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31. Global Minimum Tax: Policy Impact on Investment Promotion and Incentives in ASEAN Member States

Author:
Sufian Jusoh and Intan Murnira Ramli
Publication Date:
10-2024
Content Type:
Policy Brief
Institution:
Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:
The Association of Southeast Asian Nations (ASEAN) Member States are some of the most important foreign direct investment destinations in the world. Investment in ASEAN Member States covers all four pillars of investment typology: natural resources, market-seeking, export oriented, and strategic assets. Key sectors – such as semiconductors, tourism, consumer products, e-commerce, banking, and commodities (e.g. nickel) – are expected to benefit from this trend. Many of the investors in ASEAN are multinational enterprises, and multinational enterprises earning €750 million or more in two of the four fiscal years, are now subject to the Global Minimum Tax (GMT) in more than 140 jurisdictions around the world. With the introduction of the GMT, ASEAN Member States must rethink their incentives and investment promotion strategies to maintain their competitive edge over other foreign direct investment destinations around the globe.
Topic:
Tax Systems, Investment, ASEAN, and Incentives
Political Geography:
Asia

32. Quantitative Analysis of Optimal Investment Scale and Timing for Flood Control Measures by Multi-Regional Economic Growth Model: Case Studies in Viet Nam

Author:
Hiroaki Ishiwata, Masashi Sakamoto, Makoto Ikeda, and Venkatachalam Anbumozhi
Publication Date:
02-2024
Content Type:
Working Paper
Institution:
Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:
This study aims to develop and utilise a multi-regional economic growth model that can take into account flood damage and investment in disaster risk reduction, and, through case studies in Viet Nam, quantitatively analyse the long-term effects of investment in disaster risk reduction on the national and local economy, as well as the optimal scale and timing of investments in flood protection, to gain a better overview of these factors. The results indicate that additional investment in disaster risk reduction could stimulate economic growth, and that the optimal range of the disaster risk reduction budget rate was around 0.3% to 0.5% of GDP, assuming a constant budget rate throughout the total 25-year calculation period. In the case of a variable disaster risk reduction budget rate, we observed that a variable budget rate that gradually reduces the disaster risk reduction budget rate from a higher level than the current rate could further promote economic growth than if the budget rate were fixed. In both cases, we verified that with excessive investment in disaster risk reduction, the high tax burden had the risk of reducing investment in production capital and lead to stagnating economic growth. By region, the long-term effects of investment in disaster risk reduction were most seen in the Central region, where the rate of flood damage is the highest.
Topic:
Economic Growth, Investment, Flood, and De-Risking
Political Geography:
Asia, Vietnam, and Southeast Asia

33. External Debt Stress and Domestic Debt Restructuring: Resolving a Paradox

Author:
C. P. Chandrasekhar
Publication Date:
07-2024
Content Type:
Working Paper
Institution:
Political Economy Research Institute (PERI), University of Massachusetts Amherst
Abstract:
The ongoing sovereign debt crisis in low- and middle-income countries (LMICs) was signalled by instances of default or failure to meet external debt obligations denominated in hard currencies. But the response to the crisis has included attempts to restructure domestic sovereign debt issued largely in domestic currencies. Such moves have been justified by identifying the crisis as one of excessive aggregate public debt rather than just unsustainable levels of external debt. There is a need, it is argued, to reduce the gross financing needs (foreign and domestic) of debt-stressed governments that have accumulated excessively high levels of aggregate—domestic and foreign currency—public debt. This assertion ignores the difference between the stress associated with servicing debt in domestic and foreign currency. Governments can mobilise domestic resources using their sovereign right to tax and central banks have control over domestic currency supply, whereas both have little control over foreign currency availability, which depends on net foreign revenues earned and on net inflows of foreign incomes, transfers and capital. While domestic debt restructuring releases domestic resources, it does not automatically yield the foreign currency needed to relieve external debt stress. In addition, since the holders of domestic sovereign debt include citizens deploying their savings to invest in pension funds, insurance products and mutual funds, and commercial banks parking resources in ‘safe investments’, restructuring that debt through explicit or implicit haircuts is bound to be economically destabilising. Past savings would be eroded with adverse impact on current demand, and the damage to the balance sheets of banks would restrain credit to the detriment of consumption and investment. This makes implementation of domestic debt restructuring costly and difficult, as experience illustrates. Given that context, the paper examines the possible reasons why when less developed countries face external debt stress, the IMF and global finance insist on domestic debt restructuring as part of conditions associated with provision of emergency balance of payments finance or the restructuring of foreign debt.
Topic:
Debt, Investment, Currency, and Debt Restructuring
Political Geography:
Global Focus

