International Commercial Interests and Manufacturers’ IFDI Policy Preferences

China Economist - - Articles - Wu Qisheng ( ) Institute of International Relations, Shanghai Academy of Social Sciences, Shanghai, China * Corresponding author: Dr. Wu Qisheng, 7/ 622 Huaihai Zhonglu, Shanghai (200020). E-mail: qswu@sass.org.cn

Abstract:

Similar to the cross-border flow of commodities through trade, the global allocation of capital and the globalization of manufacturing are also subject to important domestic political influence. By increasing demand for production factors and supply of products, the inflow of IFDI will increase competitive pressures facing manufacturers in the host country. This effect is similar to the import of goods. As such, in the face of external competitive pressures, the host country’s manufacturers will oppose the inflow of foreign capital like they oppose the import of commodities unless restrictive measures are introduced. However, as revealed by the analysis on the attitudes of US semiconductor, renewable energy and steel manufacturers toward IFDI since the 1980s, whether or not the manufacturers of a host country will call for restrictive or discriminatory policy against IFDI is largely influenced by the magnitude of their commercial interests in the source country of investment. A major factor of such influence is the potential reaction of the source country. Specifically, when a manufacturer has significant commercial interests in the source country of investment, this manufacturer is more likely to have an open policy preference toward direct investment from this country, and vice versa.

Keywords:

吴其胜

IFDI policy, international interests, manufacturers, IFDI policy preferences JEL Classification Code: F23

1. IFDI Policy Preferences of Host Country Manufacturers

Countries generally adopt an open attitude toward inward direct foreign investment (IFDI), which is conducive to optimizing resource allocation and creating jobs. Despite their proactive efforts to attract IFDI, however, most countries have retained restrictive measures on foreign capital as well. Even the United States, a leading advocate of free capital flow across borders, also introduced myriad regulations and policies to restrict IFDI, including the prohibition of investment by foreign institutions in certain strategic industries, strict requirements on the shareholding proportion of foreign capital in specific sectors and the national security review on IFDI (Seitzinger, 2013). Apart from access restrictions, the United States often imposed discriminatory policies on foreign companies already operating on its home soil, which range from discriminatory subsidies for local and foreign companies to the local content requirement for foreign companies as a precondition for preferential tariff treatment.

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