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Table of Contents
Front Cover
Contents
Acknowledgments
About the Authors
Abbreviations
Overview
Context and Motivation
Investment Landscape: Low Levels of Inward FDI
Investment Landscape: Low Levels of Outward FDI
Investment Landscape: Lowest Intraregional Investment Share among Developing Economies
Key Drivers of Outward Investment of South Asian Firms
Key Constraint: Restrictiveness of South Asian Inward and Outward FDI Policy Arrangements
Key Constraint: Low Knowledge Connectivity and Bilateral Trust
Regional Pioneers and the Determinants of Investment Entry: Which Firms Succeed and Which Firms Do Not?
Policy and Operational Implications
Concluding Remarks
Notes
Reference
Key Messages
Chapter 1 The State of Play in South Asia
Introduction
Factors Influencing Regional Dynamics
Weak Track Record on Global Inward FDI
Low Intraregional Investment
A Spark of Optimism and an Opportunity to Scale Up?
Relevance of the Report
Plan of the Report
Annex 1A: Underlying Profiles of South Asian Economies
Annex 1B: The South Asian Trade Landscape: Foreshadowing the Trade-Investment Nexus
Notes
References
Chapter 2 Cross-Border Engagement: An Integrated Analytical Framework
Introduction
Incorporating a Value Chain Approach
Foreign Market Entry Decision
Toward a Spectrum of Engagement Modes: Variation of Entry Costs across Modes
Information, Networks, and Learning: Variation of Entry Costs across Firms
Concluding Remarks
Notes
References
Chapter 3 Spotlight on Outward Foreign Investment and Foreign Direct Investment Policies
Introduction
Outward FDI and Intraregional Investment: Evidence from CDIS and UNCTAD Data
Policy Environment for Intraregional Investment
Scope of and Strategies for OFDI: Evidence from Firm Surveys and Case Studies.
Concluding Remarks
Annex 3A: Investment Hubs: The India-Mauritius Connection and How Singapore Fits In
Notes
References
Chapter 4 Knowledge Connectivity in South Asia and Its Impact on Outward Foreign Direct Investment
Introduction
Knowledge Connectivity, Networks, and Bilateral Trust in South Asia
Key Results on Investor Decision-Making in South Asia
Beyond Entry: Evolution of Investment Destinations
Bridges of Knowledge: Key Channels of Awareness of Investment Opportunities
Concluding Remarks
Annex 4A: Information, Networks, and Learning
Notes
References
Chapter 5 Policy and Operational Implications
Introduction
Information Frictions and Enhancing Knowledge Connectivity
Physical and Digital Connectivity
Regulatory and Promotion Policies for OFDI
Implications for Inward FDI Policy and Promotion
Emerging Business Practices and Policy Making
Unilateral National Reforms Can Spur Regional Engagement
Implications of the Pandemic for Policy Prioritization and Regional Engagement
Concluding Remarks: Toward a More Engaged South Asia
Annex 5A: Implications for Policy and Operations
Notes
References
Appendix A Consolidated Direct Investment Survey Data Augmentation
Appendix B Data Description and Empirical Results
Glossary
Boxes
Box 2.1 Internationalization Strategy Options for Serving Consumer Markets at Home and Abroad
Box 3.1 Defining Inward and Outward Foreign Direct Investment
Box 3.2 Issues with Global Foreign Direct Investment Data
Box 3.4 Timeline of India's Gradual Path to Liberalization of OFDI
Box 3.5 Promotional Measures for Outward FDI in Selected Economies
Box 3.6 Summary of Outward Foreign Direct Investment Benefits from a Value Chain Perspective
Box 3.7 How OFDI Helped MAS Holdings (Sri Lanka) Upgrade along the Apparel Value Chain.
Box 4.1 Estimated Equation for the Determinants of Outward Investment
Figures
Figure O.1 Low South Asian Intraregional Investment
Figure O.2 Bilateral Knowledge Connectivity in South Asia, by Home Country
Figure 1.1 IFDI Stock in Developing Economies from Regional versus Extraregional Source Economies, 2017
Figure 1.2 Intraregional Investment as a Share of IFDI from the World: Developing Economies versus All Economies, 2017
Figure 1.3 South Asian Intraregional Exports, 1990-2018
Figure 1.4 Bilateral Knowledge Connectivity in South Asia, by Home Country of Investors
Figure 1A.1 Geographic Profile of South Asia
Figure 2.1 Multinational Location Options and Frictions
Figure B2.1.1 Internationalization Options for Serving Consumer Markets at Home and Abroad
Figure 2.2 Relationship of Productivity to Serving Foreign Markets by Exporting and Investing Abroad
Figure 3.1 Developing Economy Share of World OFDI Flows and Stocks
Figure 3.2 Outward FDI Stock from Developing Economies to the World, 2017
Regional versus Extraregional Destination Economies
Figure 3.3 Intraregional Investment as a Share of Total OFDI, 2017
Regional Developing Economies and All Regional Economies
Figure 3.4 Intraregional Outward Foreign Direct Investment into South Asia, 2012-17
Figure 3.5 Outward Foreign Direct Investment from South Asia, 2012-17
Figure 3.6 Global Trends in Inward FDI Policies, 2003-18
Figure 3.7 Share of Female Chief Executive Officers in South Asia
Figure 3.8 Outward Investors from Various Sectors (Based on International Standard Industrial Classification of All Economic Activities)
Figure 3.9 Motivations for Investing in South Asia and outside South Asia
Figure 3.10 Detailed Motivations for Investing in South Asia.
