Someshwar Rao

The Economics of FDI: A Canadian Perspective

Abstract This paper reviews trends in inward foreign direct investment (IFDI) and multinational production in Canada, as well as Canadas direct investment abroad, and provides an assessment of their impact on the Canadian economy. It pulls together a large body of existing empirical literature in Canada and other countries on the economic costs and benefits of FDI. The main conclusion of the paper is that both inward and outward FDI provide significant net long-term economic benefits to both home and host countries, provided they maintain competitive and dynamic product and factor markets as well as a competitive business climate. In addition, there is little evidence of a ‘hollowing-out’ of corporate Canada in terms of multinational enterprises operating in Canada moving their corporate headquarters out of the country.

ICT Capital and MFP Growth: Evidence from Canadian and U.S. Industries

Abstract Labour productivity growth in the Canadian business sector has averaged less than 1.0 percent since 2000, more than 40 percent below the average growth rate during 1981–2000. On the other hand, labour productivity growth accelerated in the U.S. in the post-2000 period compared to the average growth prior to 2000. Available research shows that the divergence in labour productivity growth was entirely due to the gap in multifactor productivity (MFP) growth. This paper looks at the possible role of information and communications technologies (ICTs) in the recent productivity growth divergence between the two countries. Using data on 33 industries over the period 1987–2000, it examines empirically the impact of ICTs on MFP growth in Canada and the U.S., taking into account ICT-related investments in intangibles and the issue of endogeneity of the explanatory variables. The regression results suggest that ICT capital is not a significant determinant of MFP growth in Canada and the U.S., implying that it was not responsible for the post-2000 productivity growth divergence between Canada and the U.S. via the MFP channel. However, ICT capital could have contributed somewhat to the labour productivity growth gap via the capital deepening channel, because the ICT capital-labour ratio has increased at a faster pace in the U.S. than in Canada since 1995.

India's Emergence as an Economic Giant: Opportunities to Canada

Abstract Indias economy has increased its speed limit a great deal after 1991, because of its steady shift from a command-controlled and inward-looking to a market-driven and outward-oriented economy. Today, it is the 2nd fastest growing major economy in the world. Its real GDP growth rate averaged around 8.0% since 2002. Moreover, like China, Indias economy did not experience a significant growth slowdown during the recent global financial crisis and the economic recession as its banking sector and domestic demand has reached to a stronger position. This paper examines Indias economic growth with its structural changes. It also explores trade and investment opportunities to Canada

A Framework for Estimating the General Equilibrium Economic Effects of Foreign Direct Investment in the Host Country: A Canadian Perspective

Abstract This paper first discusses the channels through which inward FDI could impact the key drivers of aggregate labour productivity in the host country. Next, it reviews the available empirical evidence on FDI impacts in the host economy. It concludes that the available empirical evidence is not very useful for serious policy analysis because each of the available research papers looks at only one or two of the inward FDI economic impacts in isolation and do not provide a full picture, and they use different data sets and apply different econometric techniques. Finally, the paper proposes a system approach for estimating the general equilibrium economic impacts of inward FDI in the host country. Towards this goal, it outlines a small macro-econometric model of ten equations for key economic variables in the host country, to be estimated as a system, taking into account interdependencies between them.

Mobility and Economic Importance of Corporate Headquarters and Headquarter Functions: A Canadian Perspective

Abstract This paper examines the evolving nature, size and scope and the mobility of corporate headquarters and headquarter functions and assesses their economic importance to the host economies. Our research findings suggest that corporate headquarters rarely move. When they do, either mergers and acquisitions or relocation of their productions/sales centers are the main reasons behind the mobility. On the other hand corporate headquarter functions, such as R&D and business services are increasingly foot loose, in search of productivity improvements and cost savings. Our research also suggests that the overall economic impacts of headquarter mobility are small even under very optimistic assumptions about the multiplier (agglomeration) effects.

Outward FDI from Canada and its policy context

Abstract Canada was a major net importer of foreign direct investment (IFDI) prior to 1996. The stimulus for the surge in Canadas outward FDI (OFDI) came from profitable investment opportunities abroad. Canada has significantly diversified its OFDI away from the United States over the past 20 years. The financial crisis significantly affected Canadas FDI outflows, but OFDI seems to have rebounded in the second half of 2009. While Canadian investment has historically gone mainly to developed countries, recent changes in government policies seem to suggest that Canada is looking to build closer ties with developing countries as well. Canada has a longstanding commitment to multilateral cooperation and actively supports the World Trade Organization (WTO) framework as a way to promote international trade and investment. At the same time, Canada continues actively to negotiate foreign investment promotion and protection agreements (FIPAs).

Inward FDI in Canada and its policy context

Abstract Canada has actively participated in the corporate globalization process and is a major importer of foreign direct investment (FDI). Canadas high levels of inward FDI (IFDI) over the past 25 years reflect its improved business climate, reduced restrictions on foreign ownership, and a prospering economy. Like other developed economies, Canada experienced declining FDI inflows in 2008 and 2009, largely due to the dramatic fall in mergers and acquisitions (M&As) and the global economic recession. However, the outlook for 2010 and beyond is promising because of expected economic expansion in Canada and other countries, and improved global financial markets. Moreover, the Canadian government has sent strong signals to foreign investors that Canada is open for business by, among other things, lifting restrictions on previously protected sectors and increasing the financial thresholds for the review of foreign investments.