Selected Perspectives on International Capital Flows

**3**

**Chapter 1**

**Abstract**

**1. Introduction**

decision to divest.

*Omar E. García-Bolívar*

Business Climate: When Weakness

This chapter is about weak business climate as a cause for foreign direct divestment. The aim is to show the connection between a poor business climate and foreign direct divestment. The methodology used entails a review of the different factors of the business climate such as the ease to do business, corruption, and rule of law. A review of the UNCTAD foreign direct investment flow as compared to the business climate indicators to determine a pattern is also part of the methodology. The chapter highlights the externalities of foreign direct divestment and suggests some ideas to overcome the global negative impact of foreign direct divestment as it is estimated to be significant in the aftermath of the COVID-19 pandemic. The conclusion is that foreign direct divestments can occur for different factors, some internal and some external. Weak business climates seem to play a role in a decision

**Keywords:** business climate, foreign direct divestment, weak business climate,

Foreign direct investments (FDIs) are defined as transfer of capital from one country to other where the investor has control or a significant degree of influence

Foreign Direct Divestment (FDD) are defined as an adjustment in the ownership of a business that involves the partial or full disposal of an asset or a business unit [2]. The theory of economic development shows that capital is one essential piece of Gross Domestic Product (GDP) growth. The reasoning is that more FDI helps in

To understand the dynamic of the FDI process and the FDD process it seems external factors play an essential role on determining the decision to invest or the

of the term falls into three major categories: (1) an overall measure of growth or business health in a region; (2) a set of factors believed to contribute to regional economic growth; and (3) an intangible asset in the form of a regional reputation

In that continuum, efficient regulations, transparency, rule of law, strong institutions, low operating costs and predictability, inter alia, are all elements that can enhance the appeal to foreign investors. That premise assumes that previous conditions need to be in place: business opportunities and a positive cost/benefit

The literature defines business or investment climate multifold. In general, usage

to divest an investment but there is no direct correlation.

factors of foreign direct divestment, universal wealth fund

on the management of a business located in the host country [1].

GDP growth whereas more FDD affects the GDP growth [3].

for business friendliness and receptiveness to growth [4].

Means Foreign Direct Divestment

## **Chapter 1**

## Business Climate: When Weakness Means Foreign Direct Divestment

*Omar E. García-Bolívar*

## **Abstract**

This chapter is about weak business climate as a cause for foreign direct divestment. The aim is to show the connection between a poor business climate and foreign direct divestment. The methodology used entails a review of the different factors of the business climate such as the ease to do business, corruption, and rule of law. A review of the UNCTAD foreign direct investment flow as compared to the business climate indicators to determine a pattern is also part of the methodology. The chapter highlights the externalities of foreign direct divestment and suggests some ideas to overcome the global negative impact of foreign direct divestment as it is estimated to be significant in the aftermath of the COVID-19 pandemic. The conclusion is that foreign direct divestments can occur for different factors, some internal and some external. Weak business climates seem to play a role in a decision to divest an investment but there is no direct correlation.

**Keywords:** business climate, foreign direct divestment, weak business climate, factors of foreign direct divestment, universal wealth fund

## **1. Introduction**

Foreign direct investments (FDIs) are defined as transfer of capital from one country to other where the investor has control or a significant degree of influence on the management of a business located in the host country [1].

Foreign Direct Divestment (FDD) are defined as an adjustment in the ownership of a business that involves the partial or full disposal of an asset or a business unit [2].

The theory of economic development shows that capital is one essential piece of Gross Domestic Product (GDP) growth. The reasoning is that more FDI helps in GDP growth whereas more FDD affects the GDP growth [3].

To understand the dynamic of the FDI process and the FDD process it seems external factors play an essential role on determining the decision to invest or the decision to divest.

The literature defines business or investment climate multifold. In general, usage of the term falls into three major categories: (1) an overall measure of growth or business health in a region; (2) a set of factors believed to contribute to regional economic growth; and (3) an intangible asset in the form of a regional reputation for business friendliness and receptiveness to growth [4].

In that continuum, efficient regulations, transparency, rule of law, strong institutions, low operating costs and predictability, inter alia, are all elements that can enhance the appeal to foreign investors. That premise assumes that previous conditions need to be in place: business opportunities and a positive cost/benefit

equation. However, the opposite seems to be true: poor business climates where the rule of law is weak, corruption is pervasive, costs of doing business are high and unpredictable and transparency and predictability are absent appear to deter an investment decision.

This chapter is about the business climate as a relevant factor that drives FDD. Overall the methodology followed is this: review of indicators of business climate factors. Similarly, the FDI rankings are reviewed. It is sought to find a pattern between weak indicators of business climate factors and low flow of FDI. For that purpose, some countries' rankings on doing business, corruption perception index, and rule of law index are reviewed.

The second section highlights the factors that trigger FDI. By looking at the relevant data, it is intended to stress that a better business climate ranking contributes to boost FDI flows.

The third section shows the opposite: a weak business climate fosters FDD. A country will have a weak business climate when it is ranked in the lowest range on Doing Business, Corruption Perception Index and the Rule of Law Index.

The fourth section highlights the externalities of FDD. Just as FDI is considered to bring about externalities such as job creation and productivity enhancement, a connection between FDD and loss of jobs and GDP shrinking is explored.

The fifth section makes some suggestions to mitigate the impact of FDD externalities. As this essay is written during the COVID-19 pandemic it is assumed that FDD negative externalities will be more significant globally and hence global remedies might be needed.

The sixth section contains the conclusions. Combining the analysis of the data with some empirical observations certain conclusions are reached as regards to the connection of business climate and FDD as well as to some suggestions to mitigate the FDD externalities.

The seventh section contains the references.

## **2. Factors that trigger FDI**

Foreign direct investments (FDIs) have been considered an important tool for economic development [5].

FDIs bring about not only capital and jobs to the host countries but also enhance the economic apparatus directly and indirectly in areas such as innovation, cultural trends and even language use [6].

FDIs can be considered the historic equivalent of territory conquests. Like that possibly overextended analogy, the rationale behind the conquests are multifold. In the case of FDIs, the reason for expanding overseas can be strategic or tactical going from market reach, factory allocation, costs reduction, profit enhancement, trend following, merger, competitors chase, trademark protection, etc.

From an economic efficiency standpoint FDIs should be assumed to be conducted when the benefits exceed the costs. That does not occur all the times as some of the benefits of FDIs can differ depending on the rationale behind. In a complicated world and with FDI actors as varied as they area and with interests as varied as they could be, the benefits could be difficult to measure. For example, State owned investors could have geopolitical interests in an investment. Hence, measuring the FDI benefit merely by the existence of profit could yield a wrong conclusion.

Thus, the factors that trigger FDIs are inexorably connected to the subjacent interests. However, the data that is available measures the FDI that is homogeneous, meaning FDIs where the interests are primarily economic and where the efficiency tends to be of the essence, i.e., costs do not exceed the benefits.

**5**

*Business Climate: When Weakness Means Foreign Direct Divestment*

**Ranking of FDI recipients v. ranking in business climate factors**

**Doing business ranking Total: 190**

The USA 1 6 23 21

Singapore 3 2 4 12 The Netherlands 4 42 8 5

*Source: UNCTAD world investment report [7], doing business [8], transparency international [9], and WJP rule of* 

China 2 31/ 3 (Hong Kong) 80/16(Hong Kong) 88/16 (Hong Kong)

5 8 12 13

**Corruption perception index/ranking Total: 180**

**Rule of law index ranking Total: 128**

In that continuum FDI flow is linked to a positive business climate. That is, there

An analysis of a business climate combines factors extrinsic to the business that impact the success or failure of the operation. Factors such as costs and time of doing business, including permits to operate or hire, physical and human infrastructure, corruption, rule of law, governance and political stability are all part of

Countries tend to attract more FDIs when it is easier, cheaper and faster to do business, when corruption is low and when the rule of law is prevalent. **Table 1** about ranking of FDI inflow recipients show the rankings of selected countries in relevant factors of business climate. It shows that the top 5 FDI inflow recipients

A case of point is Jordan. It has been implementing significant changes to ease doing business in areas such as getting credit, paying taxes and resolving insolvencies. The Doing Business indicators, scores and rankings, have been improving in consecutive years. Inflow FDIs have increased from \$1600 million to \$2030 million in 3 years up to year 2017. Jordan improved its Doing Business ranking in more than

Of course, correlation makes sense when the world economy is growing, and GDP is not contracted, when there is no world economic recession and when the

In circumstances of economic expansion there seems to be a correlation between

The empirical evidence shows that in the absence of strong business climate the

For example, when the rule of law is weak FDI inflow tends to be low. **Table 2** about the rule of law index rankings and FDI inflows shows the amount of FDI

When transparency is low, FDI tends to be low. **Table 3** about the corruption perception index rankings and FDI inflows shows the amount of FDI attracted by

is a correlation between a good business climate and high levels of FDI.

the overall analysis of the framework of a business climate.

economic resources of the country are not limited.

**3. The impact of a weak business climate**

host countries are more prone to attract less FDI.

countries ranked at the bottom on corruption.

attracted by countries ranked at the bottom on rule of law.

weak business climates and low FDIs.

perform above average in some business climate factors' rankings.

10% in 3 years (UNCTAD World Investment Report and Doing Business).

*DOI: http://dx.doi.org/10.5772/intechopen.93291*

**inflow ranking**

**Country FDI** 

The United Kingdom

*law index [10].*

**Table 1.** *Year 2019.* *Business Climate: When Weakness Means Foreign Direct Divestment DOI: http://dx.doi.org/10.5772/intechopen.93291*


*Source: UNCTAD world investment report [7], doing business [8], transparency international [9], and WJP rule of law index [10].*

## **Table 1.**

*Foreign Direct Investment Perspective through Foreign Direct Divestment*

investment decision.

utes to boost FDI flows.

remedies might be needed.

**2. Factors that trigger FDI**

economic development [5].

trends and even language use [6].

