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  • 1. SPAIN & THE FDI: From net borrower to net creditor Matilde Madrid ( [email_address] ) Vienna, March 7th 2008
  • 2. SPAIN & THE FDI: From net borrower to net creditor
    • Spanish position in the World’s FDI
    • Inward FDI
      • Factors
      • Effects
    • Outward FDI
      • Factors
      • Effects:
        • Employment and production
        • Trade
    • Concluding remarks
  • 3. 1. Spanish position in the World’s FDI
    • Inward FDI:
      • Attractive host (late 80’s, early 90’s)
      • More competition in 00’s (emerging countries, EU enlargement)
    • Outward FDI:
      • FDI inflows => Outward looking orientation of the Spanish economy
      • 2006: Outward FDI stock (41% of Spanish GDP)
      • 2001-2006: 6% of total world outflows
  • 4. 2. Inward FDI (I): Factors
    • Why did Spain attract FDI in the late 80’s/early 90’s?
      • EC accession, big market, link to Latin America, lower Unit Labour Cost
    • Why does not Spain attract so much investment today?
      • Higher competition in world’s FDI (emerging economies) and in the European Union (EU enlargement)
  • 5. EMPLOYMENT The inward stock of FDI in 2005 generates 1,3 million jobs (direct employment) in Spain, which mean 7% of the total employment. 2. Inward FDI (II): Effects GROSS FIXED CAPITAL FORMATION Inward FDI has traditionally contributed to gross fixed capital formation. In 2000 the FDI inflows meant around 25% of the total Gross fixed capital formation.
  • 6. 2. Inward FDI (III): Effects
    • EXPORTS AND
    • OPENNESS
      • Inward FDI =>
      • Exports and
      • internationalisation
    • BALANCE OF PAYMENTS
      • Traditionally key to finance Spanish current account (30-40% of total capital inflows) not so much today (around 10%)
    • To sum up, these inflows had an impact on domestic economy, fostering investment, growth and productivity and creating a more dynamic market, less home-biased. These fundamentals paved the way for a further phase in the internationalisation process: the outward FDI.
    2. Inward FDI (III): Effects
  • 7. 3. Outward FDI (I): Factors
    • Why is Spain a big player in world’s FDI since the mid 90’s?
      • Inward FDI => Outward FDI
      • Other factors:
        • macroeconomic stability, €
        • Liberalisation/privatisation internal market and abroad
        • M&A’s
  • 8. Outward FDI (II): by COUNTRY
    • First wave of Spanish foreign investments: Latin America (97-00)
      • Privatisation/ liberalisation in utilities, energy, financial and telecommunication services
      • Cultural linkages
    • The second wave of Spanish investments: Europe
      • The €
      • M&A’s
      • EU enlargement
      • Macroeconomic and institutional instability in Latin America
    Source: Own calculation based on Bank of Spain data Source: Own calculation based on Bank of Spain data
  • 9. 3. Outward FDI (III): Effects (local economy)
    • Manufacturing sectors which invest abroad don’t worsen their local indicators:
      • Chemicals, food industries, non metallic minerals, basic metals, machinery…
    • Manufacturing sectors which perform worse aren’t affected by capital outflows:
      • Textiles, wearing apparel, footwear, communications equipment, computing mach...
  • 10. 3. Outward FDI (IV): Effects (local economy)
    • Domestic indicators do not resent in services, though sizeable capital outflows:
      • Transport and telecommunications, real state and business services
    • FDI in services ≠ FDI in manufactures
  • 11. 3. Outward FDI (V) : Effects (service trade)
    • Why does FDI boost service exports? Intrafirm trade
    • Market share: the best indicator for competitiveness
    • Service exports: increasing a lot from mid 90’s
    • Spain is strengthening its role in world’s FDI (4%) and trade in services (3%)
  • 12. 3. Outward FDI (VI) : Effects (service trade)
    • In which countries is Spain bolstering its competitiveness?
    •  Especially in UK, the Spanish FDI main host recently.
    • In which sectors is Spain improving its competitiveness?
    •  Business services, royalties, computer & information services
    •  Spanish is still very far from leaders in FDI and service trade (USA, UK)
  • 13. 4. Concluding remarks
    • Spain: from net FDI borrower to net FDI creditor
    • Inward FDI effects?
      • Competitiveness, exports, productivity
      • Inward => Outward?
    • Outward FDI effects?
      • Trade in merchandise and services? Positive effects
      • Does outward FDI have costs in employment?
    • CONCLUSIONS
    • FDI inflows can create more outward-oriented economies
    • FDI outflows may contribute to higher exports.
    • FDI outflows do not imply job losses
    • POLICY IMPLICATIONS
    • Policies for companies investing abroad.
    • Pro-active policy for FDI In Spain: INTERES Agency ( Invest in Spain)
  • 14. ANNEXES
  • 15. The Spanish outward FDI: by SECTOR
    • Energy industries lost importance during the second expansion
    • In favour of construction, real-state and business activities.
    • Future: high expectations in the renewable energy sector.
    Source: Own calculation based on RIE data (EUR milions) Net investment including SPE
  • 16. The Spanish service exports: by COUNTRY
    • Are service exports linked to outward FDI? Yes
      • Europe: main service exports destination ( ~ outward FDI)
      • Latin America: sizeable share (close to 10%)
      • From 99-00 to 04-06: Europe increases its weight in service exports to the detriment of Latin America and North America
    • Are service exports linked to outward FDI? Yes but…
      • There more factors which hold sway over service exports (growth…)
      • Changes in service export patterns are smoother than changes in FDI patterns
    Source: Own calculation based on EUROSTAT data
  • 17. Services involved in intrafirm trade
    • Main sectors involved in intrafirm trade?
      • Royalties, business services, R&D…
    • United States: big surplus in intrafirm trade:
    •  Specially in royalties, R&D, business services
    •  Deficit in consulting and computer services
    •  Spanish competitiveness is very far from USA in services related to intrafirm transactions (Graph X)
    •  Specially in royalties
    •  Surplus in computer services
    •  High weight in business services