CHAPTER

3: INTERNATIONAL
INVESTMENT ENVIRONEMENT
Concepts
Elements of interna1onal investment environment
Host country determinants of FDI

3.1. Concepts
Environment: set of circumstances that surround

some given object and might have impact on that

object

Investment environment/ investment climate: the

set of all external factors that might aect the

investment

Interna1onal investment environment: the set of all

external factors that might aect the performance

of the investment in the global context

3.1. Concepts (contd)

Why study the interna1onal investment

environment?

For policy-makers
For investors

3.1. Concepts

Interna5onal environment
Investment
environment of home
countries (Push factors)

Investment
environment of host
countries (Pull factors)

The FDI ou9lows

The remi;ance of prot back to parent companies

3.2. Elements of international investment

environment
3 approaches:
Hard & SoK investment environment

Hard (Physical): infrastructure (transporta1on,

power, u1li1es, communica1on)
SoK: services (public services, legal services,
nancial services)

3.2. Elements of international investment

environment (contd)
Interna1onal investment environment consists of

sub-environment:

Social & Poli1cal environment

Legal & Administra1ve environment
Economic & natural resources environment
Financial environment
Infrastructure enviroment
Labour environment
Interna1onal rela1on environment

3.2. Elements of international investment

environment (contd)
UNCTADs approach: Host countrys determinants

of FDI:

Policy framework for FDI

Economic determinants
Business facilita1on

3.3. Host countries determinants of FDI

3.3.1. Policy framework for FDI
economic, poli1cal and social stability

rules regarding entry and opera1ons

standards of treatment of foreign aliates

policies on priva1za1on, func1oning and structure of

markets (especially compe11on and M&A policies)
Interna1onal Agreements on FDI

trade policy (taris and NTBs) and coherence of FDI

and trade policies

tax policy

3.3.2. Economic determinants

Economic determinants: dierent determinants for
dierent mo1ves of TNCs
a) Market-seeking
b) Resources / assets seeking
c) Eciency seeking

3.3.2. Economic determinants (contd)

a) Market-seeking determinants:

market size and per capita income

market growth
access to regional and global markets
country-specic consumer preferences
structure of markets

3.3.2. Economic determinants (contd)

b) Resources / assets seeking determinants:
raw materials
low-cost labour or skilled labour
technological, innovatory and other created assets
(e.g. brand names)
physical infrastructure (ports, roads, power,
telecommunica1on)

3.3.2. Economic determinants (contd)

c) Eciency-seeking determinants:
cost of resources and assets listed under b), adjusted
for produc1vity for labour resources
other input costs, e.g.transport and communica1on
costs to/from and within host economy and costs of
other intermediate products
membership of a regional integra1on agreement
conducive to the establishment of regional corporate
networks

3.3.3. Business facilitation

investment promo1on (including image-building and
investment-genera1ng ac1vi1es and investment-
facilita1on services)
investment incen1ves
hassle costs (related to corrup1on, administra1ve
eciency, etc.)
social ameni1es (bilingual schools, quality of life, etc.)
aKer-investment services