The seventh section contains the references.

the FDD externalities.

and rule of law index are reviewed.

equation. However, the opposite seems to be true: poor business climates where the rule of law is weak, corruption is pervasive, costs of doing business are high and unpredictable and transparency and predictability are absent appear to deter an

This chapter is about the business climate as a relevant factor that drives FDD. Overall the methodology followed is this: review of indicators of business climate factors. Similarly, the FDI rankings are reviewed. It is sought to find a pattern between weak indicators of business climate factors and low flow of FDI. For that purpose, some countries' rankings on doing business, corruption perception index,

The second section highlights the factors that trigger FDI. By looking at the relevant data, it is intended to stress that a better business climate ranking contrib-

The third section shows the opposite: a weak business climate fosters FDD. A country will have a weak business climate when it is ranked in the lowest range on

The fourth section highlights the externalities of FDD. Just as FDI is considered to bring about externalities such as job creation and productivity enhancement, a

The sixth section contains the conclusions. Combining the analysis of the data with some empirical observations certain conclusions are reached as regards to the connection of business climate and FDD as well as to some suggestions to mitigate

Foreign direct investments (FDIs) have been considered an important tool for

FDIs bring about not only capital and jobs to the host countries but also enhance the economic apparatus directly and indirectly in areas such as innovation, cultural

FDIs can be considered the historic equivalent of territory conquests. Like that possibly overextended analogy, the rationale behind the conquests are multifold. In the case of FDIs, the reason for expanding overseas can be strategic or tactical going from market reach, factory allocation, costs reduction, profit enhancement, trend

From an economic efficiency standpoint FDIs should be assumed to be conducted when the benefits exceed the costs. That does not occur all the times as some of the benefits of FDIs can differ depending on the rationale behind. In a complicated world and with FDI actors as varied as they area and with interests as varied as they could be, the benefits could be difficult to measure. For example, State owned investors could have geopolitical interests in an investment. Hence, measuring the FDI benefit merely by the existence of profit could yield a wrong conclusion. Thus, the factors that trigger FDIs are inexorably connected to the subjacent interests. However, the data that is available measures the FDI that is homogeneous, meaning FDIs where the interests are primarily economic and where the efficiency

following, merger, competitors chase, trademark protection, etc.

tends to be of the essence, i.e., costs do not exceed the benefits.

Doing Business, Corruption Perception Index and the Rule of Law Index.

connection between FDD and loss of jobs and GDP shrinking is explored. The fifth section makes some suggestions to mitigate the impact of FDD externalities. As this essay is written during the COVID-19 pandemic it is assumed that FDD negative externalities will be more significant globally and hence global

**4**

*Year 2019.*

In that continuum FDI flow is linked to a positive business climate. That is, there is a correlation between a good business climate and high levels of FDI.

An analysis of a business climate combines factors extrinsic to the business that impact the success or failure of the operation. Factors such as costs and time of doing business, including permits to operate or hire, physical and human infrastructure, corruption, rule of law, governance and political stability are all part of the overall analysis of the framework of a business climate.

Countries tend to attract more FDIs when it is easier, cheaper and faster to do business, when corruption is low and when the rule of law is prevalent. **Table 1** about ranking of FDI inflow recipients show the rankings of selected countries in relevant factors of business climate. It shows that the top 5 FDI inflow recipients perform above average in some business climate factors' rankings.

A case of point is Jordan. It has been implementing significant changes to ease doing business in areas such as getting credit, paying taxes and resolving insolvencies. The Doing Business indicators, scores and rankings, have been improving in consecutive years. Inflow FDIs have increased from \$1600 million to \$2030 million in 3 years up to year 2017. Jordan improved its Doing Business ranking in more than 10% in 3 years (UNCTAD World Investment Report and Doing Business).

Of course, correlation makes sense when the world economy is growing, and GDP is not contracted, when there is no world economic recession and when the economic resources of the country are not limited.

## **3. The impact of a weak business climate**

In circumstances of economic expansion there seems to be a correlation between weak business climates and low FDIs.

The empirical evidence shows that in the absence of strong business climate the host countries are more prone to attract less FDI.

For example, when the rule of law is weak FDI inflow tends to be low. **Table 2** about the rule of law index rankings and FDI inflows shows the amount of FDI attracted by countries ranked at the bottom on rule of law.

When transparency is low, FDI tends to be low. **Table 3** about the corruption perception index rankings and FDI inflows shows the amount of FDI attracted by countries ranked at the bottom on corruption.

## *Foreign Direct Investment Perspective through Foreign Direct Divestment*


### **Table 2.**

*Year 2018.*


## **Table 3.**

*Year 2019.*


*Source: UNCTAD World Investment Report [7] and Heritage Foundation Economic Freedom Index [11].*

### **Table 4.**

*Year 2019.*


### **Table 5.**

*Year 2019.*

When economic freedom is restricted, FDI tends to be low. **Table 4** about the economic freedom index rankings and FDI inflows shows the amount of FDI attracted by countries ranked at the bottom on economic freedom.

When doing business is difficult, FDI tends to be low. **Table 5** about the ease of doing business rankings and FDI inflows shows the amount of FDI attracted by countries ranked at the bottom on ease to do business.

## **4. Negative externalities of FDD**

FDIs are poverty alleviation weapons. The benefits of FDIs have been consensually accepted to be vast and broad. The range goes from job creation, cluster

**7**

**Figure 1.**

*Business Climate: When Weakness Means Foreign Direct Divestment*

creation, education enhancement, food improvement, infrastructure development, tourism recognition, technology transfer and commerce catalyst up to political

FDI can also fill, first, the "investment gap" by providing the much-needed capital for domestic investment; secondly, the "foreign exchange gap" by providing foreign currency through initial investments and subsequent export earnings; and finally, the "tax revenue gap" by generating tax revenues through creation of

The contrary is also true. FDIs are defined by control of a foreign entity of a business operation beyond the borders of origin. That control usually takes the form of ownership but it is not an exclusive trait to fulfill the goal. When control of the foreign operation ceases totally or partially by change, reduction or suppression of the activity or ownership a foreign direct divestment (FDD) can be deemed to have occurred [13]. FDD can be motivated by internal reasons. Those internal reasons can be intrinsic to the whole business undertaking or internal to the local operation. They include tactical ones, such as geographic location advantage or disadvantage, financial maneuvering, business structure, or limited resources as well as strategic ones such as market reach, competitors challenge, and product development [14]. FDDs can also be motivated by external reasons. A weak business climate where rules are not respected and predictable and where doing business is not efficient

Thus, excessive corruption which makes costs, times and procedure outcomes unpredictable can be a deterrent of FDI. However, the evidence shows that efficiency, i.e., less costs, more benefits, is the determinant external factor of FDI. The opposite, absence of efficiency, i.e., more costs, less benefits, could be a determinant factor of FDD. Hence, a correlation between difficulty of doing business and

A relevant example on this point is Angola. Angola has worsened its ranking and scores in the Doing Business indicators. Two of the indicators, enforcing contracts and obtaining credit have worsened during the period lapsing from the year 2015. During that period the FDI inflow have gone from \$10,028 million to \$ − 5732 million in 2018 (UNCTAD World Investment Report, Doing Business).

With FDD the host countries can suffer significantly in economic, social, and political terms. A fleeing capital that has been significant in terms of GDP and that

*DOI: http://dx.doi.org/10.5772/intechopen.93291*

stability and social peace.

low FDI is prevalent.

additional economic activities [12].

might the strongest determinant to FDD (**Figure 1**).

*The role of host country investment climate factors. Source: Borga et al. [15].*

## *Business Climate: When Weakness Means Foreign Direct Divestment DOI: http://dx.doi.org/10.5772/intechopen.93291*

*Foreign Direct Investment Perspective through Foreign Direct Divestment*

*Source: UNCTAD World Investment Report [7] and WJP Rule of Law index.*

When economic freedom is restricted, FDI tends to be low. **Table 4** about the economic freedom index rankings and FDI inflows shows the amount of FDI

**Country Doing business ranking FDI inflow amount (in millions of US dollars)**

**Country Corruption perception index ranking FDI inflow amount (in millions of US dollars)**

**Country Economic freedom index ranking FDI inflow amount (in millions of US dollars)**

**Country Rule of law index ranking FDI inflow amount (in millions of US dollars)**

179 n/a

Somalia 180 409

Congo, D.R. 124 1494 Afghanistan 123 139 Mauritania 122 71

Syria 178 n/a Yemen 177 −282

North Korea 180 N/A Cuba 178 2134 Eritrea 177 61 *Source: UNCTAD World Investment Report [7] and Heritage Foundation Economic Freedom Index [11].*

*Source: UNCTAD World Investment Report [7] and Transparency International [9].*

When doing business is difficult, FDI tends to be low. **Table 5** about the ease of doing business rankings and FDI inflows shows the amount of FDI attracted by

FDIs are poverty alleviation weapons. The benefits of FDIs have been consensually accepted to be vast and broad. The range goes from job creation, cluster

attracted by countries ranked at the bottom on economic freedom.

Somalia 190 409 Eritrea 189 61 Yemen 187 −282

countries ranked at the bottom on ease to do business.

*Source: UNCTAD World Investment Report [7] and Doing Business [8].*

**4. Negative externalities of FDD**

**6**

South Sudan

**Table 2.** *Year 2018.*

**Table 3.** *Year 2019.*

**Table 4.** *Year 2019.*

**Table 5.** *Year 2019.* creation, education enhancement, food improvement, infrastructure development, tourism recognition, technology transfer and commerce catalyst up to political stability and social peace.

FDI can also fill, first, the "investment gap" by providing the much-needed capital for domestic investment; secondly, the "foreign exchange gap" by providing foreign currency through initial investments and subsequent export earnings; and finally, the "tax revenue gap" by generating tax revenues through creation of additional economic activities [12].

The contrary is also true. FDIs are defined by control of a foreign entity of a business operation beyond the borders of origin. That control usually takes the form of ownership but it is not an exclusive trait to fulfill the goal. When control of the foreign operation ceases totally or partially by change, reduction or suppression of the activity or ownership a foreign direct divestment (FDD) can be deemed to have occurred [13].

FDD can be motivated by internal reasons. Those internal reasons can be intrinsic to the whole business undertaking or internal to the local operation. They include tactical ones, such as geographic location advantage or disadvantage, financial maneuvering, business structure, or limited resources as well as strategic ones such as market reach, competitors challenge, and product development [14].

FDDs can also be motivated by external reasons. A weak business climate where rules are not respected and predictable and where doing business is not efficient might the strongest determinant to FDD (**Figure 1**).

Thus, excessive corruption which makes costs, times and procedure outcomes unpredictable can be a deterrent of FDI. However, the evidence shows that efficiency, i.e., less costs, more benefits, is the determinant external factor of FDI. The opposite, absence of efficiency, i.e., more costs, less benefits, could be a determinant factor of FDD. Hence, a correlation between difficulty of doing business and low FDI is prevalent.

A relevant example on this point is Angola. Angola has worsened its ranking and scores in the Doing Business indicators. Two of the indicators, enforcing contracts and obtaining credit have worsened during the period lapsing from the year 2015. During that period the FDI inflow have gone from \$10,028 million to \$ − 5732 million in 2018 (UNCTAD World Investment Report, Doing Business).

With FDD the host countries can suffer significantly in economic, social, and political terms. A fleeing capital that has been significant in terms of GDP and that

**Figure 1.**

*The role of host country investment climate factors. Source: Borga et al. [15].*


### **Table 6.**

*Year 2019.*


**Table 7.**

*Year 2018.*

is not substituted with other capital makes locals lose jobs, makes local small businesses vanish, and brings about losses in fiscal income, among other consequences. More significantly, the impact in the host country can also have social repercussions such as riots, violence and unrest as well as political instability.

Countries with low FDI are usually exporters of migrants. **Table 6** about FDI inflows and number of refugees shows the amount of FDI attracted by countries with most outgoing refugees.

