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Expert Seminar

Finance for development: Enhancing the benefits of FDI and Improving the Flow of Corporate Finance in the Transition Economies
( Geneva, 3 December 2001 )

 

For a copy of the papers, click HERE

 

 

This programme for a regional expert meeting responds to a request for support of the preparatory process for the United Nations Finance for Development (FfD) conference scheduled for Monterrey, Mexico, 21-22 March 2002. Two issues identified by the ECE regional conference (December 2000) have been selected for further examination. An objective of the expert meeting is to make concrete policy recommendations for consideration as inputs into the final outcome document of the FfD conference.

Morning Session: Enhancing the benefits of FDI via positive spillovers

The secretariat will introduce the key issues and objectives of the meeting. The first half of the meeting will be based on the premise that governments should be concerned not only with FDI promotion, but also with policies to spread the potential benefits of FDI within their economies. It will draw attention to spillovers (externalities) from FDI, less well-known than its direct effects, but which play an important role in modern growth theory and are often a rationale behind national FDI promotion policies. The different types of spillovers mechanisms will be introduced, arguing that their impact can be positive, and thus growth enhancing, or negligible, or even negative. In the latter two cases, FDI firms may still have a favourable impact on economic growth, but there is a risk that an enclave-type economy may emerge marked by large gaps in performance between foreign and domestic firms. The paper will also discuss the transition economies' economic inheritance and elements of the transition environment that could to affect the creation of spillovers.

9:30-13:00 Chairperson: Dieter Hesse, EAD/UNECE Introductory remarks: Paolo Garona, Officer-In-Charge of the United Nations Economic Commission for Europe>

- The environment for FDI spillovers in the transition economies (A background paper by EAD/UNECE).

I Foreign Direct Investment and intra-industry spillovers

(David Greenaway and Holger Gorg, University of Nottingham)

Session I will focus on intra-industry (horizontal) spillovers, i.e. the impact on local firms (e.g. productivity changes) due to the presence of foreign firms. The paper is intended to present a comprehensive review of the empirical literature on intra-industry spillovers in a broad range of market economies (developed and developing) and transition economies. What are the determinants of positive spillovers, and what might be the explanations for their absence, including in some advanced economies where conditions for positive externalities appear favourable? What factors normally neglected in empirical research could influence the creation of spillovers (e.g. with respect to domestic enterprises, the availability of financial resources, investment, corporate governance, capacity for strategic planning, etc). Where FDI spillovers have been absent (or negative), what have been the implications for the domestic economy, if any? What kind of policies have countries put in place to promote FDI horizontal spillovers? Which policy measures might be the most effective in enhancing the benefit of such spillovers in a transition economy?

II Promoting Linkage between Foreign Affiliates and Domestic Firms

(Michael Mortimore, UNCTAD, World Investment Report 2001)

National experiences:

  • Reflection on Linkage Policy in Irish Manufacturing- Policy Chasing a Moving Target?
    - Frances Ruane
    (Trinity College, Dublin)
  • Policy Consequence of FDI, Linkage Promotion Opportunities in Hungary:
    - Miklos Szanyi
    (Economic Research Institute, Budapest)
  • Experiences of the Czech Republic
    - Zdenek Drabek
    (World Trade Organization)

Session II will address vertical linkages between foreign affiliates and domestic firms (i.e. linkages with domestic suppliers and downstream sectors). Such linkages can also create positive spillovers but they are less amenable to empirical investigation than intra-industry spillovers are, though they may be more important. Several analyses indicate that in general the transition economies have not been very successful in developing such linkages, with most domestic companies having been relegated, at best, to second tier supplier functions. The session will draw upon the World Investment Report 2001 which focuses on the promotion of linkages. Among other things it discusses the importance of linkages, makes a case for supplier promotion programmes and catalogues a host of measures that governments and foreign affiliates can take to create and deepen linkages. Complementary papers will discuss and comment on two national supplier development programmes. They will also present some cases of successful linkage formation, examining if external financing and government policy measures played any role. What is the scope for policy measures to enhance the benefit of such spillovers given the constraints imposed by various international commitments (e.g. WTO and EU). Which measures listed by the World Investment Report might be most effective in a transition economy?

Discussion of draft policy discussion

Afternoon Session: Enterprise financing and the role of commercial banks

15:00-18:00 Chairperson: Joseph Smolik, EAD/UNECE>

III Financing Firms in Transition Economies

(Mark Schaffer, Heriot Watt University)

  • Discussants:
    • Ivo Bicanic (University of Zagreb);
    • Rumen Dobrinsky (EAD/UNECE)

Session III the role of finance for enterprise restructuring and growth in the transition economies will be assessed. In general, enterprises in these countries have experienced severe financial constraints in the early stages of the transition, but is this still a general problem? To the extent possible, the paper will differentiate between countries, types of finance, ownership of enterprises (i.e. foreign affiliates, domestic private and state owned enterprises) and between large and small enterprises. What factors have been the most important in facilitating the flow of private finance to enterprises? What are the major remaining obstacles to enterprise finance (state of banking sector, for example). Is financing to local firms available from foreign affiliates?

IV Bank Reform and Development in Transition Economies

(Steven Fries and Anita Taci, EBRD)

Discussants:

  • Witold Orlowski (Nobe, Independent Center for Economic Studies, Lodz).
  • Marko Skreb (formaer Governor of the National Bank of Croatia

Session IV will focus on bank lending to the private sector in the transition economies, and to the extent possible, specifically to the enterprise sector. The analysis will serve as the basis for policy recommendations for increasing the supply of bank funds to the local economy. In this respect, the role of the EBRD in promoting bank lending (global loans through local banks, direct loans to companies, etc.) will be examined. Its resources (similar to the EIB and IFC) and the capacity to mobilise other funds are particularly important where local firms have difficulties in obtaining private finance. What are the local conditions required for these loans to be used effectively? How have the enterprises receiving EBRD funds performed relative to other firms? The paper will also briefly examine the broader aims of EBRD lending such as promoting inter-sectoral market interactions (including the creation of linkages). Are there lessons for other regions?

Discussion of draft policy discussion

V Concluding remarks by the secretariat