1

How well FDI measures ’real economic attractiveness’ of an economy?

FDI Statistics Workshop, OECD

Topias Leino, Bank of Finland

2

Countries with high inward FDI…

Luxem

bourg

Belgiu

m

Irela

nd

Switz

erla

nd

Icel

and

Estonia

Nether

lands

Swed

en

Hungary

United K

ingdom

Spain

Denm

ark

Norway

Austria

France

Canad

a

Finla

nd

Ger

man

y

United S

tate

s0

50

100

150

200

250

300

350

Inward FDI positions, % of GDP

Source: OECD

3

…often record high outward FDI

Luxem

bourg

Belgiu

m

Irela

nd

Switz

erla

nd

Icel

and

Estonia

Nether

lands

Swed

en

Hungary

United K

ingdom

Spain

Denm

ark

Norway

Austria

France

Canad

a

Finla

nd

Ger

man

y

United S

tate

s0

50

100

150

200

250

300

350

Inward FDI positions, % of GDP Outward FDI positions, % of GDP

Source: OECD

To what extent are inward and outward FDI figures interconnected?

FDI positions at the end of 2011

4

Pass-through funding of FDI

Parent A

Abroad

Finland

Subsidiary C

Subsidiary B

The problem: inward and outward FDI statistics get inflated by pass-through FDI

(in real economic sense)

The methods introduced in the revised statistical standards of FDI capture some type of pass-through FDI, but not all.

5

Are the figures comparable from a ’real economic attractiveness’ point of view?

Luxem

bourg

Belgiu

m

Irela

nd

Switz

erla

nd

Icel

and

Estonia

Nether

lands

Swed

en

Hungary

United K

ingdom

Spain

Denm

ark

Norway

Austria

France

Canad

a

Finla

nd

Ger

man

y

United S

tate

s0

50

100

150

200

250

300

350

Inward FDI positions, % of GDP Outward FDI positions, % of GDP

Source: OECD

FDI positions at the end of 2011

6

Finland vs. Sweden

Finland Sweden0

10

20

30

40

50

60

70

80

Inward Outward Pass-through FDI (estimate*)

*) Author’s estimate based on data on outward FDI positions that are controlled by non-resident enterprises**

**) Underlying data on Sweden provided by Statistics Sweden

Sources: OECD, Bank of Finland, Statistics Sweden, author’s calculations

FDI positions at the end of 2011% of GDP

7

FDI and real investments* in Finland

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011-6000000000

-4000000000

-2000000000

0

2000000000

4000000000

6000000000

8000000000

FDIReal investment in immediate FDI enterprisesReal investment in FDI subgroupsReal Investment in FDI subgroups, excluding non-FDI-related units (es-timate)

EUR billion

Source: Ali-Yrkkö & Leino (2014)*) Gross Fixed Capital Formation in Finnish-based foreign-owned companies

8

Points for the discussion

• FDI is not a direct measure of ’real foreign investment’– FDI is about finance

• But this may also be its greatest strength!

• FDI may not be a very good indicator on real economic attractiveness of an economy, but:– perhaps it could be…– Should it be?