With lack of incentives to prosper economically countries with low FDI are also more unlikely to adopt environmental friendly policies. **Table 7** about FDI inflows and environmental performance index shows the amount of FDI attracted by countries with poor environmental performance.

Home countries are not necessarily the beneficiaries of FDD. The capital that flew away from a host country can go to another one. It might not be significant to impact in the GDP of the home country, nor to create more jobs, enhance the home country productivity or to gross up the home country's treasury. However, the global impact of massive FDDs can worsen the inequality, flows of refugees and global warming.

## **5. Remedies to FDD negative externalities**

FDIs pursue many purposes, one of which is profit seeking. Investors might still achieve that goal after a FDD has taken place and host countries might not necessarily face all the negative externalities of FDDs if certain global policies are implemented.

## **5.1 ESGF**

Setting up a global Environment Social and Governance Fund (ESGF) through a multilateral entity could mitigate the negative externalities of FDDs. The ESGF could endow with private capital, such as proceeds from FDD and/or open to all types of capital. The capital that is not invested in FDIs could still be beneficial

**9**

*Business Climate: When Weakness Means Foreign Direct Divestment*

to developing countries. Investors in search of profits could be benefitted, albeit without controlling the investment in a modality much more similar to portfolio

The ESGF will make impact investments in different types of international business opportunities that are environmentally friendly, socially beneficial, and well governed. Home countries could play a role suggesting or encouraging owners of the FDD returning capital to devote a portion of the capital to the ESGF perhaps under certain tax arrangements, such as tax benefits to be granted to investors who

The ESGF in turn could grant money to countries falling under certain economic category provided they fulfill certain objectives in environmental, social and governance policies. For example, if a country can increase its ranking in the rule of law index more than 10% every year for 2 years, the country can be entitled to participate in requests for grants from the ESGF. The grants will be disbursed on condition of maintaining certain conditions and developing programs devoted to

The global economic, social and political consequences of the COVID-19 pandemic are still to be seen. It might easily happen that FDDs will occur not as a consequence of weak business climates but because of a global economic recession, lack of demand, or irrelevance of supplies. The same externalities of FDDs could be

Universal Basic Income (UBI) has been widely recommended as a measure to alleviate the needs of the poor. UBI has received recent publicity as a possible remedy to alleviate the needs of many during the pandemic crisis. The rationale behind the UBI is that people under certain conditions will receive a fixed amount of money. Once spent the UBI is evaporated and there is no legal right to it. Bluntly,

A complementary concept might be useful: Sovereign Wealth Funds (SWF) with a more ambitious twist. SWFs are investment funds created and commonly owned by sovereign States to maximize the profits of their wealth usually but not necessarily yielding from commodities. Currently, there are more than 90 SWFs holding

SWFs have been highly profitable. For example, the Norway Government Pension Fund Global is the largest SWF, created in 1990 and currently holding more than \$1 trillion. It has generated an average annual return of 6% since 1998 [19]. Many SWFs have been created mainly for purposes different than direct social benefits to the citizens of the owner States, such as macroeconomic policies [20]. However, in general, people receive proceeds from SWFs investments directly or indirectly, even in seemingly citizens' remote circumstances as managing the

The Alaska Permanent Fund is an example of a SWF where there is a direct benefit to the citizens as returns are distributed through a citizens' dividend program under certain conditions. It was established in the Alaska Constitution in 1976 and managed by a state-owned corporation, the Alaska Permanent Fund Corporation (APFC). It is endowed from the proceeds of oil. It distributes its returns through a citizens' dividend program. The fund currently holds over \$66 billion in assets.

The negative externalities of FDDs will be more prevalent in the aftermath of the COVID-19 crisis. The impact of the global recession and reduction of the demand is likely to be reflected in massive FDD. Developing countries will suffer

*DOI: http://dx.doi.org/10.5772/intechopen.93291*

investments.

devote capital to the ESGF.

**5.2 From UBI to UWF**

suffered by most countries.

more \$8 trillion [18].

balance of payments [21].

It has paid up to \$2072 in dividends.

it is a donation by the government.

mitigating the externalities of FDDs.

to developing countries. Investors in search of profits could be benefitted, albeit without controlling the investment in a modality much more similar to portfolio investments.

The ESGF will make impact investments in different types of international business opportunities that are environmentally friendly, socially beneficial, and well governed. Home countries could play a role suggesting or encouraging owners of the FDD returning capital to devote a portion of the capital to the ESGF perhaps under certain tax arrangements, such as tax benefits to be granted to investors who devote capital to the ESGF.

The ESGF in turn could grant money to countries falling under certain economic category provided they fulfill certain objectives in environmental, social and governance policies. For example, if a country can increase its ranking in the rule of law index more than 10% every year for 2 years, the country can be entitled to participate in requests for grants from the ESGF. The grants will be disbursed on condition of maintaining certain conditions and developing programs devoted to mitigating the externalities of FDDs.

## **5.2 From UBI to UWF**

*Foreign Direct Investment Perspective through Foreign Direct Divestment*

*Source: UNCTAD World Investment Report [7] and World Vision [16].*

**Country FDI inflow amount (in millions of US dollars) Refugees** Syria N/A 5.6 million Afghanistan 139 2.7 million South Sudan N/A 2.3 million Myanmar 3554 1.1 million

is not substituted with other capital makes locals lose jobs, makes local small businesses vanish, and brings about losses in fiscal income, among other consequences. More significantly, the impact in the host country can also have social repercussions

**Country FDI inflow amount (in millions of US dollars) Environmental performance index**

Burundi 1 180 Bangladesh 3613 179 Congo, D.R. 1494 178

*Source: UNCTAD World Investment Report [7] and Environmental Performance Index [17].*

Countries with low FDI are usually exporters of migrants. **Table 6** about FDI inflows and number of refugees shows the amount of FDI attracted by countries

With lack of incentives to prosper economically countries with low FDI are also more unlikely to adopt environmental friendly policies. **Table 7** about FDI inflows and environmental performance index shows the amount of FDI attracted by

Home countries are not necessarily the beneficiaries of FDD. The capital that flew away from a host country can go to another one. It might not be significant to impact in the GDP of the home country, nor to create more jobs, enhance the home country productivity or to gross up the home country's treasury. However, the global impact of massive FDDs can worsen the inequality, flows of refugees and

FDIs pursue many purposes, one of which is profit seeking. Investors might still achieve that goal after a FDD has taken place and host countries might not necessarily face all the negative externalities of FDDs if certain global policies are

Setting up a global Environment Social and Governance Fund (ESGF) through a multilateral entity could mitigate the negative externalities of FDDs. The ESGF could endow with private capital, such as proceeds from FDD and/or open to all types of capital. The capital that is not invested in FDIs could still be beneficial

such as riots, violence and unrest as well as political instability.

countries with poor environmental performance.

**5. Remedies to FDD negative externalities**

with most outgoing refugees.

global warming.

**Table 6.** *Year 2019.*

**Table 7.** *Year 2018.*

implemented.

**5.1 ESGF**

**8**

The global economic, social and political consequences of the COVID-19 pandemic are still to be seen. It might easily happen that FDDs will occur not as a consequence of weak business climates but because of a global economic recession, lack of demand, or irrelevance of supplies. The same externalities of FDDs could be suffered by most countries.

Universal Basic Income (UBI) has been widely recommended as a measure to alleviate the needs of the poor. UBI has received recent publicity as a possible remedy to alleviate the needs of many during the pandemic crisis. The rationale behind the UBI is that people under certain conditions will receive a fixed amount of money. Once spent the UBI is evaporated and there is no legal right to it. Bluntly, it is a donation by the government.

A complementary concept might be useful: Sovereign Wealth Funds (SWF) with a more ambitious twist. SWFs are investment funds created and commonly owned by sovereign States to maximize the profits of their wealth usually but not necessarily yielding from commodities. Currently, there are more than 90 SWFs holding more \$8 trillion [18].

SWFs have been highly profitable. For example, the Norway Government Pension Fund Global is the largest SWF, created in 1990 and currently holding more than \$1 trillion. It has generated an average annual return of 6% since 1998 [19].

Many SWFs have been created mainly for purposes different than direct social benefits to the citizens of the owner States, such as macroeconomic policies [20]. However, in general, people receive proceeds from SWFs investments directly or indirectly, even in seemingly citizens' remote circumstances as managing the balance of payments [21].

The Alaska Permanent Fund is an example of a SWF where there is a direct benefit to the citizens as returns are distributed through a citizens' dividend program under certain conditions. It was established in the Alaska Constitution in 1976 and managed by a state-owned corporation, the Alaska Permanent Fund Corporation (APFC). It is endowed from the proceeds of oil. It distributes its returns through a citizens' dividend program. The fund currently holds over \$66 billion in assets. It has paid up to \$2072 in dividends.

The negative externalities of FDDs will be more prevalent in the aftermath of the COVID-19 crisis. The impact of the global recession and reduction of the demand is likely to be reflected in massive FDD. Developing countries will suffer significantly economically and socially at a minimum. The chaos of many developing countries struggling with basic needs can in turn deteriorate the business climates to further affect the flow of FDD.

Thus, inspired by the SWF, a Universal Wealth Fund (UWF or 3UF) could be established through multilateral arrangements. It could be set up to mitigate not only the effects of a surge of FDD but also the global economic and social damage post COVID-19.

The 3UF could be endowed by countries, by corporations and by NGOs. The corporations could make their contributions directly from the capital of the FDD or as some kind of tax planning tool or even as some kind of fine or penalty mitigation when they are punished or fined by multilateral entities such as the European Union.

Proceeds could be distributed directly to countries under condition that they are either invested in social projects and/or turn to the citizens in form of dividends which could be structured in terms of legal rights to which they are entitled. As opposed to UBI which are discretionary, rights to 3UF dividends can benefit large scale capitalization, financial literacy, and governance of the 3UF.

Be it as it may, the disadvantages of FDD to host developing countries could be mitigated. It was important before; it is more important in the world after the COVID-19 crisis.

## **6. Conclusions**

FDIs are important tools for economic development. FDIs entail capital transfer to host countries which sometimes starve of funding to provide for the wellbeing of their citizens. Through FDIs many developing countries can ameliorate the impact of the poverty in the social and economic realms. Jobs are created, local business emerge, more public revenues can be collected, physical infrastructure is enhanced, human infrastructure is benefited, and the host country's branding can emerge as a favorable place to invest, among others.

The FDI process is complex as is the decision to invest. Many factors play a determinant role in FDIs. Internal and external factors of different nature can push the capital inside or outside the host country. Among the external factors, business climate plays a crucial role. The combination of external factors that is commonly known as business climate relates to all the host country's conditions that make the business easy to operate, diminish the costs and sets up in advance the rules under which the business will function. Unpredictability of rules, costs, and processes are usually contrary to FDIs. However, even in conditions of difficult, expensive, and lengthy conditions to do business, corruption, and weak rule of law, FDIs flow, albeit somehow diminished.