Figure B3.7.1 How OFDI Helped MAS Holdings Upgrade along the Apparel Smile Curve
Figure 3.11 Distribution Investment Abroad
Figure 3.12 Export Platform Investment
Figure 3.13 Dynamic Story: From Distribution to Export Platform Investment
Figure 3.14 Complex Investment with Horizontal, Vertical, and Export Platform Features
Figure 3.15 Hybrid Horizontal Investment
Figure 3.16 Horizontal Investment with a Twist
Figure 3.17 Franchise Option
Figure 3.18 Management Contracts and Investment in Hotels
Figure 3A.1 Indirectly Routed Inflows from India's Top Foreign Direct Investment Sources
Figure 4.1 Bilateral Knowledge Connectivity Scores, by Destination: Identification of Knowledge Surplus and Deficit Pairs
Figure 4.2 Bilateral Network Connection Scores, by Destination
Figure 4.3 Bilateral Trust Scores, by Destination
Figure 4.4 The Knowledge-Trust Nexus: To Know Me Is to Trust Me?
Figure 4.5 Networks Reduce the Fixed Entry Costs of Investing and Lead to More Investors with Greater Variability in Productivity
Figure 4.6 Exporters Become Investors
Figure 4.7 The Role of Conglomerates and Business Groups in South Asia
Figure 4.8 Learning from Pioneers Induces Entry of Follower Firms by Reducing Follower Entry Costs
Figure 4.9 Varying Reduction of Fixed Entry Costs of Investing Based on Level of Information Frictions
Figure 4.10 Awareness of South Asian Investment Opportunities: Actual Investors
Figure 4.11 Top Three Channels of Awareness of Investment Opportunities in South Asia and Outside South Asia, across Investors and Noninvestors
Figure 4.12 Due Diligence Intermediaries, by Destination
Figure 4A.1 Bilateral Knowledge Connectivity, Network Connectivity, and Trust: Raw Z-Scores.
Figure 5.1 Trends in World Trade in Goods versus Intellectual Property Payments, Services Imports, and Foreign Direct Investment Flows, 1990-2017
Figure 5A.1 Market Opportunities Dominate the Type of Information Support Requested
Figure 5A.2 Access to Finance Dominates OFDI Support Requests
Figure A.1 CDIS Data Augmentation Doubles Data Availability and Increases Value by US3 Trillion
Figure A.2 Top Destinations for Outward FDI Stock from Each South Asian Economy, 2017
Figure A.3 Ease of Investing across Borders: Developing Regions, 2010 (0-100, best)
Figure A.4 Geography of India's North Eastern Region
Figure B.1 Comparison of Firm Activities: Full Sample versus Investors
Tables
Table 1.1 Case Studies in South Asian Intraregional Investment
Table 1.2 South Asian Intraregional Goods Exports and Imports, 2018 (US millions)
Table 1A.1 Profile of South Asian Economies, 2019
Table 1B.1 Sector Shares of Exports to South Asia and the Rest of the World, 2015
Table 1B.2 South Asian Intraregional Trade Agreements
Table 2.1 Serving Foreign Markets: Alternative Modes in Rising Order of Fixed Entry Costs (1 Low-9 High)
Table 3.1 South Asian Intraregional Investment Stocks, by Country, 2017
Table 3.2 Laws and Institutions Related to Outward Direct Investment Policy in South Asia
Table 3.3 Summary of OFDI Regulatory Policies in South Asia
Table B3.5.1 OFDI Policy Measures in Selected Economies
Table 3.4 Laws and Institutions Related to Inward Foreign Direct Investment
Table 3.5 Special Economic Zones in South Asia and East Asia and Pacific, 2018
Table 3.6 South Asian Outward Investments, by Investment Type and Investor Origin
Table 3.7 Destination of South Asian Outward Investments
Table 3.8 Sector Origin Breakdown, by Investor and Noninvestor, and Destination Region.
Table 4.1 Evolution of Investment Destinations: First Destination and Sequential Investing, by Investment Type.