34. U.S. Investment in the Philippines: More Than Meets the Eye

Author:
Japhet Quitzon and Gregory B. Poling
Publication Date:
10-2024
Content Type:
Policy Brief
Institution:
Center for Strategic and International Studies (CSIS)
Abstract:
The size and scope of U.S.-Philippine economic cooperation is well documented; however, the quantitative and qualitative impacts on the Philippines are poorly understood. Without comprehensive, accurate, and easily accessible data on U.S. investments and their effects in the Philippines, malign actors may promote false or harmful narratives, thereby weakening public support for the U.S.-Philippine alliance. It is crucial for the United States to improve public awareness and understanding of its economic and investment activities in the Philippines.
Topic:
Bilateral Relations, Investment, and Economic Cooperation
Political Geography:
Philippines, Asia-Pacific, and United States of America

35. Triggering Investment in First-of-a-Kind and Early Near-Zero Emissions Industrial Facilities

Author:
Chris Bataille, Seton Stiebert, and Jonas Algers
Publication Date:
08-2024
Content Type:
Special Report
Institution:
Center on Global Energy Policy (CGEP), Columbia University
Abstract:
Among the most significant challenges to achieving the Paris Agreement goal of global net-zero CO2 emissions by 2055–2075 is addressing the so-called “hard-to-abate” heavy industrial sectors such as iron and steel, cement and concrete, ammonia, methanol, and high value feedstock chemicals like olefins. These sectors accounted for 7.5 Gt CO2 or 20.4 percent of global emissions in 2021, and global demand for their products will only rise until broad development goals are met everywhere. Moreover, nearly all heavy industrial plants being planned or in construction today are fossil based, with the exception being a handful of small-scale pilot facilities. Given that plants tend to operate for at least 20 years before their first deep renovation, and 40–80+ years overall, these new ones will likely still be in operation by the time global CO2 emissions must be net-zero (~2050–2060), after which heavy industry players that are still emitting will likely need to pay for CO2 removal (CDR) from the atmosphere. The cumulative CO2 emissions between now and then and the likely very high cost of CDR are driving society, governments, and firms to make near-zero emissions the default minimum standard for all new and retrofit facilities by the end of the 2020s. However, fulfilling that standard is no easy task. The main bottleneck is less technological in nature than financial and market based. At the current state of the art, near-zero emissions plants simply cost more than fossil-based plants, and meanwhile, no demand pull or market exists for lower-emission industrial products. Given the urgency of the task at hand amid the global climate crisis and the current lack of a business case to undertake it, strong policy signals can be used to incentivize early investment in near-zero-carbon heavy industry. This report, part of the Carbon Management Research Initiative at the Center on Global Energy Policy at Columbia University SIPA, explores financial policy instruments that can make first-of-a-kind (FOAK) near-zero emission industrial facilities viable. The report finds that such FOAKs can then be used as low-risk, replicable models for rapidly transforming the “hard-to-abate” sectors and ultimately facilitating a transition to full net-zero emissions for industry as a whole.
Topic:
Climate Change, Investment, Industry, Carbon Emissions, Net Zero, and Abatement
Political Geography:
Global Focus