Countries that receive the most FDIs are ranked above average in the Doing Business indicator, Corruption Perception index and Rule of Law index. On the contrary the countries that are badly ranked in those indexes have attracted a lower amount of FDI.

The empirical evidence shows that in the absence of strong business climate the host countries are more prone to attract less FDI. That is the case with the Doing Business indicator, the Corruption Perception indicator, and the Rule of Law indicator.

It can be concluded that excessive corruption which makes costs, times, and procedure outcomes unpredictable can be a deterrent of FDI. However, the evidence shows that efficiency, i.e., less costs, more benefits, is the determinant external factor of FDI. The opposite, low efficiency, could be a determinant factor of FDD.

**11**

**Author details**

Omar E. García-Bolívar

BG Consulting, Washington, D.C., USA

provided the original work is properly cited.

\*Address all correspondence to: omargarcia@bg-consulting.com

© 2020 The Author(s). Licensee IntechOpen. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/ by/3.0), which permits unrestricted use, distribution, and reproduction in any medium,

*Business Climate: When Weakness Means Foreign Direct Divestment*

more costs, less benefits, could be a determinant factor of FDD.

under the form of migrants and deteriorated environment.

The correlation between weak business climates and FDD is noticeable although not determinant. As FDD decisions are dependent on internal factors of the investor as well, a conclusion on a direct relation between weak business climates and FDD cannot be reached. However, the evidence shows that absence of efficiency, i.e.,

The impact of FDD is somehow the reverse of the benefits of FDI for the host countries. FDDs can also bring about negative externalities to the home countries

At a global level, investment funds can play a role to mitigate the impact of FDDs. A multilateral fund devoted to environmental and social projects properly governed can be established in a way that appeals the outflow capital resulting from the FDD. The profits could in turn be offered to countries that satisfy certain requirements and conditioned to be invested in projects devoted to reducing poverty or other FDD negative externalities. Similarly, an unprecedented universal Sovereign Wealth Fund could also mitigate the negative impact of massive capital mobilization from poor counties. In the seemingly critical times that will follow the COVID-19 pandemic, global policy makers need to be creative in large scale to long

The author has avoided listing some countries in the rankings due to professional

*DOI: http://dx.doi.org/10.5772/intechopen.93291*

term sustainable solutions for all.

**Conflict of interest**

conflicts of interests.

## *Business Climate: When Weakness Means Foreign Direct Divestment DOI: http://dx.doi.org/10.5772/intechopen.93291*

The correlation between weak business climates and FDD is noticeable although not determinant. As FDD decisions are dependent on internal factors of the investor as well, a conclusion on a direct relation between weak business climates and FDD cannot be reached. However, the evidence shows that absence of efficiency, i.e., more costs, less benefits, could be a determinant factor of FDD.

The impact of FDD is somehow the reverse of the benefits of FDI for the host countries. FDDs can also bring about negative externalities to the home countries under the form of migrants and deteriorated environment.

At a global level, investment funds can play a role to mitigate the impact of FDDs. A multilateral fund devoted to environmental and social projects properly governed can be established in a way that appeals the outflow capital resulting from the FDD. The profits could in turn be offered to countries that satisfy certain requirements and conditioned to be invested in projects devoted to reducing poverty or other FDD negative externalities. Similarly, an unprecedented universal Sovereign Wealth Fund could also mitigate the negative impact of massive capital mobilization from poor counties. In the seemingly critical times that will follow the COVID-19 pandemic, global policy makers need to be creative in large scale to long term sustainable solutions for all.

## **Conflict of interest**

*Foreign Direct Investment Perspective through Foreign Direct Divestment*

climates to further affect the flow of FDD.

post COVID-19.

European Union.

COVID-19 crisis.

**6. Conclusions**

favorable place to invest, among others.

albeit somehow diminished.

amount of FDI.

indicator.

significantly economically and socially at a minimum. The chaos of many developing countries struggling with basic needs can in turn deteriorate the business

Thus, inspired by the SWF, a Universal Wealth Fund (UWF or 3UF) could be established through multilateral arrangements. It could be set up to mitigate not only the effects of a surge of FDD but also the global economic and social damage

The 3UF could be endowed by countries, by corporations and by NGOs. The corporations could make their contributions directly from the capital of the FDD or as some kind of tax planning tool or even as some kind of fine or penalty mitigation when they are punished or fined by multilateral entities such as the

Proceeds could be distributed directly to countries under condition that they are either invested in social projects and/or turn to the citizens in form of dividends which could be structured in terms of legal rights to which they are entitled. As opposed to UBI which are discretionary, rights to 3UF dividends can benefit large

Be it as it may, the disadvantages of FDD to host developing countries could be mitigated. It was important before; it is more important in the world after the

FDIs are important tools for economic development. FDIs entail capital transfer to host countries which sometimes starve of funding to provide for the wellbeing of their citizens. Through FDIs many developing countries can ameliorate the impact of the poverty in the social and economic realms. Jobs are created, local business emerge, more public revenues can be collected, physical infrastructure is enhanced, human infrastructure is benefited, and the host country's branding can emerge as a

The FDI process is complex as is the decision to invest. Many factors play a determinant role in FDIs. Internal and external factors of different nature can push the capital inside or outside the host country. Among the external factors, business climate plays a crucial role. The combination of external factors that is commonly known as business climate relates to all the host country's conditions that make the business easy to operate, diminish the costs and sets up in advance the rules under which the business will function. Unpredictability of rules, costs, and processes are usually contrary to FDIs. However, even in conditions of difficult, expensive, and lengthy conditions to do business, corruption, and weak rule of law, FDIs flow,

Countries that receive the most FDIs are ranked above average in the Doing Business indicator, Corruption Perception index and Rule of Law index. On the contrary the countries that are badly ranked in those indexes have attracted a lower

The empirical evidence shows that in the absence of strong business climate the host countries are more prone to attract less FDI. That is the case with the Doing Business indicator, the Corruption Perception indicator, and the Rule of Law

It can be concluded that excessive corruption which makes costs, times, and procedure outcomes unpredictable can be a deterrent of FDI. However, the evidence shows that efficiency, i.e., less costs, more benefits, is the determinant external factor of FDI. The opposite, low efficiency, could be a determinant factor of FDD.

scale capitalization, financial literacy, and governance of the 3UF.

**10**

The author has avoided listing some countries in the rankings due to professional conflicts of interests.

## **Author details**

Omar E. García-Bolívar BG Consulting, Washington, D.C., USA

\*Address all correspondence to: omargarcia@bg-consulting.com

© 2020 The Author(s). Licensee IntechOpen. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/ by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

## **References**

[1] International Monetary Fund (IMF). Balance of Payments and International Investment Position Manual 100. 6th ed. 2009. Available from: https://www. imf.org/external/pubs/ft/bop/2007/pdf/ bpm6.pdf

[2] Organization for Economic Co-operation and Development (OECD). Divestments by Multinational Enterprises. 2020. Available from: https://www.oecd.org/investment/ Divestments-by-multinationalenterprises-Investment-Policy-Insights. pdf

[3] Dilip M, Debraj R. Readings in the Theory of Economic Development. 1999. New York University. Available from: https://www.econ.nyu.edu/user/ debraj/Papers/DevReaderIntro.pdf

[4] Liesl Eathington, Aaron L. Todd, Dave Swenson. Weathering the Storm of Business Climate Rankings. 2005

[5] Hahn HJ, Gramlich L. Foreign commerce and investment in market economy countries. International Enclyclopaedia of Comparative Law. 1989;**7**(22):58-96

[6] Fry EH. The Politics of International Investment. New York: McGraw-Hill; 1983. p. 37

[7] World Investment Report. 2018/2019/2020. United Nations Conference for Trade and Development (UNCTAD). Available from: https:// unctad.org/en/Pages/DIAE/ World%20 Investment%20Report/ World\_ Investment\_Report.aspx

[8] Doing Business Indicator. 2015/2016/2017/ 2018/2019. World Bank. Available from: https://www. doingbusiness.org/en/doingbusiness

[9] Transparency international. Corruption Perception Index, 2019. 2019. Available from: https://www. transparency.org/cpi2019

[10] World Justice Project. Rule of Law Index, 2019. 2020. Available from: https://www.worldjusticeproject.org/ rule-of-law-index/global/2019/

[11] Economic Freedom Index. 2020. Heritage Foundation. Available from: https://www.heritage.org/index/

[12] Smith S. Restrictive policy toward multinationals: Argentina and Korea. In: Case Studies in Economic Development. 2nd ed. 1997. pp. 178-189

[13] Jagersma P, van Gorp D. International divestments: An empirical perspective. Journal of General Management. 2003;**29**(1):47-67

[14] Zak K. Foreign Direct Divestment-Concept, Determinants, Major Trends: Poland in Comparison to Selected Regions in 2010-2016. 2016

[15] Borga M, Pilar IF, Monika S. Divestments by Multinational Enterprises, OECD Investment Policy Insights. Organization for Economic Co-operation and Development; 2020. Available from: https://www.oecd. org/investment/Divestments-bymultinational-enterprises-Investment-Policy-Insights.pdf

[16] Top countries refugees 2019. World Vision. Available from: https://www. worldvision.org/ refugees-news-stories/ forced-to-flee-top-countries-refugeescoming-from

[17] Environmental Performance Index. 2018. Yale University. Available from: https:// epi.envirocenter.yale.edu/epitopline?country&order=field\_epi\_rank\_ new&sort=asc

[18] Sovereign Wealth Fund Ranking. Sovereign Wealth Fund (SWF)

**13**

*Business Climate: When Weakness Means Foreign Direct Divestment*

*DOI: http://dx.doi.org/10.5772/intechopen.93291*

Institute; 2019. Available from: https:// www.swfinstitute.org/ fund-rankings/

[20] Cummine A. Citizens' Wealth: Why (and How) Sovereign Funds Should be Managed by the People for the People. New Haven and London: Yale University

[21] Lansley S. A Sharing Economy: How Social Wealth Funds Would Tackle Inequality and Help Balance the Books.

Bristol: Policy Press; 2016

sovereign-wealth-fund

annual-report-2017/

Press; 2016

[19] Norges Bank Investment Management. Government Pension Fund Global: Annual Report 2017. 2018. Available from: https://www. nbim.no/en/publications/reports/2017/ *Business Climate: When Weakness Means Foreign Direct Divestment DOI: http://dx.doi.org/10.5772/intechopen.93291*

Institute; 2019. Available from: https:// www.swfinstitute.org/ fund-rankings/ sovereign-wealth-fund

[19] Norges Bank Investment Management. Government Pension Fund Global: Annual Report 2017. 2018. Available from: https://www. nbim.no/en/publications/reports/2017/ annual-report-2017/

[20] Cummine A. Citizens' Wealth: Why (and How) Sovereign Funds Should be Managed by the People for the People. New Haven and London: Yale University Press; 2016

[21] Lansley S. A Sharing Economy: How Social Wealth Funds Would Tackle Inequality and Help Balance the Books. Bristol: Policy Press; 2016

**12**

*Foreign Direct Investment Perspective through Foreign Direct Divestment*

2019. Available from: https://www.

[10] World Justice Project. Rule of Law Index, 2019. 2020. Available from: https://www.worldjusticeproject.org/ rule-of-law-index/global/2019/

[11] Economic Freedom Index. 2020. Heritage Foundation. Available from: https://www.heritage.org/index/

[12] Smith S. Restrictive policy toward multinationals: Argentina and Korea. In: Case Studies in Economic Development.