Contents
Acknowledgments
About the Authors
Abbreviations
Overview
Context and Motivation
Investment Landscape: Low Levels of Inward FDI
Investment Landscape: Low Levels of Outward FDI
Investment Landscape: Lowest Intraregional Investment Share among Developing Economies
Key Drivers of Outward Investment of South Asian Firms
Key Constraint: Restrictiveness of South Asian Inward and Outward FDI Policy Arrangements
Key Constraint: Low Knowledge Connectivity and Bilateral Trust
Regional Pioneers and the Determinants of Investment Entry: Which Firms Succeed and Which Firms Do Not?
Policy and Operational Implications
Concluding Remarks
Notes
Reference
Key Messages
Chapter 1 The State of Play in South Asia
Introduction
Factors Influencing Regional Dynamics
Weak Track Record on Global Inward FDI
Low Intraregional Investment
A Spark of Optimism and an Opportunity to Scale Up?
Relevance of the Report
Plan of the Report
Annex 1A: Underlying Profiles of South Asian Economies
Annex 1B: The South Asian Trade Landscape: Foreshadowing the Trade-Investment Nexus
Notes
References
Chapter 2 Cross-Border Engagement: An Integrated Analytical Framework
Introduction
Incorporating a Value Chain Approach
Foreign Market Entry Decision
Toward a Spectrum of Engagement Modes: Variation of Entry Costs across Modes
Information, Networks, and Learning: Variation of Entry Costs across Firms
Concluding Remarks
Notes
References
Chapter 3 Spotlight on Outward Foreign Investment and Foreign Direct Investment Policies
Introduction
Outward FDI and Intraregional Investment: Evidence from CDIS and UNCTAD Data
Policy Environment for Intraregional Investment
Scope of and Strategies for OFDI: Evidence from Firm Surveys and Case Studies.
Concluding Remarks
Annex 3A: Investment Hubs: The India-Mauritius Connection and How Singapore Fits In
Notes
References
Chapter 4 Knowledge Connectivity in South Asia and Its Impact on Outward Foreign Direct Investment
Introduction
Knowledge Connectivity, Networks, and Bilateral Trust in South Asia
Key Results on Investor Decision-Making in South Asia
Beyond Entry: Evolution of Investment Destinations
Bridges of Knowledge: Key Channels of Awareness of Investment Opportunities
Concluding Remarks
Annex 4A: Information, Networks, and Learning
Notes
References
Chapter 5 Policy and Operational Implications
Introduction
Information Frictions and Enhancing Knowledge Connectivity
Physical and Digital Connectivity
Regulatory and Promotion Policies for OFDI
Implications for Inward FDI Policy and Promotion
Emerging Business Practices and Policy Making
Unilateral National Reforms Can Spur Regional Engagement
Implications of the Pandemic for Policy Prioritization and Regional Engagement
Concluding Remarks: Toward a More Engaged South Asia
Annex 5A: Implications for Policy and Operations
Notes
References
Appendix A Consolidated Direct Investment Survey Data Augmentation
Appendix B Data Description and Empirical Results
Glossary
Boxes
Box 2.1 Internationalization Strategy Options for Serving Consumer Markets at Home and Abroad
Box 3.1 Defining Inward and Outward Foreign Direct Investment
Box 3.2 Issues with Global Foreign Direct Investment Data
Box 3.4 Timeline of India's Gradual Path to Liberalization of OFDI
Box 3.5 Promotional Measures for Outward FDI in Selected Economies
Box 3.6 Summary of Outward Foreign Direct Investment Benefits from a Value Chain Perspective
Box 3.7 How OFDI Helped MAS Holdings (Sri Lanka) Upgrade along the Apparel Value Chain.
Box 4.1 Estimated Equation for the Determinants of Outward Investment
Figures
Figure O.1 Low South Asian Intraregional Investment
Figure O.2 Bilateral Knowledge Connectivity in South Asia, by Home Country
Figure 1.1 IFDI Stock in Developing Economies from Regional versus Extraregional Source Economies, 2017
Figure 1.2 Intraregional Investment as a Share of IFDI from the World: Developing Economies versus All Economies, 2017
Figure 1.3 South Asian Intraregional Exports, 1990-2018
Figure 1.4 Bilateral Knowledge Connectivity in South Asia, by Home Country of Investors
Figure 1A.1 Geographic Profile of South Asia
Figure 2.1 Multinational Location Options and Frictions
Figure B2.1.1 Internationalization Options for Serving Consumer Markets at Home and Abroad
Figure 2.2 Relationship of Productivity to Serving Foreign Markets by Exporting and Investing Abroad
Figure 3.1 Developing Economy Share of World OFDI Flows and Stocks
Figure 3.2 Outward FDI Stock from Developing Economies to the World, 2017
Regional versus Extraregional Destination Economies
Figure 3.3 Intraregional Investment as a Share of Total OFDI, 2017
Regional Developing Economies and All Regional Economies
Figure 3.4 Intraregional Outward Foreign Direct Investment into South Asia, 2012-17
Figure 3.5 Outward Foreign Direct Investment from South Asia, 2012-17
Figure 3.6 Global Trends in Inward FDI Policies, 2003-18
Figure 3.7 Share of Female Chief Executive Officers in South Asia
Figure 3.8 Outward Investors from Various Sectors (Based on International Standard Industrial Classification of All Economic Activities)
Figure 3.9 Motivations for Investing in South Asia and outside South Asia
Figure 3.10 Detailed Motivations for Investing in South Asia.