36. China's Outbound Investment Policy in Recent Years

Author:
Jiyoung Moon, Munsu Kang, Minsuk Park, and Yongsun Kim
Publication Date:
12-2024
Content Type:
Policy Brief
Institution:
Korea Institute for International Economic Policy (KIEP)
Abstract:
China's Outbound Direct Investment (ODI) strategy has been changing along with its national development strategy. In the early 2000s, China launched “Going Out (走出去)” strategy to encourage domestic companies’ overseas expansion, which laid the foundation for Chinese companies to venture abroad. Since then, the Chinese government has actively simplified administrative procedures to encourage ODI on the part of Chinese companies. Under the Xi Jinping administration, China's ODI has been functioning as a significant tool for the national development strategy. China’s ODI has increased particularly in strategic industries, such as high-tech industries, critical raw materials, and emerging industries. However, the explosive expansion of Chinese ODI in high-tech industries has led to the increased screening of Chinese ODI especially in developed countries. Through a series of events, the strategy of China's ODI has undergone various changes, with Chinese government strengthening its ODI management. Nevertheless, China’s strategy of aligning ODI with its national strategies continues, and its influence has recently expanded to Global South countries.
Topic:
Development, Science and Technology, Investment, and Industry
Political Geography:
China and Asia

37. Net International Investment Position Surplus: A Key to Reconciling Financial Stability and Internationalization

Author:
Young Sik Jeong and Yena Song
Publication Date:
08-2024
Content Type:
Policy Brief
Institution:
Korea Institute for International Economic Policy (KIEP)
Abstract:
This study examines the influence of net international investment position (IIP) on financial stability and financial internationalization. We find a strong correlation between creditor status (IIP surplus) and resilience to financial crises. Net creditor countries appear to act as buffers, with foreign assets returning to the home country during potential crises, thus preventing deterioration in external sector soundness. Furthermore, our analysis reveals that external financial assets positively affect the revealed comparative advantage (RCA) of financial service. Specifically, the positive relationship between external financial assets and financial service RCA is more pronounced during periods of net IIP surplus compared to net IIP deficit periods. Our findings suggest that a net IIP surplus is beneficial for both financial stability and international competitiveness.
Topic:
Economics, Investment, Financial Stability, Internationalization, and Economic Competition
Political Geography:
Global Focus

38. Breaking Free: Strategies for Governments on Terminating Investment Treaties and Removing ISDS Provisions

Author:
Ladan Mehranvar and Martin Dietrich Brauch
Publication Date:
10-2024
Content Type:
Special Report
Institution:
Columbia Center on Sustainable Investment
Abstract:
As we enter the second half of 2024, the need for a fundamental transformation of the global investment and policy landscape is indisputable. Only ambitious, truly systemic changes can achieve the Sustainable Development Goals of ending extreme poverty, increasing social inclusion, reducing inequality, promoting the environmental sustainability of food systems, ecosystems, and biodiversity, and urgently shifting towards sustainable energy sources. The transition towards a more sustainable and equitable legal and economic global governance system involves moving away from industries and practices that harm the environment, such as fossil fuel extraction and use, and towards renewable energy sources. It also involves fostering sustainable practices that respect and uphold the rights, needs, and priorities of individuals, local communities, and Indigenous Peoples,1 as well as respecting governments’ sovereign right to regulate in the public interest. Progress, unfortunately, often clashes with a deeply entrenched status quo. One significant obstacle facing international investment law and policymakers is the investment treaty regime, which consists primarily of a network of bilateral investment treaties (BITs), multilateral investment treaties (MITs), and investment chapters in free trade agreements (FTAs). These international investment agreements (IIAs or investment treaties) dictate the treatment of foreign investment and foreign investors by host States. They contain a broad set of substantive provisions safeguarding investors and their investments, along with a powerful investor-State dispute settlement (ISDS) mechanism that allows foreign investors to seek recourse through international arbitration in order to enforce treaty obligations. Many concerns about IIAs and the ISDS mechanism stem from the extensive substantive and procedural privileges granted to foreign investors. The ISDS mechanism, which is also found in national investment laws and increasingly in investor-State contracts, allows foreign investors to challenge legitimate regulatory measures taken by governments to achieve more equitable economic growth, address the climate crisis, respond to a global pandemic, or otherwise serve the public interest, if those measures negatively impact the investor’s bottom line.
Topic:
Climate Change, Treaties and Agreements, Reform, Multilateralism, and Investment
Political Geography:
Global Focus