International divestments: An empirical

[14] Zak K. Foreign Direct Divestment-Concept, Determinants, Major Trends: Poland in Comparison to Selected Regions in 2010-2016. 2016

transparency.org/cpi2019

2nd ed. 1997. pp. 178-189

[13] Jagersma P, van Gorp D.

perspective. Journal of General Management. 2003;**29**(1):47-67

[15] Borga M, Pilar IF, Monika S. Divestments by Multinational

Policy-Insights.pdf

coming-from

new&sort=asc

Enterprises, OECD Investment Policy Insights. Organization for Economic Co-operation and Development; 2020. Available from: https://www.oecd. org/investment/Divestments-bymultinational-enterprises-Investment-

[16] Top countries refugees 2019. World Vision. Available from: https://www. worldvision.org/ refugees-news-stories/ forced-to-flee-top-countries-refugees-

[17] Environmental Performance Index. 2018. Yale University. Available from: https:// epi.envirocenter.yale.edu/epitopline?country&order=field\_epi\_rank\_

[18] Sovereign Wealth Fund Ranking. Sovereign Wealth Fund (SWF)

[1] International Monetary Fund (IMF). Balance of Payments and International Investment Position Manual 100. 6th ed. 2009. Available from: https://www. imf.org/external/pubs/ft/bop/2007/pdf/

(OECD). Divestments by Multinational Enterprises. 2020. Available from: https://www.oecd.org/investment/ Divestments-by-multinational-

enterprises-Investment-Policy-Insights.

[3] Dilip M, Debraj R. Readings in the Theory of Economic Development. 1999. New York University. Available from: https://www.econ.nyu.edu/user/ debraj/Papers/DevReaderIntro.pdf

[4] Liesl Eathington, Aaron L. Todd, Dave Swenson. Weathering the Storm of

Business Climate Rankings. 2005

[5] Hahn HJ, Gramlich L. Foreign commerce and investment in market economy countries. International Enclyclopaedia of Comparative Law.

[6] Fry EH. The Politics of International Investment. New York: McGraw-Hill;

[7] World Investment Report. 2018/2019/2020. United Nations Conference for Trade and Development (UNCTAD). Available from: https:// unctad.org/en/Pages/DIAE/ World%20

Investment%20Report/ World\_ Investment\_Report.aspx

[8] Doing Business Indicator. 2015/2016/2017/ 2018/2019. World Bank. Available from: https://www. doingbusiness.org/en/doingbusiness

[9] Transparency international. Corruption Perception Index, 2019.

1989;**7**(22):58-96

1983. p. 37

[2] Organization for Economic Co-operation and Development

**References**

bpm6.pdf

pdf

**15**

**Chapter 2**

**Abstract**

countries.

**1. Introduction**

services and infrastructure [5–9].

What Has Happened with C-B

Based on 2005 – 2015 Study

*Rasto Ovin and Anita Macek*

M&A Acceptance? A Follow Up

Especially since 1990s when capital flows liberalization took their intensive course, also the literature on foreign direct investment and respectfully cross-border mergers and acquisitions grew. On the other hand, although it was accompanying these processes, foreign divestment attracted much less attention. Speculating about the reasons for such situation, one could stress that following the nature of the balance of payments logic foreign direct divestment was not expected. Nevertheless, these processes were present. This chapter addresses some of the most important impacts of foreign direct investment that had been a subject to inverse processes later. The authors try to confront the drivers of these processes and search for different patterns obviously often deriving outside economic rationale from the position of a developed market economy. Using their expertize the authors connected concrete findings of their study with possible drivers of divestment. According to the finding the common nominator was mixed success with the transition in transition

**Keywords:** foreign direct investment, foreign direct divestment, cross-border

There are several studies showing the impact of foreign direct investment (FDI) on domestic economies. Typically, studies find that inward FDI are supporting several areas of basic importance for host economy growth. Different authors put focus on different areas. First there is FDI support of access to modern technology and financial sector development - references [1, 2]. More microeconomic oriented studies found that FDI typically promotes productivity growth of an acquired firm - references [3, 4]. Macroeconomic oriented studies on the other hand bring forth FDI positive effects for the growth potential of the host economy as well as for knowledge transfer, growing engagement of local suppliers in supply chains, additional tax revenues and the better use of local

Bringing in more literature sources will provide results referring to positive effects of FDI for technology development, savings, investments and economic development and growth [10]. Furthermore FDI should promote openness to changes, improve leadership and new advanced technology [11]. According to [12]

mergers and acquisitions, economic effects, host economy

## **Chapter 2**

## What Has Happened with C-B M&A Acceptance? A Follow Up Based on 2005 – 2015 Study

*Rasto Ovin and Anita Macek*

## **Abstract**

Especially since 1990s when capital flows liberalization took their intensive course, also the literature on foreign direct investment and respectfully cross-border mergers and acquisitions grew. On the other hand, although it was accompanying these processes, foreign divestment attracted much less attention. Speculating about the reasons for such situation, one could stress that following the nature of the balance of payments logic foreign direct divestment was not expected. Nevertheless, these processes were present. This chapter addresses some of the most important impacts of foreign direct investment that had been a subject to inverse processes later. The authors try to confront the drivers of these processes and search for different patterns obviously often deriving outside economic rationale from the position of a developed market economy. Using their expertize the authors connected concrete findings of their study with possible drivers of divestment. According to the finding the common nominator was mixed success with the transition in transition countries.

**Keywords:** foreign direct investment, foreign direct divestment, cross-border mergers and acquisitions, economic effects, host economy

## **1. Introduction**

There are several studies showing the impact of foreign direct investment (FDI) on domestic economies. Typically, studies find that inward FDI are supporting several areas of basic importance for host economy growth. Different authors put focus on different areas. First there is FDI support of access to modern technology and financial sector development - references [1, 2]. More microeconomic oriented studies found that FDI typically promotes productivity growth of an acquired firm - references [3, 4]. Macroeconomic oriented studies on the other hand bring forth FDI positive effects for the growth potential of the host economy as well as for knowledge transfer, growing engagement of local suppliers in supply chains, additional tax revenues and the better use of local services and infrastructure [5–9].

Bringing in more literature sources will provide results referring to positive effects of FDI for technology development, savings, investments and economic development and growth [10]. Furthermore FDI should promote openness to changes, improve leadership and new advanced technology [11]. According to [12]

## *Foreign Direct Investment Perspective through Foreign Direct Divestment*

FDI is exposed not just as a tool for increasing productivity, but also for fostering human capital development and strengthening corporate institutions.

FDI can also reduce unemployment, increase engagement of local companies in supplier and subcontractor networks, support development strategies of individual sectors, increase development potential of the economy, and develop managerial knowledge skills [13–15].

However, it is also proven that the benefits of FDI are not self-evident and that the economic effect of identical FDI can bring very different results in different countries as well as industries [16–18]. Relevant for the topic of this chapter is that proved that positive effects of FDI are not resulting in an equal effect in all branches and industries, with the same frequency and intensity. As presented by [9] the positive effects of FDI depend on the readiness of the host country to openness, and appear only after a certain period.

It is proved that the benefits from FDI increase in an open investment environment. In countries with macroeconomic stability, democratic investment regime, privatization, active competition policies, and deregulation.

However, with unfavorable conditions negative effects of FDI can occur. Reference [19] proved that FDI caused the reduction of productivity in the host country. Further FDI can reduce employment, increase concentration in the domestic market and even more it can cause the closing of domestic companies.

According to [9] FDI can lead to shrinking of the domestic stock market, anti-competitive reactions of the acquired firms, or even elimination of the domestic competition in the home market. [15] proved that one of the main threat of FDI during the last years is related to the fear of losing the national sovereignty and autonomy of the host country and consequently losing control of strategic industries.

Especially since 1990s when capital flows liberalization took their intensive course, also the literature on FDI and respectfully cross-border mergers and acquisitions (C-B M&A) grew. Although it was accompanying these processes, on the other hand, divestment attracted much less attention. Speculating about the reason for such situation, one could stress that following the nature of balance of payments logic the FDI to take an inverse course was not expected. With the theory arising already in 1980s [16], these processes were present and have been gaining on importance in later decades [17].

As foreign divestment, authors will consider reduction of assets of foreign investor in the receiving country. Authors will not discuss foreign divestment on the basis of management decisions such as changing or concentrating to core business of majority owner, change in the market positions or instability in the host country, poor performance and management, but will focus rather on vague field of general FDI acceptance in a host economy.

Authors will try to find the position of foreign divestment by the help of the data acquired by study on economic effects of C-B M&A carried out by the authors in the period between 2005 and 2015. Having certain information and experience on economies of Western Balkans authors will try to synthesize information of general attitude towards market economy and democratic development.

In this chapter, authors first summarize the results of their studies in the period between 2002 and 2015 proving predominantly positive economic effects of C-B M&A. Second part of the chapter brings the facts discussed in the literature, showing that the important part of FDI had been also subject to inverse processes later. Authors try to confront the drivers of these processes and search for different patterns obviously often deriving outside economic rationale from the position of a developed market economy.

**17**

and growth.

*What Has Happened with C-B M&A Acceptance? A Follow Up Based on 2005 – 2015 Study*

support the receiving country technological improvement and exports.

