development Programme (GCDP). The study was undertaken by academics and included a combined formal evaluation and research study a follow-up workshop and group interviews over a ten-year-period. This study extends the stewardship approach to the engaged scholarship context. The findings suggest that stakeholders view their collaboration as a “supra-organizational” formation through which they can identify and empathize with its objectives; require skilful boundary spanners who consistently promote the objectives of the collaboration in the participating organizations; and accentuate effective knowledge generation and transfer to SME internationalization activities that reflect the outcomes of their collaboration. We discuss policy implications for the development of private-public and inter-agency partnerships.
Trade, investment and taxation: Policy linkages
International trade investment and tax policies are inextricably linked. Tax is a key investment determinant influencing the attractiveness of a location or an economy for international investors particularly those heavily engaged in international trade. Taxation tax relief and other fiscal incentives are key policy tools to increase exports and attract investors. Investors once established add to economic activity and the tax base of host economies and make direct and indirect fiscal contributions. And international investors and MNEs by the nature of their international operations and intra-firm trade have opportunities for tax arbitrage between jurisdictions and for tax avoidance.
Making the most of FDI for development: “New” industrial policy and FDI deepening for industrial upgrading
This article examines the theoretical and empirical links between a new generation of industrial policy which is rapidly emerging as a dominant paradigm in development economics and foreign direct investment (FDI). It finds that thus far the theoretical role of FDI in “new” industrial policy has been vague despite openness to FDI being one of the characteristics which sets it apart from an “old” generation of industrial policy which advocated protectionism. Based on primary and secondary research the article argues that a set of interventions into the economies of low- and lower-middle-income countries combined with an in-depth understanding of the complex interactions involved in TNC subsidiary upgrading the internationalization processes within TNCs and TNC strategies and objectives on the part of policymakers offers such countries the opportunity to maximize the benefits of FDI and move further up in global value chains.