FDI- The way to promote APEC economies into the global value chain

On May 17, the APEC Policy Support Agency announced that foreign direct investment (FDI) paved an essential way for the APEC economy to join the global value chain.

Akhmad Bayhaqi, a senior analyst at the APEC Policy Support Agency, said that APEC economies are central in the foreign direct investment network. They also tend to become hubs in the global value chain trade network. And as economies join global value chains, they provide avenues to pursue industrialization and economic upgrading. This is especially true of many developing economies in APEC.

The APEC region is an area receiving a lot of FDI, holding 52% of the total value of accumulated FDI from abroad. The sector accounts for nearly 68% of the world’s total FDI inflows, based on transactions recorded in 2020. FDI plays a vital role for economies because it brings together the capital, skills, know-how decisions, and innovation needed to stay ahead of the competition in the global marketplace.

Developing economies in East Asia are particularly excited about the prospect of upgrading their economies as they integrate into global value chains, the study found. Example: The region’s advanced economies are often involved in high-tech or upstream manufacturing sectors such as research and development, while the region’s emerging market economies are often affected by labor-intensive or downstream manufacturing sectors.

The policy report also highlights that the participation of FDI in the domestic production of an economy forms the basis of global production chains, where local enterprises act as suppliers and can build strategic alliances with multinational companies. Foreign ownership of businesses also affects their operations. For example, in Indonesia, firms with 10% or more foreign ownership recorded solid year-over-year revenue and productivity growth, while in Vietnam, they also enjoyed a substantial increase in sales, income, and employment.

Dr. Bayhaqi explains that, although participation in global value chains appears to attract foreign investment in many emerging economies, this relationship does not mean a clear cut as an investment is highly dependent on broader legal and institutional frameworks. This means that economies still need to pursue structural reform efforts and promote stable and transparent regulatory frameworks for investment. Members can turn to APEC initiatives such as the investment facilitation action plan, as it aids FDI inflows by enhancing the stability of the investment environment and enhancing capacity predictability and consistency in investment-related policies.

The report notes that participation in the global value chain in APEC has reached 50%, with the five largest industries (excluding petroleum and mining) being textiles, metal products; electricity and machinery; transport equipment; financial intermediation, and business activities.

Dr. Bayhaqi concluded that APEC needs to consider the economic benefits of participating in global value chains and FDI and explore the relationship between GVC participation and FDI. This would then provide a starting point for policymakers to assess the level of the involvement of economies and consider appropriate policy options to ensure that staying competitive Globalization goes hand in hand with the development of the domestic industry.

(Source: congthuong)

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