1. Svetlicic Marjan 1marjansvetlicic@siol.net European Regions Sustainable FDI Strategies and Policies for enhancing Competitiveness Marjan Svetličič Faculty of Social Sciences, Ljubljana, Slovenia EREF-2010 Graz Preparatory Workshop, April 23, 2010

2. Svetlicic Marjanmarjansvetlicic@siol.net2 Winners do the right things at the right moment!! Are sustainable FDI the right thing as the response to the crises?

3. Svetlicic Marjanmarjansvetlicic@siol.net3 Introduction 1.FDI is hard to love, easy to hate 2.Many misconceptions about FDI; 9 out of 10 skeptics are from EU and from public organizations?? 3.Frequently scapegoat for own mistakes 4.In the crises still performed better in spite of reduction of flows 5.Tectonic changes demand new thinking 6.Making them even more sustainable (sunk costs…) major challenge.

4. Svetlicic Marjanmarjansvetlicic@siol.net4 Objectives 1.What theory, empirical studies say 2.Definition of sustainable FDI 3.What our survey say 4.How to promote regional development by enhancing FDI; strategic considerations 5.Incentives for sustainable FDI; host countries perspective! 6.Conclusions

5. Svetlicic Marjanmarjansvetlicic@siol.net5 1. What theory says 1.No general consensus, but mostly positive impact, provided… 2.Spillover effects contingent on absorptive capacity, 3.Without intervention, FDI may widen regional inequalities, 4.Private motives and firm characteristic major determinants of FDI location; not host countries determinants

6. Svetlicic Marjanmarjansvetlicic@siol.net6 2. What empirical studies say? 1.Location factors play decisive role (market size, infrastructure, language, proximity, GDP pc,..) 2.But also; signal (existing FDI), access (market…), innovation and skill effects 3.Effects are sector and type of FDI specific 4.FDI policy as part of regional development policy/priorities perform the best 5.Incetives perform better in developed countries 6.Spillover effects positive: up to 40% increase in productivity (cohesion regions and Eastern Europe) 7.Net positive effects on employment

7. Svetlicic Marjanmarjansvetlicic@siol.net7 3. Our survey showed that: 1.FDI important for competitiveness;more in the future 2.Crises have moderately affected FDI (less reinvesting, less new inflows…) 3.Main benefits; jobs, fresh capital (crises!!!), market… 4.Main disadvantages; dependence on foreign decisions, too much subsidies, reduction of local suppliers, 5.No validation for reduced R&D, 6.Key attraction factors: qualified personal, good infrastructure, economic fundamentals; 7.Subsidies and fiscal incentives (correlated with poor econ. fundamentals) are of low importance, but schizophrenic attitudes 8.Better negotiation skills can improve the host country benefits from FDI

8. Svetlicic Marjanmarjansvetlicic@siol.net8 4. How to promote sustainable regional development by enhancing FDI? 1.By incentives or other measures? Although incentives widely applied, not so efficient ! No incentives can compensate weak economic and political fundamentals…. (negative correlation), 2.Rationale for incentives are: Correcting market failures and Capturing externalities 3.Incentives should be: selective, refundable, temporary, targeted and regularly evaluated

9. Svetlicic Marjanmarjansvetlicic@siol.net9 What are sustainable FDI? 1.Leaving our children and grand children opportunity to lead the same quality life as us now at local, regional, global level 2.Those staying in the country/region, not volatile (location stick FDI), 3.Contributing to sustainable development 4.Negative correlation between incentives and sustainable FDI; –expiration of incentives FDI may go

10. Svetlicic Marjanmarjansvetlicic@siol.net10 5. Attracting sustainable FDI; strategic considerations 1.No one fit all strategies 2.Regional promotion of FDI has limited reach; can only add some specific measures 3.Shift from inward to outward FDI 4.Special incentives for remote, not bordering regions 5.FDI must be part of coordinated national/regional policy

11. Svetlicic Marjanmarjansvetlicic@siol.net11 Otherwise….

12. Svetlicic Marjanmarjansvetlicic@siol.net12 5. Attracting sustainable FDI; strategic considerations #2 1.Three edge FDI promotion policy has proved to be the most productive: improving general investment climate, economic fundamentals, infrastructure (positive correlation) coherent (regional) development strategy, Specialized region (core competencies) attract more FDI. 2.Regions should differentiate themselves by improving factors enabling sustainability like: infrastructure, education, (skill effets) R&D, (innovation effect) ICT effect; networks&skills, Developing suppliers (agglomeration effect, clustering)

13. Svetlicic Marjanmarjansvetlicic@siol.net13 5. How to make FDI sustainable; host countries perspective 1.Targeting existing FDI ( best promoters) Stimulating their new and reinvestments Climbing value added chain Improving after investment service activities 2.Targeting new investors: specific value added activities, tasks oriented incentives (Baldwin) specific groups of investors (investment brokers, strategic partners, diasporas, neighboring countries and new actors/SWFs) non traditional FDI; R&D, medical services, education

14. Svetlicic Marjanmarjansvetlicic@siol.net14 Some regions can do it, others need assistance! Developed regions can trapez less developed regions need a trampoline Remote regions… need safety net

15. Svetlicic Marjanmarjansvetlicic@siol.net15 How to do it? 1.Providing information is the simplest and most cost effective measure –Strong correlation (0.72) between important role of authorities and providing info 2.Recruit staff on the basis of their soft skills, private sector experience and language proficiency 3.Enhance competition and making FDI coherent with development goals (positive correlation) –Public organizations believe more than private 4.Establishing sustainebility standards, codes, checking FDI by environmental standards, equal distribution of incomes….

16. Svetlicic Marjanmarjansvetlicic@siol.net16 6. Conclusions 1.FDI can be good if: –in good hands –In good climate –Eliminating attitudinal barriers (Gresham law) 2.Can sell regions only if persuasive; –Cizelj; OECD study 3.Soft, negotiation skills needed 4.And avoid doing wrong things efficiently

17. Svetlicic Marjanmarjansvetlicic@siol.net17

18. Svetlicic Marjanmarjansvetlicic@siol.net18 Lets get sustainable, green…. FDI thinking about future generations