1. FDI and FDI data – more and more slippery?
Katalin Antalóczy, BGE, Budapest
Magdolna Sass, MTA KRTK and BGE, Budapest
Szeged University Conference, 24th of March, 2017

2. Outline Background Post-crisis changes
Decreased interest of MNCs in the region
Ever increased use of tax optimisation techniques, both in IFDI and OFDI
New data about composition according to final investor countries
Preliminary conclusions and consequences for policy

3. Background1 A „review”-type, descriptive policy paper
Link to the present conference: strong FDI links between core EU (Germany) and V4, role of V4 in maintaining core EU competitiveness
Important role of FDI in the transition process, well documented (see e.g. Gorodnichenko et al 2014)
However, FDI could not dynamise V4 economies to the expected extent (see e.g. Majcen et al., 2003; Pavlínek and Zenka, 2015) due to the strategy of MNCs; overall low capacities and capabilities of local companies; and host (and home) country policies

4. Background2 FDI is perceived as: Dunning: IMF:
„An investment realised by an investing company outside of the economy in which it is headquartered but within the company itself. FDI is effectively a package comprising capital, technology, management and manufacturing know-how as well as access to markets.” Dunning (1994)
IMF:
„direct investment means control or significant influence and long-term ties. Alongside financing, a direct investor provides know-how, technology, management and marketing expertise.” (IMF, 2009, p99)

5. Background3
More and more problems with FDI data, thus reflecting less and less „real” FDI flows and stocks, due to
Globalisation: larger and more complicated company networks even in the pre-crisis period, with increasing goods and capital flows between them
More and more countries offering space/opportunities for such techniques (partly due to overcoming problems related to crisis-driven fiscal erosion)
Increased role of emerging MNCs with more incentive to conceal their real origins
Increased competitive pressures during the crisis years and thus an increase in tax optimisation and tax evasion techniques applied by MNCs – increased opportunities offered

6. Background4
Certain central banks addressed this issue by introducing new categories (special purpose entities, capital in transit) of FDI, which on paper fulfil all criteria of FDI, thus should be recorded as FDI, but in reality does not result in long-term ties, control or significant influence over a local entity
2015: New methodology of compiling FDI statistics in the balance of payments (BPM6), resulting in new data after 2013 on final investor countries and more differentiation between „real” FDI and other types of financial flows
(Continuation of research Antalóczy and Sass 2014, 2015)

7. Hungarian data up till 2013

8. Post-crisis changes1
Decrease in the interest of IFDI in the region (Hungary – special) – BPM6

9. Post-crisis changes2
Eurostat uses different and more outdated data (BPM5), but similar results….
Million euros

10. BPM6: Final investors – new insights
2012
2014

11. Top investor countries in Hungary (2014, without SCV) Source: MNB
Direct investor country Final investor country
Germany 1. Germany
Netherland 2. USA
Luxemburg 3. Israel
Austria Austria
United Kingdom 5. France
France United Kingdom
Belgium Italy
USA Japan
Svitzerland 9. India
Cyprus Switzerland

12. Post-crisis changes: OFDI – also optimising taxes?
Top 10 host countries of outward FDI from the Visegrad countries and their shares in total outward FDI in %
Source: national banks of the analysed countries, data on foreign direct investments
for Slovakia: OECD FDI database (
Notes: Czech Republic: 2014; Hungary: 2015; Poland: 2015; Slovakia: 2014
Czechia
Hungary
Poland
Slovakia
Top host countries
In % of total OFDI stock 1
Netherlands
34.23
Central America (Dutch Antilles)
29.47
Cyprus
37.50
Czech Republic
31.50 2
18.35
Israel
12.99
Luxembourg
20.63
24.52 3
Germany
7.10
Belgium
10.06
7.80
13.94 4
5.87
7.79
7.54
7.40 5
Greece
5.43
Croatia
6.95
Switzerland
7.13
Turkey
5.25 6
Ireland
4.15
6.28
3.36 7
Offshore financial centers
3.87
Luxemburg
3.48
United Kingdom
4.51
France
2.49 8
Bulgaria
3.12
2.74
Lithuania
3.61
Austria
2.37 9
Romania
2.01
United States
2.67
Canada
3.14
1.72 10
1.92
2.38
2.97
1.36

13. Conclusion What do we know about FDI in V4? Less and less…
FDI data contain an ever greater proportion of elements that cannot be considered FDI in an economic sense – more caution in the use of FDI data is required
Decreased interest of MNCs in the Visegrad countries after the crisis if tax optimisation-induced FDI is deducted from total – thus decline in flow, relatively stable stock
New insights due to BPM6 data – different compostition in terms of final home countries of FDI – Germany, US leading, but… - importance of home country impact

14. Consequences for policy in the post-crisis (Brexit-Trump) era
For a better understanding: a need for FDI TiVA? – and: a closer look at data is required, going down to company level, double-checking…
Some further consequences – further analysis needed:
the decreased availability of FDI should induce policy changes in many areas in promoting the positive local impact, upgrading and a higher level of embeddedness of FDI,
A further increased (regional) competition for FDI with increasingly generous incentives offered – further race to the bottom;
the race to the bottom will surely be limited by international efforts as fiscal erosion poses problems in more and more (developed) economies, there are already signs of international cooperation in that area – adaptation needed in countries with exceedingly low profit tax rates;
Speculation: This will be further strengthened by home country changes (US), UK: less relevant

15. Thank you for your attention