Foreign direct investment (FDI) represents an increasingly important dimension of international economic integration with global FDI flows growing faster than output over the past two decades. FDI is a particular form of investment, as it transfers knowledge as well as finance that may otherwise be unavailable in the domestic economy. This paper uses firm-level data to identify FDI spillovers across countries, sectors and time. The analysis suggests that knowledge-related spillovers from FDI vary considerably across sectors. It is in services industries that the productivityenhancing effects of FDI are the strongest, in particular through backward linkages. There is no strong evidence of horizontal productivity spillovers at the aggregate level. The results also indicate a significant and positive correlation between the degree of trade openness and output when measuring the impact of foreign presence in the domestic economy. One of the reasons why spillovers might be higher in more competitive markets is that stronger competition may induce greater knowledge transfer from MNE parent companies to their affiliates in order for the affiliate to compete effectively against its domestic rivals. Moreover, an open trade regime implies that domestic companies tend to export more and that more domestic companies are in sectors in which the host economy has a comparative advantage. Thus, trade liberalisation can be seen as an important component of any reform package designed to help countries maximise the benefits of FDI.

This paper examines the motives behind foreign direct investments located in a group of four Commonwealth of Independent States (CIS) countries (Ukraine, Moldova, Georgia and Kyrgyzstan) based on a survey of 120 enterprises. The results indicate that non-oil MNEs are predominantly oriented towards local markets. On average, MNEs in these four countries operate as “isolated players”, weakly cooperating with local firms but strongly linked to their parent companies. The surveyed firms procure a low share of their supplies locally. For this reason, the possibility for spillovers arising from co-operation with foreign-owned firms in the CIS is rather low. There is a lack of efficiency-seeking investment that poses further concerns about the nature of FDI in the region. The most important problems for the surveyed foreign firms are the volatility of the political and economic environment, ambiguities in the legal system, and corruption.

This article examines the implications of the regulatory taking doctrine and of stabilisation clauses for host state regulation in pursuit of sustainable development goals – specifically, for regulation raising the social and environmental standards applicable to investment projects. First, the article recalls the key elements of the international law on regulatory takings, and compares them to the legal standards applicable under a selection of stabilisation clauses. This analysis reveals that increasingly broad stabilisation clauses tend to ensure a level of regulatory stability that far exceeds that accorded by general international law under the regulatory taking doctrine. Second, the article analyses options to mitigate the constraints on host state regulation by limiting the scope of stabilisation clauses through a “compliance with international law” exception, and by building into these clauses some degree of evolution of applicable social and environmental standards.

This paper provides information on institutional features and policy practices of investment guarantee programmes, reviews the institutional features of the public and private segments of the political risk insurance market and identifies issues of potential relevance for the investment policy community. Typically, international investment projects for which such insurance is sought are located in developing countries. In recent years, the value of investment guarantees has averaged about 3% of total FDI flows, but about 30% of FDI inflows to developing countries. Thus, investment guarantees and the public and private institutions that provide them influence investment flows to developing countries.

This paper focuses on issues of financial sector liberalisation in Ethiopia, with reference in particular to the Ethiopian banking sector. Ethiopia is a country that has not been studied extensively because of its isolation and comparative lack of data. Through newly obtained panel data from all commercial banks (privately held and state-owned), we have identified two factors that may constrain Ethiopia’s financial development. One is the closed nature of the Ethiopian financial sector in which there are no foreign banks, a non-competitive market structure, and strong capital controls in place. The other is the dominant role of state owned banks. Our observations and analysis of bank performance suggest that the Ethiopian economy would benefit from financial sector liberalisation, especially from the entry of foreign banks and the associated privatisation of state owned banks. A more general policy lesson is that financial sector liberalisation holds potential development benefits for countries at all stages of economic development, not just countries that are more advanced.