Foreign Trade Review

Global foreign direct investment (FDI) flows have increased rapidly over the last few decades. However, Ghana has not attracted much of this FDI. Investors are driven mostly by profit maximization and hence decisions to invest in an unfamiliar territory are often based on the economic and political conditions of this new territory. The current study investigates the effect of the state of governance and economic crises on FDI inflows to Ghana. Using time series data from 1960 to 2015, Vector Error Correction Mechanism results show that democratic governance has the tendency to positively influence FDI inflows while periods of economic crises are likely to reduce FDI inflows to Ghana in the long run. Depreciation of the Ghana Cedi reduces FDI inflows but market size has a positive influence on FDI inflows. Increase in labour skills and the level of openness have positive effects on FDI inflows. In the short run, economic crises in the last three years have negative effects on present FDI inflows while democratic governance in the past year positively influences FDI inflows. It is recommended that democratic governance should be maintained to enhance FDI inflows. Also, efforts to avoid economic crises especially institutional shocks absorbers are key to maintain FDI inflows to Ghana.

JEL: P33, P45, E02, O55

With primary considerations such as trade and investment openness becoming similar for many economies due to globalization, the role of other factors such as institutional environment in promoting investment has captured increasing attention in recent times. In view of the growing importance of Asia as a prospective foreign direct investment (FDI) destination, we employ panel data regression data for 16 Asian economies over the period 2000–2012 to study if institutional quality affects FDI flows and stocks and whether it can act as a differentiator while selecting a location within Asia. Among the institutional variables employed, ‘political stability and absence of violence/terrorism’ were found to be significant determinants revealing the importance of a stable and safe political environment for FDI. However, ‘corruption’ and ‘regulatory inefficiency’ were found to affect FDI inflows positively, indicating the preference of foreign investors for a system where laws can be circumvented easily through corrupt bureaucracy and where regulations are weak or less stringent.

JEL: F21, F23, O43, O53

The World Trade Organization’s Information Technology Agreement (ITA), which was concluded at the Singapore Ministerial Conference in 1996, is considered to be one of the biggest tariff-cutting deals by virtue of eliminating all customs-related duties on the exportation of certain categories of information technology products to a country, which is a member to the Agreement. Over time, new innovations in the information and communication technology (ICT) sector mandated the consideration of expanding the list of products covered by this Agreement, which took place in the form of ITA-II negotiations. India, which was an original member of the ITA-I, however, decided to opt-out of the negotiations to expand the list of products covered by the Agreement, and reasoned its absence by stating that the zero-tariff regime created by the ITA-I debilitated its electronics-manufacturing sectors and on the contrary resulted in an over-reliance on imported electronic inputs. Accordingly, providing duty-free treatment to a further list of IT products could potentially be detrimental for the country’s economic growth. Consequently, it preferred to give priority to its national policy initiative, namely the ‘Make-in-India’ programme, which embarks upon fostering domestic production of, inter alia, the ICT sector. This article accordingly weighs the better alternative for India and analyses the prospects of initiatives like the current one to resuscitate the ailing domestic electronics-manufacturing sector, before it can benefit from the zero-tariff regime over the expanding list of products covered by the ITA-II.

JEL: K33, M15

Determinants of Foreign Direct Investment has remained an exhaustive endeavour for the researchers and at times it becomes a Pollyanna for policy making. The present piece of research is an attempt to gauge the determinants of FDI for India and Sri Lanka. The plausible determinants are selected for empirical testing such as Market Size, Inflation, Trade Openness and Current Account Balance. Proxy variables are selected in case the determinant is not measured in itself. Augmented Dicky Fuller test (Dicky & Fuller, 1981) is used for checking stationary and for hypotheses testing Ordinary Least Squares Regression is used.

JEL: C13, E22, F21, F23