5_wp - JUDIT GERGELY Trends in Foreign Direct Investment...

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J UDIT G ERGELY Trends in Foreign Direct Investment Incentives 05/2003 Associazione Universitaria di Studi Europei ECSA-I TALY
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These Working Papers collect the work of the European Com- munities Studies Association (ECSA) Research project European Union Toward Enlargement: Integration Maturity and Adjustments of Acceding and non Acceding Countries of Cent- ral and Eastern Europe (Agreement n. 2003-0249 with the EU Commission Directorate General of Education and Culture). The publication of work by Authors can be proposed by a re- searcher collaborating to a national ECSA involved in the pro- ject, provided that the paper has been presented in public. The name of the proponent is reported in a footnote. The views ex- pressed in the Working Papers reflect the opinions of the Au- thors only, and not necessarily those of the national ECSA. Printed with the contribution of the European Commission © Copiright Judit Gergely Printed in Italy in December 2003 A SSOCIAZIONE U NIVERSITARIA DI S TUDI E UROPEI (AUSE) Via San Felice, 5 – 27100 Pavia, Italy All rights reserved. No part of this paper may be reproduces in any form without permission of the Author.
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Trends in Foreign Direct Investment In- centives Judit Gergely * 1. Global Trends in FDI 1 Global FDI inflows declined in 2002 for the second consecutive year, falling by a fifth to $651 billion – the lowest level since 1998. Flows declined in 108 of 195 economies. The main factor behind the decline was slow economic growth in most parts of the world and dim prospects for recovery, at least in the short term. Also important were falling stock market valuations, lower corporate profitability, a slowdown in the pace of corporate restructuring in some industries and the slowing down of privatization in some countries. A big drop in the value of cross- border mergers and acquisitions (M & As) had a great impact in the overall decline. The number of M & As fell from a high of 7,894 cases in 2000 to 4,493 cases in 2002 – and their average value from $145 million in 2000 to $82 million in 2002. The global stock of FDI, owned by some 64,000 TNCs and controlling 870,000 of their foreign affiliates, increased by 10% in 2002 – to more than $7 trillion. Technology payments, mostly internal to TNCs, held steady in 2001 despite the near halving of FDI flows. Value added by foreign affiliates in 2002 ($3.4 trillion) is estimated to account for about a tenth of world GDP. FDI continues to be more important than trade in delivering goods and services abroad: global sales by TNCs reached $18 trillion, as compared with world exports of $8 trillion in 2002. TNCs employed more than 53 million people abroad. The developed world accounts for two-thirds of the world FDI stock, in both ownership and location. Firms from the EU have become by far the largest owners of outward FDI stock, some $3.4 trillion in 2002, more than twice that of the United States ($1.5 trillion). In developing countries, the inward FDI stock came to nearly one-third of GDP in 2001, up from a mere 13% in 1980. Outward FDI * Budapest University of Economic Sciences and Public Administration Center for European Studies and Education.
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5_wp - JUDIT GERGELY Trends in Foreign Direct Investment...

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