Measuring investment globalisation: Are FDI statistics still a useful metric?

CommentsCarlos Varela, Central Bank of Colombia

1. FDI and new productive capacity

2. FDI companies and their linkages with national economy

3. FDI and financing of the current account

1. FDI and new productive capacity.

Nowadays information regarding how companies are using the resources of FDI is not provided by FDI statistics. Therefore, it prevents us from identifying if FDI flows are use to finance current expenditure, investment (gross capital formation) or another purpose.

In that sense, it would be desirable to identify the FDI that goes into investment (definition of national accounts).

2. FDI companies and their linkages with national economy

International literature has found evidence not only about FDI spillovers (transfers of technology and knowledge to national companies) but also backward linkages produced by FDI companies.

Currently FDI statistics do not afford us the possibility of identifying this kind of effects. Therefore, some additional indicators could be included in FDI statistics surveys.

3. FDI and financing of the current account

FDI has been recognized as an important and more stable source of financing current account deficits in emerging markets. However, it could be difficult to identify which parts of FDI have been used this way.

For example, in Colombia in recent years several transactions of the FDI have been identified as Round Tripping.

1.) Transactions between non-residents, which use a resident as an intermediary End result: Change of ownership between non-residents who increase liabilities and assets by FDI.

2.) Transactions between residents, which use a non-residents as an intermediary End result: Change of ownership between residents who increase liabilities and assets by FDI.This FDI does not remain in the country that intermediate, so it does not create productive capacity.

3. FDI and financing of the current account

According to international standards, this should be recorded both as an inflow in FDI and an outflow in direct investment abroad.

In Colombia the following is done: Detailed analysis the transactions to verify that they correspond to round tripping, using the following sources:

3. FDI and financing of the current account

Round tripping: Sources of informationAdministrative records for statistical use: This register reports by transaction the date, company name, amount, country, economic sector, among others.

This is complemented with specialized sources such as financial statements of companies, business and management reports, and contacts with companies.

We identify these transactions separately in internal reports to contribute to the economic policy decisions of the central bank.

All of these sources allow us to recreate the financial structure of the transaction.