Discussión sobre los biomarcadores renales 99

The rapid expansion of global production and markets in the last two decades has given rise to systemic changes in the world economy that have fundamentally affected Egypt. These changes have generated large volumes of international capital flows and transactions in goods and services, as well as created a widespread diffusion of production, transportation, and communication technologies from corporate contracting arrangements. The introduction of new technologies through cross-border production networks and the dissemination of new skills in the workforce have now become as important to the specialization of production activities in the Egyptian economy as its capital, labor and natural resource endowments.12In such a context, globalization describes the operation of corporations and financial institutions in world markets that are not constrained by national boundaries and domestic economic or regulatory conditions.

The internationally integrated production of transnational corporations has also supported the growth of world trade not only in global markets for products, but also in the development of differentiated products and their associated intra-industry trade. Moreover, the establishment of complex corporate systems of affiliation, association and sub-contracting across national frontiers has dramatically expanded intra-firm trade. Companies have been organizing their production through international networks of affiliates located wherever they can carry out discrete functions most effectively for production purposes and penetrate important markets. Such cross-national production networks have been motivated by efforts to exploit international factor cost differentials, minimize transactions costs, access clusters of specialized capabilities and contested growth markets, and reduce the response time to technological changes and market requirements. The resulting exchange of parts and components with parent companies and affiliates has given rise to horizontally and vertically integrated global production systems by transnationals, as well as subcontracting and other arrangements with entities that can supply components to affiliates and parent companies.13

Equally important have been the strategic interactions that occur between firms and governments to control entry and operation of multinationals. New investment opportunities in infrastructure have arisen from the liberalization and deregulation of foreign business activities as governments have increasingly sought to attract capital and technology from abroad. It is the liberalization of this regulatory environment that has helped to

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The existence of cross-border production is explained by modern trade theory on the basis of consumer preferences for variety, which give firms a degree of market power that is often in the form of a monopolistic market structure. When entry barriers are high because of complex R&D requirements, costly overhead investments and the need for cross-national supplier networks designed to guarantee timely access to factor inputs or product components, then an oligopolistic market structure is likely to exist. However, the market structures of many global industries are changing as the original monopolistic or oligopolistic nature of their competition becomes eroded by increasingly complex global production systems made up of strategic alliances among firms (Ernst, 1997). According to UNCTAD (1996), the value of all cross-border merger and acquisition transactions doubled between 1988 and 1995. However, these activities have been concentrated in US and EU based firms, particularly in the energy distribution, telecommunications, pharmaceuticals and financial services industries. Consumer preferences for variety also explains the large share of intra-industry trade in total trade, as does multinational activities with sub-contractors, affiliates and joint ventures. Transnational corporations are motivated to establish these cross-border production facilities because they give rise to economies of scale from the spreading of fixed costs over a larger scale of output or from the economies they can derive from specialization in the production of goods. These economies of scale are usually internal to the firms since unit costs decrease as output increases either because of decreasing marginal costs, the spreading of large fixed costs over greater amounts of output, or learning effects that lower average costs as cumulative output increases. For details, see Junius (1997).

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determine the location and effectiveness of the cross-national production networks, and that has made the multilateral regulatory system a key facilitating mechanism for globalization of international production systems and markets.

Despite rapid advances in all aspects of globalization, however, the process has been uneven among countries. For Egypt, the expansion of long-term capital inflows from foreign direct investment by multinational firms has not kept up with the worldwide growth of international production. As a result, Egypt’s share of FDI inflows relative to that of the world total has fallen over the last two decades: while Egypt’s share of worldwide FDI inflows average 1.2 percent in the 1980s, the share only averaged 0.2 percent in 1995- 98 (see Figure 6.1). Our interest in modeling these FDI inflows is therefore to identify the factors that have caused the large growth differentials in cross-border production activities of Egypt and the rest of the world.

The effects of real exchange rate movements on FDI depend on the sourcing of inputs and market distribution. If cross-border production activities are directed towards exports and they rely on domestic inputs, then

increased FDI inflows will improve the current account. In contrast, if cross-border production activities are oriented to the domestic market and they use foreign inputs, then the current account balance will be negatively related to FDI inflows.

The specification for FDI inflows, denotedF,with an ECM driven by foreign real income,Yf, and with a

‘differences’ formulation of the real effective exchange rate, R,term nested in the levels form of the equation is:

ft=70+71(f–yf)t-1+72yft+73yft-1+74rt+75rt-1+ v3t (6.1)

where -1 < 71 < 0; 72 > 0; 73 > 71; 74 and 75 < 0; and where all variables are measured in logarithmic terms.

The following are the results of the equation estimate:

ft= -1.5 - 0.85(f–yf)t-1+ 14.6yft - 0.13yft-1+ 0.71rt+ + 0.69rt-1 (6.2)

(3.8) (1.3) (1.2) (1.2) (1.8)

R2= 0.72 dw = 2.34 Period: 1980-98 where figures in parenthesis are t-statistics.

There are a number of interesting observations that emerge from these results. First, FDI tends to have a very strong short-term response to changes in global economic growth. In the long run, however, cross- border investment conforms to the expectations, insofar as it has been declining over time in Egypt relative to its worldwide response to global income changes. This non-proportional growth in Egypt is reflected in an estimated income elasticity that is less than unity (see Table 6.1).

Table 6.1

Income and Exchange Rate Elasticities of FDI Inflows

Elasticity with respect to: Exch. Rate Income Short-term 0.71 14.6

Long-term 0.80 0.8

Figure 6.1

Egypt's Share of World FDI Inflows

0% 1% 2% 3%

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domestic orientation of FDI in Egypt, and its reliance on foreign inputs. An appreciation of the real effective exchange rate, for example, reduces the cost of inputs to transnationals in Egypt and has a positive effect on cross-border production. That effect is relatively strong. A five percent appreciation of the real effective exchange rate leads to a 4 percent expansion in FDI inflows in Egypt. It is important to note, however, that the present elasticities approach to the balance of payments is based on existing levels of protection on production and trade in Egypt. It does not take into account new production activities from an efficient import substitution and export expansion that would be expected under a concurrent exchange rate depreciation and trade liberalization.