International Trade and Finance
World Economic Situation and Prospects 2023
The world continues to confront multiple inter-connected crises. Amid a slow recovery from the impact of the COVID-19 pandemic the world is facing a food and energy crisis exacerbated by the war in Ukraine with record high inflation unleashing a cost-of-living crisis. Developing countries are in trouble over the costs of imports and debt servicing and a climate crisis continues to wreak havoc in the most vulnerable countries and populations. Amid monetary tightening subdued consumption and private investments judicious government spending will remain critical for steering economic recovery worldwide. The World Economic Situation and Prospects 2023 will underscore the imperative of supportive and accommodative fiscal measures to lift growth and accelerate SDG progress.
Acknowledgements
The World Economic Situation and Prospects 2023 is a report produced by the United Nations Department of Economic and Social Affairs (UN DESA) in partnership with the United Nations Conference on Trade and Development (UNCTAD) and the five United Nations regional commissions: Economic Commission for Africa (UNECA) Economic Commission for Europe (UNECE) Economic Commission for Latin America and the Caribbean (UNECLAC) Economic and Social Commission for Asia and the Pacific (UNESCAP) and Economic and Social Commission for Western Asia (UNESCWA). The United Nations World Tourism Organization (UNWTO) also contributed to the report. The forecasts presented in the report draw on the World Economic Forecasting Model of UN DESA as well as inputs from the United Nations regional commissions.
Foreword
This 2023 edition of the United Nations flagship report World Economic Situation and Prospects comes at a pivotal moment for the global economy. The growth of the world’s population to 8 billion people is a testament to improved nutrition public health and sanitation. But as our human family grows larger it is more unequal and divided than ever.
Do human capital and institutional environment constrain the impact of foreign direct investment inflows on economic growth in Africa?
This paper investigates the role of human capital and institutional quality in the nexus of foreign direct investment (FDI) and economic growth in 46 African countries between 2002 and 2018. Based on panel data modelling the empirical findings suggest that FDI in itself does not promote economic growth in Africa; however we observe that human capital and institutional quality play a supportive role in enhancing the positive spillover effect of FDI on economic growth in uppermiddle- income countries in the region. The findings for low-income and lowermiddle- income countries are mostly not significant. Given the initial conditions and absorptive capacity constraints in these countries the positive spillover effects of FDI might be limited. From a policy perspective the findings call for special attention by policymakers to improving the quality of their human capital and strengthening their institutions to maximize the benefits of FDI.
UNCTAD Insights: Fourth Industrial Revolution and FDI from SMEs: The Case of the Republic of Korea
The impact of Fourth Industrial Revolution (4IR) technologies on enterprises’ internationalization strategies is ambiguous. Although digital technologies lower information and transaction costs and facilitate international coordination of overseas activities automation technologies can push enterprises to reshore foreign operations. This paper analyses the impact of 4IR technologies on the foreign investment decisions of small and large enterprises in one of the most technologically advanced countries in the world: the Republic of Korea. The results indicate differential impact across enterprise sizes and technologies. The propensity of SMEs to invest overseas upon the adoption of 4IR technologies especially digital technologies increases relatively more than that of larger firms. The results have important implications for investment and development policies in the region. The findings highlight the key role of FDI by Korean SMEs in the technological development of neighbouring Asian economies calling for increased attention to smaller players in investment promotion.
Does language affect the location choice of developing-economy MNEs? The case of Moroccan outward FDI
The present paper investigates the effect of linguistic distance on location decisions of Moroccan outward foreign direct investment (FDI) using panel data on 54 host countries from 2007 to 2021 and the robust weighted least squares estimation method. The results show that the higher the share of French- and Arabic-speaking populations the more the host country attracts FDI from Morocco. Also the results show that the higher the share of the English-speaking population the less the host country attracts FDI because English-speaking countries tend to adopt institutional structures (the Anglo-Saxon way of governance) that differ from the French model inherited by Morocco during its colonization. For Spanish there is no effect on the location decisions of Moroccan multinational enterprises because of the language’s marginalization at the formal level. The study highlights important policy considerations for home and host countries in terms of investment policy and investment promotion language-in-education policies and the role of international cultural and linguistic institutes in home and host countries.
How does policy create an opportunity window for China’s digital economy?
From the initial stage of “bringing in” foreign firms to the stage of “going out” (going global) the four-decade development process of China is not just about its participation in globalization but also about Chinese firms’ innovation based on global knowledge sourcing. This study provides a new interpretation of the technology catching-up of Chinese firms incorporating the theory of windows of opportunity considering policies as windows for international knowledge sourcing and technology catch-up. It assesses the impact on innovation performance of inward and outward foreign direct investment policies as institutional windows for knowledge sourcing aims to identify the effective width of windows of opportunity and establishes how these policies lead to outstanding innovation performance by latecomers over time by leveraging external knowledge. Threshold models were adopted using data from multiple sources on 187 Chinese listed firms in the digital industry including 2807 firm-year observations. The results show that nonlinear relationships exist between institutional windows and innovation performance. The roles and mechanisms of institutional windows of opportunities in Chinese firms’ knowledge-sourcing process demonstrate the decisive effects of the Government’s internationalization policies and their role in promoting the development of Chinese digital technologies. Implications are elaborated for both policymakers and Chinese multinational firms in the digital industry.
Articles: Deep trade integration and North-South participation in global value chains
Do comprehensive trade agreements increase the participation of States in global value chains (GVCs) and contribute to their development? Although there is extensive evidence in the trade literature that deep preferential trade agreements (PTAs) can increase States’ bilateral export of final goods and by implication contribute to local development much less is known about the characteristics of this effect on GVC relations. This paper answers the question in the framework of a gravity model and uses a comprehensive dyadic data set on trade in GVCs PTAs export and other characteristics for 188 countries and economies between 1990 and 2018. Results provide robust evidence that deep PTAs increase members’ bilateral trade in GVCs over the long term especially when these agreements involve at least one developing country or economy and include provisions that support investment. These results underscore that GVC-facilitating deep PTAs are a powerful policy tool that can mobilize the potential of production and trade in GVCs for development.
International project finance deals as indicators of productive cross-border investment: UNCTAD’s approach
International project finance (IPF) can channel private cross-border capital toward productive investments in (mostly) infrastructure sectors especially where government budget constraints are tight. Moreover it has recently gained importance as a tool to finance the Sustainable Development Goals (SDG) and bridge the large infrastructure gap for climate megaprojects. In such contexts projects often require international capital along with expertise and credibility; they also require a project-specific risk allocation that IPF accommodates. This research note assesses project finance in the context of international productive investments its link with other forms of international investment (mergers and acquisitions and cross-border greenfield investments) in the data used and its use in UNCTAD’s publications. Data is a lynchpin for analysis but is not unproblematic. The note explores incongruences and their impact. It also outlines UNCTAD’s conceptual choice to capture ongoing productive investments in infrastructure through project finance in the world economy.
Introduction
The UNCTAD Handbook of Statistics 2022 provides a wide range of statistics and indicators relevant to the analysis of international trade economy investment maritime transport and development overall. It comes at a time of cascading crises that overlap and compound each other. In uncertain times reliable statistical information becomes even more indispensable for effective policy responses and decisions aiding countries to recover from the crises and build a more just inclusive and sustainable economy.