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11. How Does Urban Rail Development in China and India Enable Technological Upgrading?

Author:
Emmanuel Theodore Asimeng and Tilman Altenburg
Publication Date:
01-2022
Content Type:
Working Paper
Institution:
German Institute of Development and Sustainability (IDOS)
Abstract:
The socioeconomic wellbeing of urban areas depends on a well-functioning transportation system that makes it easier for people to access goods and services. Whereas most urban areas in emerging economies are expanding in size and human population, high motorisation and inadequate public transport services have resulted in congestion, traffic accidents and increasing transport-related greenhouse gas (GHG) emissions. Urban rail development can help address the current transportation problem because trains can move a large number of people at high speed, provide reliable services, contribute to lower GHGs and have a low accident rate. However, urban rail is expensive and requires many technical and technological capabilities often unavailable in emerging economies because they are technology latecomers. This paper examines how two emerging economies, China and India, have adopted industrial policies to develop local capabilities for urban rail technology. The paper shows how the Chinese government has moved from purchasing urban rail technology from multinational companies (MNCs) to the current situation where it has developed local capabilities, owns rail technology patents and competes with the same MNCs on the international market. The paper also demonstrates how India is gradually improving the local manufacturing of rail subsystems as opposed to importation. Overall, the paper suggests a pathway to industrial policy adoption that demonstrates how emerging economies can catch up with urban rail technology development to address their local transportation needs.
Topic:
Development, Industrial Policy, Science and Technology, Multinational Corporations, Urban, and Railways
Political Geography:
China, India, and Asia

12. A Study on the Effects of Multinational Production on Global and Domestic Value Chains Following Trade Restructuring and Corresponding International Economic Policies

Author:
Myoung Shik Choi and Hun Dae Lee
Publication Date:
08-2022
Content Type:
Working Paper
Institution:
Korea Institute for International Economic Policy (KIEP)
Abstract:
Emphasizing foreign affiliates amid stagnant global value-chained trade, this study provides important evidence for measurable policies which should be taken dependent on the level of GVCs integration in shaping international trade flows and multinational production activity. The recent decreased share of value-added exports within gross exports represents characteristics of a wider value chained network. It is common not only for firms to increase their economic activities globally but also for oversea affiliates to operate as the linchpin between the international and domestic parts of value chains. Our findings suggest that foreign affiliate activity strengthens domestic value chains, thereby leading to the outcome of further growth in the host country, while domestic affiliate activity abroad strengthens global value chains which spur growth in the broader world economy. Based on empirical discussions centered on participating in GVCs, OECD high-income countries significantly integrated into GVCs will benefit from upgrading their GVCs policies such as capturing value-added in exports and building new technology or innovation. There is also a need to continue enforcing the domestic linkages of MNE affiliates, which contributes to growth and employment as they contract and cooperate with domestic firms. In addition, low-income countries not fully integrated into GVCs in the Asia-Pacific region may need to secure entry into existing GVCs with trade liberalization, while middle-income countries which have secured entry into GVCs may focus on enhancing competitiveness by increasing productivity and developing regional economic integration through forums like APEC.
Topic:
Multinational Corporations, Economic Policy, Free Trade, Industry, and Value Chains
Political Geography:
Global Focus

13. Tax provisioning by extractive industry multinational subsidiaries

Author:
Khanindra Ch. Das
Publication Date:
11-2022
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Extractive industries are spread across mining of metal and minerals, oil and gas, among others. Multinationals in these sectors are confronted with different challenges ranging from corruption, political risk, economic uncertainty, sunk costs, and the long-gestation periods to execute projects. As a result, tax payment behaviour of subsidiaries in the extractive sector could be dependent not only on these factors, but also on the life cycle of the subsidiary, profitability, and holding structure. Furthermore, emerging economy multinationals in the extractive industries could be state-owned and may invest in foreign subsidiaries for strategic reasons. We examine tax provision in host countries by India’s multinational subsidiaries in the extractive industry. Panel data analysis is carried out for the period 2010–20. It is found that tax provision remains lower in the initial years of subsidiary life and increases with the sustenance of subsidiary in the host country for a longer period. In addition, subsidiaries of public sector enterprises are found to have higher tax provisions than their private counterparts. When it comes to the determinants, economic policy uncertainty, corruption, and political stability are found to significantly affect tax provision.
Topic:
Corruption, Political stability, Multinational Corporations, Tax Systems, Economic Policy, Public Sector, Extractive Industries, and Uncertainty
Political Geography:
South Asia and India

