What to Do When Foreign Direct Investment Is Not Direct or Foreign : FDI Round Tripping
As globalization has intensified, multinational enterprises' investments have become a sophisticated set of financial transactions that are difficult to monitor and classify by the home and host countries. In some cases, what is classified as...
| Main Authors: | , , |
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| Format: | Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2017
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/319451493385113949/What-to-do-when-foreign-direct-investment-is-not-direct-or-foreign-FDI-round-tripping http://hdl.handle.net/10986/26498 |
| Summary: | As globalization has intensified,
multinational enterprises' investments have become a
sophisticated set of financial transactions that are
difficult to monitor and classify by the home and host
countries. In some cases, what is classified as foreign
direct investment is rather "indirect foreign direct
investment," channeled through a third country.
Indirect flows have increased significantly in recent years,
now accounting for almost 30 percent of global foreign
direct investment flows. Indirect foreign direct investment
flows also capture the flow of domestic funds channeled
through offshore centers back to the local economy in the
form of direct investment, also known as "foreign
direct investment round tripping." These investments do
not offer the benefits of typical foreign direct investment,
and may lead to tax revenue and welfare losses. Round
tripping is mostly channeled through offshore financial or
transshipping centers. In most cases, domestic companies
round trip their investments to benefit from preferential
treatments reserved for certain countries and their firms.
The most important policy measure to reduce round tripping
activity and mitigate its impact is to improve the business
environment for all firms; this can foster domestic and
foreign investment, and may, to some extent, also curb
foreign direct investment round tripping. Nevertheless,
countries also need to adapt to the new playing field for
foreign direct investment, and recognize the trade-offs of
their national policies on capital flows. National policy
measures must be complemented by international actions. At
the same time, all indirect foreign direct investment flows
should be closely monitored, something that is best
conducted in coordination with international partners. |
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