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