39. Korea’s Trade Policy Agenda in an Uncertain US Trade Environment

Author:
Alan Wm. Wolff and Han-Koo Yeo
Publication Date:
07-2024
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
This paper addresses how South Korea, a mid-sized ally of the United States, can best navigate clearly identifiable risks, crafting a positive and pragmatic international trade policy. Korea is heavily dependent on the United States for its defense. It is clear that US trade policy has recently shifted toward being more self-centered, a policy unlikely to be reversed any time soon. The United States is on the threshold of a presidential election that makes it unpredictable in its trade policy, which may become directly harmful to Korean economic prospects if there is a change in leadership. US trade policies under President Joseph Biden have been primarily aimed at onshoring rather than friendshoring, but they have not been actively hostile or threatening. If there is a second Donald Trump term, Korea might not be excluded from substantially increased tariffs—whether for protection, revenue, or leverage—despite the Korea-United States Free Trade Agreement (KORUS FTA). At the same time that Korea is watchful of developments in the United States, it needs to pay attention to its neighbor, China, the world’s largest trading economy, a country that has practiced trade coercion against it. South Korea is the world’s 13th-largest economy. It is a strong proponent and practitioner of free trade. It is one of a group of midsize free market democracies aligned with the United States that, ranked by GDP, includes Japan, Germany, and France (and therefore with others, the European Union), the United Kingdom, Canada, Italy, and Australia. The future of the global trading system that the market-oriented countries wish to enjoy is increasingly dependent on this group of midsize economies and the European Union. Korea has thrived in large part through its open trade policy that has made it the country with the world’s greatest number of free trade agreements (including with both the United States and China, as well as with the European Union). It shares strong economic security interests with the United States: It has its own K-CHIPS Act, which provides substantial subsidies to its semiconductor industry. It invests very substantially in critical minerals and batteries, as does the United States. Korea also collaborates with the United States in the production of vaccines to meet future pandemics.
Topic:
Climate Change, Bilateral Relations, Geopolitics, Investment, Trade, Economic Security, Semiconductors, Steel, and Critical Minerals
Political Geography:
Asia and South Korea

40. The sustainability of South African fiscal policy

Author:
Philippe Burger
Publication Date:
09-2024
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
The public-debt-to-GDP ratio in South Africa increased from 26 per cent in the 2008/09 fiscal year to 73.9 per cent in 2023/24, raising fears that fiscal policy is not sustainable. This raises the question: did the government take steps to arrest the increase in the debt-to-GDP ratio and regain fiscal sustainability, and if so, why did they fail? Establishing fiscal sustainability can be done directly or indirectly. Doing it directly entails the government increasing the primary balance in reaction to higher debt levels. Hence, this paper presents a fiscal reaction function. The analysis shows that during the period in which the public-debt-to-GDP ratio rose, the primary balance did indeed react to an increased debt burden, but its level remained too low to arrest the increase in the public-debt-to-GDP ratio. The analysis also assesses whether fiscal fatigue set in, wherein the responsiveness of the primary balance to the debt burden is positive but eventually weakens. Some evidence for the presence of fiscal fatigue is present. One indirect approach to establishing fiscal sustainability is through the impact of expenditure and revenue on economic growth. Leaving revenue for further study later, this paper presents an adapted growth equation to investigate the impact on growth of general government investment and consumption expenditure, and of public (and private) corporation investment. While the effect of private sector investment is positive, neither general government nor public corporation investment has a statistically significant impact on growth. Furthermore, government consumption has a negative impact on growth.
Topic:
Investment, Fiscal Policy, Deficit, Sustainability, and Public Debt
Political Geography:
Africa and South Africa