Basing on the theoretical paradigm of liberal concept of the balance of payments it seemed plausible that the study measuring economic effect of this form of FDI would prove the positive acceptance and sentiments of stakeholders in receiving countries. The result of authors' studies carried out in the period between 2005 and 2015 show that C-B M&A, despite some reservations in the literature [18–21],

Nevertheless, at the same time also processes of divestment were taking place. According to [22] multinational enterprises divested one of every five foreign-

In the following text authors will discuss the possible reasons for divestment and will try to locate the factors that were not taken into account with authors´ study

In the last quarter of 2020 new developments in the EU saw Poland and Hungary opposing the present EU Commission threat that due to issues with (un)democratic processes in these countries (with Slovenia under present government also checking for feasibility of such course) they could be expelled from a massive economic help from the EU. This simply showed that the countries that would be beneficiaries of processes of widening of western-type democracy might have changed their view after being accepted in this noble community for which they longed for decades. No one could conclude that with pledging for acceptance in the EU the politicians as well as opinion creators were rather thinking on higher wages, access to western goods and free movement (until it suits them). Their perspective seemed to be biased towards higher standard of living without endeavor to catch up with their missing or interrupted path to a modern democratic society. The same is actually valid for the process of liberalization of capital imports. Rather than doing their homework with institutional setting and economic environment (financial markets, meritocracy, public finance transparency and accountability) which could assure FDI best contribution to the incoming countries economy, they seemingly expected (were allegedly promised) manna from heaven and are now claiming that

If we turn the side of the medal, we could probably conclude that there is another factor preventing host countries to be more effective with adjustment of their economic environment to the reality of liberal capital flows. The conditions in which they are supposed to open and develop their economies differ very much from the conditions that today's leading economic powers had in the time of their positioning as such. It is not difficult to conclude that the present domination of western economic model and technology was actually achieved through all kinds of their interventionism in favor of domestic economies. These were the times following first industrial revolution. Only when established as leading economies they became promotors of trade and capital flows liberalization. They are actually doing their best to impose liberal order to those, which would surely benefit from certain interventionism. The problem is that due to arrears in their (democratic and institutional) development they are not in position to carry out such policies against foreign competition without the risk of being expelled from the international trade community facing the negative consequences for their economic development

Foreign divestment must therefore be seen as a sign that with international integration and globalization also process of international economic disintegration is taking course. Opposing the dissolvent of their culture and tradition, the follower countries (countries not in first line of systemic leaders of global technology

*DOI: http://dx.doi.org/10.5772/intechopen.95569*

owned affiliates over this period of time.

it was rather Dans' fake gifts.

that have proved drivers of divestment sentiment.

**2. Why it happened?**

*What Has Happened with C-B M&A Acceptance? A Follow Up Based on 2005 – 2015 Study DOI: http://dx.doi.org/10.5772/intechopen.95569*

## **2. Why it happened?**

*Foreign Direct Investment Perspective through Foreign Direct Divestment*

privatization, active competition policies, and deregulation.

knowledge skills [13–15].

industries.

appear only after a certain period.

importance in later decades [17].

FDI acceptance in a host economy.

developed market economy.

FDI is exposed not just as a tool for increasing productivity, but also for fostering

FDI can also reduce unemployment, increase engagement of local companies in supplier and subcontractor networks, support development strategies of individual sectors, increase development potential of the economy, and develop managerial

However, it is also proven that the benefits of FDI are not self-evident and that the economic effect of identical FDI can bring very different results in different countries as well as industries [16–18]. Relevant for the topic of this chapter is that proved that positive effects of FDI are not resulting in an equal effect in all branches and industries, with the same frequency and intensity. As presented by [9] the positive effects of FDI depend on the readiness of the host country to openness, and

It is proved that the benefits from FDI increase in an open investment environment. In countries with macroeconomic stability, democratic investment regime,

However, with unfavorable conditions negative effects of FDI can occur. Reference [19] proved that FDI caused the reduction of productivity in the host country. Further FDI can reduce employment, increase concentration in the domestic market and even more it can cause the closing of domestic companies. According to [9] FDI can lead to shrinking of the domestic stock market, anti-competitive reactions of the acquired firms, or even elimination of the domestic competition in the home market. [15] proved that one of the main threat of FDI during the last years is related to the fear of losing the national sovereignty and autonomy of the host country and consequently losing control of strategic

Especially since 1990s when capital flows liberalization took their intensive course, also the literature on FDI and respectfully cross-border mergers and acquisitions (C-B M&A) grew. Although it was accompanying these processes, on the other hand, divestment attracted much less attention. Speculating about the reason for such situation, one could stress that following the nature of balance of payments logic the FDI to take an inverse course was not expected. With the theory arising already in 1980s [16], these processes were present and have been gaining on

As foreign divestment, authors will consider reduction of assets of foreign investor in the receiving country. Authors will not discuss foreign divestment on the basis of management decisions such as changing or concentrating to core business of majority owner, change in the market positions or instability in the host country, poor performance and management, but will focus rather on vague field of general

Authors will try to find the position of foreign divestment by the help of the data acquired by study on economic effects of C-B M&A carried out by the authors in the period between 2005 and 2015. Having certain information and experience on economies of Western Balkans authors will try to synthesize information of general

In this chapter, authors first summarize the results of their studies in the period between 2002 and 2015 proving predominantly positive economic effects of C-B M&A. Second part of the chapter brings the facts discussed in the literature, showing that the important part of FDI had been also subject to inverse processes later. Authors try to confront the drivers of these processes and search for different patterns obviously often deriving outside economic rationale from the position of a

attitude towards market economy and democratic development.

human capital development and strengthening corporate institutions.

**16**

Basing on the theoretical paradigm of liberal concept of the balance of payments it seemed plausible that the study measuring economic effect of this form of FDI would prove the positive acceptance and sentiments of stakeholders in receiving countries. The result of authors' studies carried out in the period between 2005 and 2015 show that C-B M&A, despite some reservations in the literature [18–21], support the receiving country technological improvement and exports.

Nevertheless, at the same time also processes of divestment were taking place. According to [22] multinational enterprises divested one of every five foreignowned affiliates over this period of time.

In the following text authors will discuss the possible reasons for divestment and will try to locate the factors that were not taken into account with authors´ study that have proved drivers of divestment sentiment.

In the last quarter of 2020 new developments in the EU saw Poland and Hungary opposing the present EU Commission threat that due to issues with (un)democratic processes in these countries (with Slovenia under present government also checking for feasibility of such course) they could be expelled from a massive economic help from the EU. This simply showed that the countries that would be beneficiaries of processes of widening of western-type democracy might have changed their view after being accepted in this noble community for which they longed for decades. No one could conclude that with pledging for acceptance in the EU the politicians as well as opinion creators were rather thinking on higher wages, access to western goods and free movement (until it suits them). Their perspective seemed to be biased towards higher standard of living without endeavor to catch up with their missing or interrupted path to a modern democratic society. The same is actually valid for the process of liberalization of capital imports. Rather than doing their homework with institutional setting and economic environment (financial markets, meritocracy, public finance transparency and accountability) which could assure FDI best contribution to the incoming countries economy, they seemingly expected (were allegedly promised) manna from heaven and are now claiming that it was rather Dans' fake gifts.

If we turn the side of the medal, we could probably conclude that there is another factor preventing host countries to be more effective with adjustment of their economic environment to the reality of liberal capital flows. The conditions in which they are supposed to open and develop their economies differ very much from the conditions that today's leading economic powers had in the time of their positioning as such. It is not difficult to conclude that the present domination of western economic model and technology was actually achieved through all kinds of their interventionism in favor of domestic economies. These were the times following first industrial revolution. Only when established as leading economies they became promotors of trade and capital flows liberalization. They are actually doing their best to impose liberal order to those, which would surely benefit from certain interventionism. The problem is that due to arrears in their (democratic and institutional) development they are not in position to carry out such policies against foreign competition without the risk of being expelled from the international trade community facing the negative consequences for their economic development and growth.

Foreign divestment must therefore be seen as a sign that with international integration and globalization also process of international economic disintegration is taking course. Opposing the dissolvent of their culture and tradition, the follower countries (countries not in first line of systemic leaders of global technology

progress) no doubt have support of domestic electoral body. The solution is surely not to be find in the present economic and international co-operation model.

It needs no special proof, that "Asian tigers" have taken a different path in response to liberal capitalism. According to [23] the list of countries with highest average intelligence quotient is topped by Singapore, China, Hong Kong, South Korea and Taiwan. Being on the top by the (unpopular) criteria of intelligence quotient these societies under democratic or less democratic environments obviously succeeded with adjusting of their cultural model to the mainstream dictated by western industrial countries. Up to now, nothing else could be said apart from that, that they supply a clear proof that in favorable conditions FDI supports host country economic growth, employment, technology improvement and international competitiveness.

## **3. The facts deriving from author's studies**

As stressed above authors base the findings on the results of their study in the period between 2005 and 2015, researching European economies that were divided in developed and transition countries and separately the ones of Slovenia and Serbia.

In the research of European economies in total 53 answers from developed countries and 38 from transition countries were analyzed. As developed countries old EU members before 2004 EU enlargement, Island, Norway and Switzerland were considered. Although there are considerable differences among them, these countries have been experiencing western type of democracy, private ownership and market economy. They are: Austria, Belgium, Cyprus, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Island, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and UK. On the other side as transition countries considered were European countries, who after World War II shared state ownership, mono-party system and central planning. Authors presupposed that these heritages should define a different need for privatization, to replace obsolete capacities in manufacturing and to develop markets and hierarchies typical for a market economy – all being normal consequences of inward C-B M&As. The countries representing this group were: Belarus, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Russia, Slovakia, Slovenia, and Serbia and Montenegro.

The results pointing to possible sentiments for foreign divestment on the side of receiving countries are stressed below.

We start with receiving countries motivation for attracting C-B M&A.

As shown in the **Table 1** the most important motives for attracting C-B M&A were the access to new markets, followed by the transition process, know-how transfer and technology improvements. External pressure on domestic policies as well as C-B M&A as a support for a better strategy of industry development did not attract much attention in relation to the motives of C-B M&A.

The attitude of expanding national economies, compared to transitional economies, where capital imports have the function of repairing domestic structural disproportions is shown with giving the higher importance to access to new markets in developed countries compared with the ranking in transition countries.

National competitiveness and the importance of development local management skills, have been considered more important motive for attracting C-B M&A in transition countries than in developed countries because the situation of catching up in this field is logically more present in transition countries.

**19**

*What Has Happened with C-B M&A Acceptance? A Follow Up Based on 2005 – 2015 Study*

**Motivation factor Developed countries Transition countries** External pressure on domestic politics 5,82% 7,84% Development of local management skills 4,58% 7,84% Lack of strategy for certain industries development 6,87% 7,84% Part of transition process 17,46% 15,69% Access to new market 23,50% 16,67% Technology improvement 13,74% 12,75% Increase of national competitiveness 12,00% 12,00% Know-how 16,03% 14,71%

Answers also show that technology improvement is important motive for attracting C-B M&A in all countries. While in transition countries technology improvement closes the gap towards developed countries, in developed countries it

Being less motivated for entrance of foreign markets transition countries typically demonstrate themselves as closed economies in the period before the start of 1990s. Lagging behind developed countries transition countries surprisingly demonstrate that they are not as they should be convinced that the C-B M&A are also about the transition from closed economy into an open market economy.

One would also expect that meeting the western standards through C-B M&A would represent higher priority to execute external pressure on domestic politics to

Authors also analyzed possible threats of C-B M&A for domestic economies.

