Svetlicic MarjanSvetlicic Marjan 11marjansvetlicic@siol.netmarjansvetlicic@siol.net

European Regions’ Sustainable FDI European Regions’ Sustainable FDI Strategies and Policies for Strategies and Policies for

enhancing Competitivenessenhancing Competitiveness

Marjan SvetličičMarjan SvetličičFaculty of Social Sciences, Ljubljana, SloveniaFaculty of Social Sciences, Ljubljana, Slovenia

EERREF-2010EF-2010 Graz Preparatory Workshop, April 23, 2010 Graz Preparatory Workshop, April 23, 2010

Svetlicic MarjanSvetlicic Marjan marjansvetlicic@siol.netmarjansvetlicic@siol.net 22

Winners do the right things at the right moment!!Winners do the right things at the right moment!!Are sustainable FDI the right thing as the Are sustainable FDI the right thing as the

response to the crises?response to the crises?

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IntroductionIntroduction1. FDI is hard to love, easy to hate2. Many misconceptions about FDI;

• 9 out of 10 skeptics are from EU and from public organizations??

3. Frequently scapegoat for own mistakes4. In the crises still performed better in spite of

reduction of flows 5. Tectonic changes demand new thinking6. Making them even more sustainable (sunk

costs…) major challenge.

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ObjectivesObjectives1. What theory, empirical studies say 2. Definition of sustainable FDI3. What our survey say4. How to promote regional development

by enhancing FDI; strategic considerations

5. Incentives for sustainable FDI; host countries perspective!

6. Conclusions

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1. What theory says1. What theory says

1. No general consensus, but mostly positive impact, provided…

2. Spillover effects contingent on absorptive capacity,

3. Without intervention, FDI may widen regional inequalities,

4. Private motives and firm characteristic major determinants of FDI location;

• not host countries determinants

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2. What empirical studies say?2. What empirical studies say?1. Location factors play decisive role (market size,

infrastructure, language, proximity, GDP pc, ..)2. But also; signal (existing FDI), access (market…),

innovation and skill effects3. Effects are sector and type of FDI specific4. FDI policy as part of regional development

policy/priorities perform the best5. Incetives perform better in developed countries6. Spillover effects positive: up to 40% increase in

productivity (cohesion regions and Eastern Europe)7. Net positive effects on employment

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3. Our survey showed that:3. Our survey showed that:1. FDI important for competitiveness;more in the future2. Crises have moderately affected FDI (less reinvesting,

less new inflows…)3. Main benefits; jobs, fresh capital (crises!!!), market…4. Main disadvantages; dependence on foreign

decisions, too much subsidies, reduction of local suppliers,

5. No validation for reduced R&D,6. Key attraction factors: qualified personal, good

infrastructure, economic fundamentals; 7. Subsidies and fiscal incentives (correlated with poor

econ. fundamentals) are of low importance, but schizophrenic attitudes

8. Better negotiation skills can improve the host country benefits from FDI

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4. How to promote sustainable regional 4. How to promote sustainable regional development by enhancing FDI?development by enhancing FDI?

1. By incentives or other measures?• Although incentives widely applied, not so efficient !• No incentives can compensate weak economic and

political fundamentals…. (negative correlation),

2. Rationale for incentives are:• Correcting market failures and• Capturing externalities

3. Incentives should be: selective, refundable, temporary, targeted and regularly evaluated

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What are sustainable FDI?What are sustainable FDI?

1. Leaving our children and grand children opportunity to lead the same quality life as us now at local, regional, global level

2. Those staying in the country/region, not volatile (location stick FDI),

3. Contributing to sustainable development

4. Negative correlation between incentives and sustainable FDI;

– expiration of incentives FDI may go

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5. Attracting sustainable FDI; strategic 5. Attracting sustainable FDI; strategic considerationsconsiderations

1. No one fit all strategies2. Regional promotion of FDI has limited

reach; can only add some specific measures

3. Shift from inward to outward FDI 4. Special incentives for remote, not

bordering regions 5. FDI must be part of coordinated

national/regional policy

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Otherwise….Otherwise….

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5. Attracting sustainable FDI; strategic 5. Attracting sustainable FDI; strategic considerations #2considerations #2

1. Three edge FDI promotion policy has proved to be the most productive:

• improving general investment climate, economic fundamentals, infrastructure (positive correlation)

• coherent (regional) development strategy, • Specialized region (core competencies) attract

more FDI.2. Regions should differentiate themselves by improving

factors enabling sustainability like:• infrastructure, • education, (skill effets)• R&D, (innovation effect)• ICT effect; networks&skills,• Developing suppliers (agglomeration effect, clustering)

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5. How to make FDI sustainable; host 5. How to make FDI sustainable; host countries perspectivecountries perspective

1. Targeting existing FDI ( best promoters)• Stimulating their new and reinvestments• Climbing value added chain• Improving after investment service activities

2. Targeting new investors:• specific value added activities, tasks oriented

incentives (Baldwin)• specific groups of investors (investment brokers,

strategic partners, diasporas, neighboring countries and new actors/SWFs)

• non traditional FDI; R&D, medical services, education

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Some regions can do it, others Some regions can do it, others need assistance! need assistance!

• Developed regions can trapez

• less developed regions need a trampoline

• Remote regions… need safety net

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How to do it?How to do it?1. Providing information is the simplest and most cost

effective measure

– Strong correlation (0.72) between important role of authorities and providing info

2. Recruit staff on the basis of their soft skills, private sector experience and language proficiency

3. Enhance competition and making FDI coherent with development goals (positive correlation)

– Public organizations believe more than private

4. Establishing sustainebility standards, codes, checking FDI by environmental standards, equal distribution of incomes….

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6. Conclusions6. Conclusions

1. FDI can be good if:– in good hands– In good climate– Eliminating attitudinal barriers (Gresham

law)

2. Can sell regions only if persuasive;– Cizelj; OECD study

3. Soft, negotiation skills needed

4. And avoid doing wrong things efficiently

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Svetlicic MarjanSvetlicic Marjan marjansvetlicic@siol.netmarjansvetlicic@siol.net 1818

Let’s get Let’s get sustainable, sustainable, green….green…. FDI FDIthinking about future generationsthinking about future generations