14. Impacts of New International Tax System on Multinational Firms’ FDI

Author:
Sangjun Yea
Publication Date:
04-2022
Content Type:
Policy Brief
Institution:
Korea Institute for International Economic Policy (KIEP)
Abstract:
In this study, I present a theoretical model to quantitatively assess the economics impact of Pillar 1 and Pillar 2, especially focusing on the changes in the FDI patterns of multinational enterprises (MNEs). Pillar 1 offsets the incentives of MNEs' profits-shifting for tax-planning purposes, thereby reducing the inbound FDI into the countries with low corporate income tax rates. Pillar 2 burdens MNEs with 'top-up' taxes attributed from the subsidiaries in low tax countries. As the profits after tax (PAT) of MNEs shrink at the global level, innovation and R&D investment for new products will decrease, and as a result, global FDI flows will hamper.
Topic:
Economics, Foreign Direct Investment, Multinational Corporations, and Tax Systems
Political Geography:
Global Focus

15. Profit-shifting behaviour of emerging multinationals from India

Author:
Khanindra Ch. Das
Publication Date:
02-2022
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
This paper examines the profit-shifting behaviour of emerging multinational firms from India. It is found that the before-tax profitability of subsidiaries differs according to whether they were established directly or via an Offshore Financial Centre (OFC). The impact of the corporate tax rate on profitability is examined using a fixed-effects model for the period 2010–19. In the case of subsidiaries established via OFCs, a negative relationship between corporate tax rate and profitability is found, indicating profit-shifting behaviour. However, a disaggregated investigation by characteristics of parent firms reveals that the negative relationship holds primarily for via-OFC subsidiaries that belong to multinational firms with limited transactions of intangible assets, lower export intensity, and limited dependence on external commercial borrowing. The evidence of profit shifting is not all pervasive. However, in the presence of these transaction channels, multinational firms establish better control over intra-firm resources, which enables the transfer of resources within the multinational firm when the network of subsidiaries is connected through the OFC. The results are robust to the inclusion of economic and institutional factors pertaining to the host country.
Topic:
Finance, Multinational Corporations, Profit, Corporate Tax, and Tax Havens
Political Geography:
South Asia and India

16. The indirect costs of corporate tax avoidance exacerbate cross-country inequality

Author:
Javier Garcia-Bernardo, Daniel Haberly, Petr Janský, Miroslav Palanský, and Valeria Secchini
Publication Date:
03-2022
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Corporate tax avoidance hampers domestic revenue mobilization and, with it, the development of lower- and middle-income countries. While a wide range of studies has shed light on the magnitude of profit shifting by multinational corporations, the indirect costs of this behaviour is underexplored. These indirect costs are likely to be skewed based on a country’s level of income. We hypothesize that developed countries tend to recover a larger part of corporate tax revenue losses (primary effects or direct costs) via capital gains and dividend taxes on corporate investors (secondary effects). Furthermore, developed countries can offset tax losses by borrowing in financial markets at very low interest rates (tertiary effect or, together with secondary effects, indirect costs). In this paper, we introduce a dynamical model that includes not only corporate tax revenue losses but also tax revenue collected from capital gains and dividend taxes, as well as government borrowing costs. We use country-by-country reporting data on the operations of multinational corporations to estimate profit shifting, alternative operationalizations of the location of investors to proxy the tax revenues from capital gains and dividend taxes, and yields on government bonds to measure the cost of borrowing. Our results show that when these indirect costs are included, the total cost of profit shifting for developing countries increases significantly, while some developed countries can often offset or recover the majority of the direct costs of profit shifting. The ability of the latter to do this is, however, uneven with, for example, most European countries losing revenues from profit shifting even after indirect effects are taken into account. Only a handful of other countries actually appear to profit from profit shifting—and by an amount that is far smaller, in relation to gross domestic product, than the losses suffered by others.
Topic:
Inequality, Multinational Corporations, Tax Systems, and Tax Havens
Political Geography:
Global Focus