As it can be seen from the **Table 2** shrinking of domestic stock market was assessed as the lowest threat of C-B M&A in all receiving countries, while

crowding-out of domestic industries was the highest threat for C-B M&A receiving

The **Table 2** also shows that apart from 'crowding-out of domestic companies' where there was a relatively small difference between both groups of countries, other answers show quite different perspectives when assessing C-B M&A threats. The risk of reduction in employment and decrease of competition in the home market were considered essentially larger threats in developed countries than in transition countries. Such sentiments could derive from conviction, which may be the ground for the real policy of preventing takeover bids in European developed countries: takeovers of 'national champions' may cause destabilization of labour markets. The problem of unemployment reduction because of C-B M&A is present in transition countries too but in a smaller extent, probably because C-B M&A have established themselves as one of the tools of privatization and economic restructur-

However, in transition countries more focus is given on low pricing of sold assets and undermining of the domestic economic development strategy. These two threats received more attention in transition countries because of the huge restructuring that C-B M&A cause in this environment endangers the last positive illusions of the domestic economic development model and 'national champions' that survived the transitional process. And there is no doubt, that when they are

is basically there for consolidation of strategic industries.

*Grounds for countries' motivation when attracting C-B M&A.*

accomplish transition processes in transition countries.

Results are presented in the **Table 2**.

ing, which must take place anyway.

countries.

*Source: [24].*

**Table 1.**

*DOI: http://dx.doi.org/10.5772/intechopen.95569*

*What Has Happened with C-B M&A Acceptance? A Follow Up Based on 2005 – 2015 Study DOI: http://dx.doi.org/10.5772/intechopen.95569*


**Table 1.**

*Foreign Direct Investment Perspective through Foreign Direct Divestment*

tional competitiveness.

Serbia.

**3. The facts deriving from author's studies**

Slovakia, Slovenia, and Serbia and Montenegro.

receiving countries are stressed below.

progress) no doubt have support of domestic electoral body. The solution is surely not to be find in the present economic and international co-operation model. It needs no special proof, that "Asian tigers" have taken a different path in response to liberal capitalism. According to [23] the list of countries with highest average intelligence quotient is topped by Singapore, China, Hong Kong, South Korea and Taiwan. Being on the top by the (unpopular) criteria of intelligence quotient these societies under democratic or less democratic environments obviously succeeded with adjusting of their cultural model to the mainstream dictated by western industrial countries. Up to now, nothing else could be said apart from that, that they supply a clear proof that in favorable conditions FDI supports host country economic growth, employment, technology improvement and interna-

As stressed above authors base the findings on the results of their study in the period between 2005 and 2015, researching European economies that were divided in developed and transition countries and separately the ones of Slovenia and

In the research of European economies in total 53 answers from developed countries and 38 from transition countries were analyzed. As developed countries old EU members before 2004 EU enlargement, Island, Norway and Switzerland were considered. Although there are considerable differences among them, these countries have been experiencing western type of democracy, private ownership and market economy. They are: Austria, Belgium, Cyprus, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Island, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and UK. On the other side as transition countries considered were European countries, who after World War II shared state ownership, mono-party system and central planning. Authors presupposed that these heritages should define a different need for privatization, to replace obsolete capacities in manufacturing and to develop markets and hierarchies typical for a market economy – all being normal consequences of inward C-B M&As. The countries representing this group were: Belarus, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Russia,

The results pointing to possible sentiments for foreign divestment on the side of

The attitude of expanding national economies, compared to transitional economies, where capital imports have the function of repairing domestic structural disproportions is shown with giving the higher importance to access to new markets

National competitiveness and the importance of development local management

We start with receiving countries motivation for attracting C-B M&A. As shown in the **Table 1** the most important motives for attracting C-B M&A were the access to new markets, followed by the transition process, know-how transfer and technology improvements. External pressure on domestic policies as well as C-B M&A as a support for a better strategy of industry development did not

in developed countries compared with the ranking in transition countries.

skills, have been considered more important motive for attracting C-B M&A in transition countries than in developed countries because the situation of catching

attract much attention in relation to the motives of C-B M&A.

up in this field is logically more present in transition countries.

**18**

*Grounds for countries' motivation when attracting C-B M&A.*

Answers also show that technology improvement is important motive for attracting C-B M&A in all countries. While in transition countries technology improvement closes the gap towards developed countries, in developed countries it is basically there for consolidation of strategic industries.

Being less motivated for entrance of foreign markets transition countries typically demonstrate themselves as closed economies in the period before the start of 1990s. Lagging behind developed countries transition countries surprisingly demonstrate that they are not as they should be convinced that the C-B M&A are also about the transition from closed economy into an open market economy.

One would also expect that meeting the western standards through C-B M&A would represent higher priority to execute external pressure on domestic politics to accomplish transition processes in transition countries.

Authors also analyzed possible threats of C-B M&A for domestic economies. Results are presented in the **Table 2**.

As it can be seen from the **Table 2** shrinking of domestic stock market was assessed as the lowest threat of C-B M&A in all receiving countries, while crowding-out of domestic industries was the highest threat for C-B M&A receiving countries.

The **Table 2** also shows that apart from 'crowding-out of domestic companies' where there was a relatively small difference between both groups of countries, other answers show quite different perspectives when assessing C-B M&A threats.

The risk of reduction in employment and decrease of competition in the home market were considered essentially larger threats in developed countries than in transition countries. Such sentiments could derive from conviction, which may be the ground for the real policy of preventing takeover bids in European developed countries: takeovers of 'national champions' may cause destabilization of labour markets. The problem of unemployment reduction because of C-B M&A is present in transition countries too but in a smaller extent, probably because C-B M&A have established themselves as one of the tools of privatization and economic restructuring, which must take place anyway.

However, in transition countries more focus is given on low pricing of sold assets and undermining of the domestic economic development strategy. These two threats received more attention in transition countries because of the huge restructuring that C-B M&A cause in this environment endangers the last positive illusions of the domestic economic development model and 'national champions' that survived the transitional process. And there is no doubt, that when they are


## **Table 2.**

*Threats of C-B M&A.*

sufficiently scarce and unique, domestic assets signify a special incentive for foreign investors, which is then expected to be offset correspondingly in their selling price.

Threats of crowding-out and undermining competition through inward C-B M&A were subject to a more detailed analysis with the help of additional questions requiring detailed information on the matter. It was of special interest to us that through these questions a possible difference between expectations (threats) and experience (the cases that the respondents have registered) would arise. We have chosen the two items mentioned above, as it was expected that they would be ranked high with threats of inward C-B M&A.

In the **Table 2** above the case could be supported through the fear that C-B M&A could undermine domestic economic strategy. It should be clear that importing foreign capital should be a part of national strategy, while functioning of these investments by themselves should be treated as a step in the right direction. Without entering the reasons for such sentiment this conviction becomes relevant as soon these threats enter the domestic policy discussion with domestic critics of transition itself and trade unions. In this way, it influences politics' sentiment towards C-B M&A making it harder to the foreign investors to pursue their initial business goals and could thus pave the way for divestment.

As it can be seen in the **Table 3** the market structures in developed countries as being far more developed than those in transition countries, are obviously offering less chance to foreign affiliates to act in an anticompetitive way.

Similarly, to above risk of creating hostile environment for C-B M&A poses also the sentiment of anticompetitive behavior that was already experienced. It is surely difficult to judge when harsh competition for domestic companies was caused by the practice, normal in the West or when real anticompetitive practice was at work. This sentiment has otherwise to do with lagging institutional reforms – here in the field of competition policy.

Authors also examined professionals' assessment of media attitude towards inward C-B M&A. Results are presented in the **Table 4**.

Probable the strongest case for also existing sentiments, which may also curb divestment makes pretty inverse treatment of C-B M&A in media when considering two groups of host countries. In the **Table 4** above it is shown that C-B M&A were treated more favorably in developed countries, because inward C-B M&A in developed countries obviously face a highly developed social and economic environment with more consistent markets and financial structures and are therefore accepted more friendly in media. Further, in developed countries it is expected that they could neutralize their possible negative effects of C-B M&A more than transition countries and this can also lead to less public skepticism.

**21**

**4. Conclusion**

*What Has Happened with C-B M&A Acceptance? A Follow Up Based on 2005 – 2015 Study*

**Anticompetitive behavior by foreign affiliates Developed countries Transition countries** It has happened in several cases 11,32% 23,68% There have been some cases when it happened 41,51% 60,53% There have not been such behavior 47,17% 15,79%

**General treatment of C-B M&A in media Developed countries Transition countries**

Favorable 1,89% 0% Showing acceptance 32,08% 13,16% Neutral 43,40% 44,74% Not to friendly 22,64% 36,84% Unfavorable 0% 5,26%

The authors performed similar research by comparison of sentiments towards C-B M&A of local communities in Slovenia and in Serbia [25]. Authors were interested in the comparison between local communities in Slovenia and Serbia and they wanted to analyze the consequences of different approach with accepting change

When analyzing C-B M&A threats also here results relevant for this chapter appeared. First interestingly with some threats Slovenian critical sentiments

towards C-B M&A were exposed surprisingly stronger than in Serbia, regarding the fact that Slovenia is often considered as one of the champions of transition. They refer to possible reduction of employment and environmental damage, the last

In the same article the explanation for such outcome is explained with the fact that at the beginning of the transition processes in Eastern Europe Slovenia was according to Economic development clear leader. This perception, however, often harmed political will to change causing arrears especially in institutional transition

Otherwise, as expected the differences pointing at possible sentiments to support divestment are in favor of Slovenian local municipalities. So, in Serbia typically the public seems to be convinced that Serbian companies have been acquired for too low price and that foreigners could exercise unwanted influence on the local level. To a certain extend these results coincide with the results of already mentioned study by [22]. As possible drivers of divestment sentiments here among others through statistical significance unit labour costs, trade openness, level of control of corruption labour market efficiency and environmental policy stringency was proved.

This chapter shows the summary of the results of the research [24, 25] done in European countries and separately in Serbia and Slovenia. Main positive effects as

*DOI: http://dx.doi.org/10.5772/intechopen.95569*

*Anticompetitive behavior by foreign affiliates.*

*Source: [24].*

*Source: [24].*

**Table 4.**

**Table 3.**

and especially international opening.

*General treatment of C-B M&A in the media.*

being nevertheless a sign of higher development level.

and was also off set in lower acceptance of foreign capital [25].

*What Has Happened with C-B M&A Acceptance? A Follow Up Based on 2005 – 2015 Study DOI: http://dx.doi.org/10.5772/intechopen.95569*


## **Table 3.**

*Foreign Direct Investment Perspective through Foreign Direct Divestment*

ranked high with threats of inward C-B M&A.