Figure B3.7.1 How OFDI Helped MAS Holdings Upgrade along the Apparel Smile Curve
Figure 3.11 Distribution Investment Abroad
Figure 3.12 Export Platform Investment
Figure 3.13 Dynamic Story: From Distribution to Export Platform Investment
Figure 3.14 Complex Investment with Horizontal, Vertical, and Export Platform Features
Figure 3.15 Hybrid Horizontal Investment
Figure 3.16 Horizontal Investment with a Twist
Figure 3.17 Franchise Option
Figure 3.18 Management Contracts and Investment in Hotels
Figure 3A.1 Indirectly Routed Inflows from India's Top Foreign Direct Investment Sources
Figure 4.1 Bilateral Knowledge Connectivity Scores, by Destination: Identification of Knowledge Surplus and Deficit Pairs
Figure 4.2 Bilateral Network Connection Scores, by Destination
Figure 4.3 Bilateral Trust Scores, by Destination
Figure 4.4 The Knowledge-Trust Nexus: To Know Me Is to Trust Me?
Figure 4.5 Networks Reduce the Fixed Entry Costs of Investing and Lead to More Investors with Greater Variability in Productivity
Figure 4.6 Exporters Become Investors
Figure 4.7 The Role of Conglomerates and Business Groups in South Asia
Figure 4.8 Learning from Pioneers Induces Entry of Follower Firms by Reducing Follower Entry Costs
Figure 4.9 Varying Reduction of Fixed Entry Costs of Investing Based on Level of Information Frictions
Figure 4.10 Awareness of South Asian Investment Opportunities: Actual Investors
Figure 4.11 Top Three Channels of Awareness of Investment Opportunities in South Asia and Outside South Asia, across Investors and Noninvestors
Figure 4.12 Due Diligence Intermediaries, by Destination
Figure 4A.1 Bilateral Knowledge Connectivity, Network Connectivity, and Trust: Raw Z-Scores.
Figure 5.1 Trends in World Trade in Goods versus Intellectual Property Payments, Services Imports, and Foreign Direct Investment Flows, 1990-2017
Figure 5A.1 Market Opportunities Dominate the Type of Information Support Requested
Figure 5A.2 Access to Finance Dominates OFDI Support Requests
Figure A.1 CDIS Data Augmentation Doubles Data Availability and Increases Value by US3 Trillion
Figure A.2 Top Destinations for Outward FDI Stock from Each South Asian Economy, 2017
Figure A.3 Ease of Investing across Borders: Developing Regions, 2010 (0-100, best)
Figure A.4 Geography of India's North Eastern Region
Figure B.1 Comparison of Firm Activities: Full Sample versus Investors
Tables
Table 1.1 Case Studies in South Asian Intraregional Investment
Table 1.2 South Asian Intraregional Goods Exports and Imports, 2018 (US millions)
Table 1A.1 Profile of South Asian Economies, 2019
Table 1B.1 Sector Shares of Exports to South Asia and the Rest of the World, 2015
Table 1B.2 South Asian Intraregional Trade Agreements
Table 2.1 Serving Foreign Markets: Alternative Modes in Rising Order of Fixed Entry Costs (1 Low-9 High)
Table 3.1 South Asian Intraregional Investment Stocks, by Country, 2017
Table 3.2 Laws and Institutions Related to Outward Direct Investment Policy in South Asia
Table 3.3 Summary of OFDI Regulatory Policies in South Asia
Table B3.5.1 OFDI Policy Measures in Selected Economies
Table 3.4 Laws and Institutions Related to Inward Foreign Direct Investment
Table 3.5 Special Economic Zones in South Asia and East Asia and Pacific, 2018
Table 3.6 South Asian Outward Investments, by Investment Type and Investor Origin
Table 3.7 Destination of South Asian Outward Investments
Table 3.8 Sector Origin Breakdown, by Investor and Noninvestor, and Destination Region.
Table 4.1 Evolution of Investment Destinations: First Destination and Sequential Investing, by Investment Type.