17. Profit shifting by multinational corporations: Evidence from transaction-level data in Nigeria

Author:
Bathusi Gabanatlhong, Javier Garcia-Bernardo, Paulinus Iyika, and Miroslav Palanský
Publication Date:
03-2022
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Research on profit shifting by multinational corporations in developing countries is limited due to a lack of data. In this paper we use, for the first time, novel administrative data on the transactions of multinational corporations operating in Nigeria vis-à-vis related parties in other jurisdictions. The data provides a breakdown of these intra-group transactions into seven categories: (1) tangible goods, (2) services and fees, (3) royalties, (4) interest, (5) dividends, (6) reimbursements, and (7) other. We develop a methodology that uses this data to identify which transactions are most often used by multinationals to shift profits out of Nigeria and estimate their relative importance. We find that profits reported in Nigeria are highly sensitive to the hypothetical tax that would be paid on a transaction’s value in the partner jurisdiction: a 1 per cent increase in the hypothetical tax on outgoing transactions is associated with a 0.28 per cent increase in reported profits in Nigeria. Payments for services and fees, royalties, and interest going from Nigerian companies to affiliates in low-tax countries are the most important channels of profit shifting in Nigeria. We argue that our approach can be used to inform low-cost policy interventions and increase audit efficiency with potentially strong effects on corporate income tax collection.
Topic:
Multinational Corporations, Profit, Transactions, and Tax Havens
Political Geography:
Africa and Nigeria

18. Profit shifting by multinational corporations in Kenya: The role of internal debt

Author:
Roseline Misati, Kethi Ngoka, Anne Kamau, and Maureen Odongo
Publication Date:
03-2022
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Illicit financial flows directly impact a country’s ability to raise, retain, and mobilize its own resources to finance sustainable development. Against a backdrop of a weak public financial position attributed to capital flight, tax avoidance, and dependence on corporate income taxes, governments in Africa face impediments to their efforts to widen the tax base. Using firm-level annual data from 2015–19 from multinational corporations’ audited financial statements, we assess the scale of profit shifting by those corporations with a presence in Kenya. Using a panel analysis, the study delves into the incentives for profit shifting, focusing on internal debt. It finds that a 10 per cent increase in the difference between Kenya’s corporate tax rate and that of the lending corporation’s home country increases the internal debt ratio by between 1 and 2 per cent. The results provide a basis for the design of targeted tax and revenue administration reforms against the backdrop of rising revenue needs.
Topic:
Multinational Corporations, Tax Systems, Profit, and Corporate Tax
Political Geography:
Kenya and Africa

19. The Culture-Promotion Effect of Multinationals on Trade: the IKEA case

Author:
Dylan Bourny, Daniel Mirza, and Jamel Saadaoui
Publication Date:
07-2022
Content Type:
Working Paper
Institution:
Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:
In this paper, we investigate how some MNEs which spread their home culture over time and space to the rest of the world are affecting, in turn, trade flows from home. By selling products embodying cultural information related to their country of origin, those MNEs embrace the role of ambassadors of their home country. We argue that IKEA offers an ideal case to identify a multinational's culture-promotion effect on trade. We build a dataset on IKEA's presence in foreign markets between 1995 and 2015 and merge it with disaggregated product level trade between pairs of countries. We find solid evidence of an externality linked to IKEA: a setting of an IKEA new store in a destination increases trade flows by around 2% from Sweden for products that resemble to what the multinational offers (despite being completely unrelated to that multinational). This result is driven primarily by the products identified to encompass a high-cultural content. Other robustness checks and tests seem to be very much consistent with the hypothesis of IKEA promoting the Swedish culture to the world.
Topic:
Globalization, International Trade and Finance, Culture, and Multinational Corporations
Political Geography:
Global Focus

20. The Rise of a Rule-Based Transgressor Elite

Author:
Ronen Palan
Publication Date:
01-2022
Content Type:
Working Paper
Institution:
City Political Economy Research Centre (CITYPERC), University of London
Abstract:
Transnationally organised, rule-based transgressor elites are the wealthiest and most powerful elites today. The core of this group comprises managers of large multinational corporations and related ‘born global’ corporations, such as Tesla, eBay and the like, large investment houses, such as Blackrock, Blackstone and Vanguard, leading international investment banks and elite legal, consultancy and accounting firms. This elite core is joined by several ancillary groups. Arguably the most significant of those are midsize corporate groups, many of which are privately held. Numbering in the hundreds of thousands, perhaps even millions, they employ tactics perfected by large corporations to arbitrage rules and ensure corporate and other forms of taxation, rules specifying personal or group liabilities or other regulations, including protection of shareholders and the like, are either partially or fully avoided. To these, Ricardo de Soares adds another group; he argues elites from development countries latch onto existing institutional and professional providers serving those other elites; once they achieve their goal of transferring capital out of their own countries, they participate actively in the process of wealth and power concentration described in this paper (Soares, 2021) .
Topic:
Political Economy, Multinational Corporations, Elites, and Capital Accumulation
Political Geography:
Global Focus