Undermining of domestic economic

development strategy

*Source: [24].*

*Threats of C-B M&A.*

**Table 2.**

field of competition policy.

business goals and could thus pave the way for divestment.

inward C-B M&A. Results are presented in the **Table 4**.

countries and this can also lead to less public skepticism.

less chance to foreign affiliates to act in an anticompetitive way.

sufficiently scarce and unique, domestic assets signify a special incentive for foreign investors, which is then expected to be offset correspondingly in their selling price. Threats of crowding-out and undermining competition through inward C-B M&A were subject to a more detailed analysis with the help of additional questions requiring detailed information on the matter. It was of special interest to us that through these questions a possible difference between expectations (threats) and experience (the cases that the respondents have registered) would arise. We have chosen the two items mentioned above, as it was expected that they would be

**Threat Developed countries TRansition countries** Shrinking of domestic stock market 3,09% 5,88% Crowding-out of domestic industries 25,77% 28,24%

Low pricing of sold assets 7,22% 16,47% Decrease of competition in the home market 20,62% 14,12% Reduction of employment 38,14% 22,35%

5,15% 12,94%

In the **Table 2** above the case could be supported through the fear that C-B M&A could undermine domestic economic strategy. It should be clear that importing foreign capital should be a part of national strategy, while functioning of these investments by themselves should be treated as a step in the right direction. Without entering the reasons for such sentiment this conviction becomes relevant as soon these threats enter the domestic policy discussion with domestic critics of transition itself and trade unions. In this way, it influences politics' sentiment towards C-B M&A making it harder to the foreign investors to pursue their initial

As it can be seen in the **Table 3** the market structures in developed countries as being far more developed than those in transition countries, are obviously offering

Similarly, to above risk of creating hostile environment for C-B M&A poses also the sentiment of anticompetitive behavior that was already experienced. It is surely difficult to judge when harsh competition for domestic companies was caused by the practice, normal in the West or when real anticompetitive practice was at work. This sentiment has otherwise to do with lagging institutional reforms – here in the

Authors also examined professionals' assessment of media attitude towards

Probable the strongest case for also existing sentiments, which may also curb divestment makes pretty inverse treatment of C-B M&A in media when considering two groups of host countries. In the **Table 4** above it is shown that C-B M&A were treated more favorably in developed countries, because inward C-B M&A in developed countries obviously face a highly developed social and economic environment with more consistent markets and financial structures and are therefore accepted more friendly in media. Further, in developed countries it is expected that they could neutralize their possible negative effects of C-B M&A more than transition

**20**

*Anticompetitive behavior by foreign affiliates.*


## **Table 4.**

*General treatment of C-B M&A in the media.*

The authors performed similar research by comparison of sentiments towards C-B M&A of local communities in Slovenia and in Serbia [25]. Authors were interested in the comparison between local communities in Slovenia and Serbia and they wanted to analyze the consequences of different approach with accepting change and especially international opening.

When analyzing C-B M&A threats also here results relevant for this chapter appeared. First interestingly with some threats Slovenian critical sentiments towards C-B M&A were exposed surprisingly stronger than in Serbia, regarding the fact that Slovenia is often considered as one of the champions of transition. They refer to possible reduction of employment and environmental damage, the last being nevertheless a sign of higher development level.

In the same article the explanation for such outcome is explained with the fact that at the beginning of the transition processes in Eastern Europe Slovenia was according to Economic development clear leader. This perception, however, often harmed political will to change causing arrears especially in institutional transition and was also off set in lower acceptance of foreign capital [25].

Otherwise, as expected the differences pointing at possible sentiments to support divestment are in favor of Slovenian local municipalities. So, in Serbia typically the public seems to be convinced that Serbian companies have been acquired for too low price and that foreigners could exercise unwanted influence on the local level.

To a certain extend these results coincide with the results of already mentioned study by [22]. As possible drivers of divestment sentiments here among others through statistical significance unit labour costs, trade openness, level of control of corruption labour market efficiency and environmental policy stringency was proved.

## **4. Conclusion**

This chapter shows the summary of the results of the research [24, 25] done in European countries and separately in Serbia and Slovenia. Main positive effects as well as some threats of C-B M&A are presented. Special attention is given also to the media treatment of C-B M&A in European countries and as an important part of the FDI had been a subject to inverse processes later authors tried to connect the results of their research done in the past to these processes.

Using their expertize the authors connected concrete findings of their study with possible drivers of divestment – those coming from the policy and public sentiment in host countries were considered here. According to the findings the common nominator was mixed success with the transition process in transition countries. It proved that it would be a gap in institutional transition that prevented connection with interests of foreign investors and host country.

The results of comparison of economic effects in developed and transition countries actually enabled the insight into possible drivers of divestment. It is plausible to conclude that economic effects were focused to the beginning of transactions, while the era of investment operation dissonances could later lead to climate favorable to divestment.

For this chapter highly relevant are also findings in the source [26] that in respect to institutional distance the chances for foreign divestment are subject to an inverse U curve. This would mean that parting from lower institutional distance these chances grow, reach their peak on the border outskirts of certain institutional setting arrangements and lower when the institutional distance is bigger. Applied geographically this would be the case, which could be expected for an investor from European industrial economy. Here lower chances for foreign divestment would refer to neighboring economies and would reach their peak on the bordering belt economies – here meaning the economies of Western Balkans. Going further the Asian economies which we use as example of Asian Tigers have quite different institutional setting and thus institutional distance to the investor's country. Due to other factors mainly explainable with their flexibility the chances of foreign divestment should be reduced.

## **Author details**

Rasto Ovin1 and Anita Macek<sup>2</sup> \*

1 DOBA Business School Maribor, Slovenia

2 FH Joanneum, Austria

\*Address all correspondence to: anita.macek@net.doba.si

© 2020 The Author(s). Licensee IntechOpen. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/ by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

**23**

*What Has Happened with C-B M&A Acceptance? A Follow Up Based on 2005 – 2015 Study*

10.11.2020]

WP 11/192

https://www.cmr-journal.org/article/ download/84/2047/0. [Accessed:

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[11] Angresano, J., Zhang, B., and Zhang. M. China's Rapid Transformation: The Role of FDI.' Global Business and Economics Review. 2002, 4(2): 223-242. DOI: 10.1504/GBER.2002.006189

[12] Arbatli, E. Economic Policies and FDI Inflows to Emerging Market Economies. IMF working paper. 2011,

[13] Stephan, J. Technology Transfer via Foreign Direct Investment in Central and Eastern Europe. Theory, Method of Research and Empirical Evidence. England: Palgrave Macmillan. 2005.

[14] Perez, R. P. A regional approach

to study technology transfer through foreign direct investment: The electronics industry in two Mexican regions. Research Policy. 2008, 37(5): 849-860. DOI:10.1016/j.

[15] Maček, A., & Ovin, R. Does

[16] Boddewyn, J. Foreign Direct Divestment Theory: Is It the Reverse of FDI Theory? Weltwirtschaftliches Archiv [Internet]. 1983; 119(2): 345-355. Available from: http://www.jstor.org/ stable/40439131 [Accessed: 10.12.2020]

[17] Brown, T. Panibratov, A. Foreign Divestment Decisions: A Theoretical Framework. St. Petersburg State University Graduate School of

economic interventionism help strategic industries? Evidence from Europe. E+M. 2014; 17(3), 5-14. DOI: 10.15240/

respol.2008.03.003.

tul/001/2014-3-001.

*DOI: http://dx.doi.org/10.5772/intechopen.95569*

Hoffmaister, A. W. International R&D spillovers and institutions. European Economic Review. 2009; 53(7), 723-741. DOI. 10.1016/0014-2921(94)00100-E

[2] Blomström, M., & Kokko, A. Foreign direct investment and spillovers of technology. International Journal of Technology Management: 2011; 22(5-6).

DOI: 10.1504/IJTM.2001.002972

ISBN 9781855674813

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[3] Estrin, S., K. Hughes and Todd, S. Foreign Direct Investment in Central and Eastern Europe: multinationals in transition. Royal Institute of

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[4] Caves, R. E. Multinational firms, Competition and Productivity in Host-Country Markets. Economica. 1974; 41 (5): 176-193. DOI. 10.2307/2553765

[5] Liu, X., P. Siler, C Wang and Wei, Y. Productivity Spillovers from Foreign Direct Investment: Evidence from UK Industry Level Panel Data. Journal of International Business Studies. 2000, 31

[6] Driffield, N. The Impact on Domestic Productivity of Inward Investment in the UK. The Manchester

School. 2001, 69: 103-119. DOI: 10.1111/1467-9957.00237

[Accessed: 10.11.2020]

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[9] Lin, C. H. (2008). Role of foreign direct investment in telecommunication industries: a developing countries' perspective. Contemporary Management Research [Internet]. 2008; 4(1): 29-42. Available from:

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[1] Coe, D. T., Helpman, E., &

**References**

*What Has Happened with C-B M&A Acceptance? A Follow Up Based on 2005 – 2015 Study DOI: http://dx.doi.org/10.5772/intechopen.95569*

## **References**

*Foreign Direct Investment Perspective through Foreign Direct Divestment*

results of their research done in the past to these processes.

with interests of foreign investors and host country.

well as some threats of C-B M&A are presented. Special attention is given also to the media treatment of C-B M&A in European countries and as an important part of the FDI had been a subject to inverse processes later authors tried to connect the

Using their expertize the authors connected concrete findings of their study with possible drivers of divestment – those coming from the policy and public sentiment in host countries were considered here. According to the findings the common nominator was mixed success with the transition process in transition countries. It proved that it would be a gap in institutional transition that prevented connection

The results of comparison of economic effects in developed and transition countries actually enabled the insight into possible drivers of divestment. It is plausible to conclude that economic effects were focused to the beginning of transactions, while the era of investment operation dissonances could later lead to climate favor-

For this chapter highly relevant are also findings in the source [26] that in respect to institutional distance the chances for foreign divestment are subject to an inverse U curve. This would mean that parting from lower institutional distance these chances grow, reach their peak on the border outskirts of certain institutional setting arrangements and lower when the institutional distance is bigger. Applied geographically this would be the case, which could be expected for an investor from European industrial economy. Here lower chances for foreign divestment would refer to neighboring economies and would reach their peak on the bordering belt economies – here meaning the economies of Western Balkans. Going further the Asian economies which we use as example of Asian Tigers have quite different institutional setting and thus institutional distance to the investor's country. Due to other factors mainly explainable with their flexibility the chances of foreign

**22**

**Author details**

able to divestment.

2 FH Joanneum, Austria

divestment should be reduced.

and Anita Macek<sup>2</sup>

1 DOBA Business School Maribor, Slovenia

provided the original work is properly cited.

\*

\*Address all correspondence to: anita.macek@net.doba.si

© 2020 The Author(s). Licensee IntechOpen. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/ by/3.0), which permits unrestricted use, distribution, and reproduction in any medium,

Rasto Ovin1

[1] Coe, D. T., Helpman, E., & Hoffmaister, A. W. International R&D spillovers and institutions. European Economic Review. 2009; 53(7), 723-741. DOI. 10.1016/0014-2921(94)00100-E

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[3] Estrin, S., K. Hughes and Todd, S. Foreign Direct Investment in Central and Eastern Europe: multinationals in transition. Royal Institute of International Affairs, London, UK. 1997. ISBN 9781855674813

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Section 2

Regional Specific Issues of

Foreign Direct Investment

and Divestment

## Section 2
