FACTORES RELACIONADOS CON EL USO DE LAS TICs

Using the information provided in the case studies, this chapter will now follow with an analysis aimed at testing the hypotheses mentioned in chapter 3. This chapter will be divided in two parts. The first part will be dedicated to testing the hypotheses based on the IDP hypothesis, and the second part will be dedicated to testing the hypotheses more directly related with the institutional factors that could have an influence on OFDI in India and Brazil. As mentioned in the methodology, some of these institutional factors are based on findings from previous scholarly work in the field of OFDI, and other factors (namely the observations on policy-makers and on international institutions) have been selected specifically for this research.

6.1- Hypotheses based on the Investment Development Path (IDP)

The first hypothesis being tested in this research within the framework provided by the IDP hypothesis suggests that an increase in GDP per capita coincides with an increase in levels of OFDI in Brazil and India. Based on the findings obtained through the case studies, however, this hypothesis does not seem to be applicable to either India or Brazil.

In the case of India, as the case study has shown, both GDP per capita and OFDI have increased substantially between 1980 and 2014. The variations of these two variables, nevertheless, have also presented several differences over the years. For instance, up until the early 1990s the levels of GDP per capita presented increases but the levels of OFDI remained virtually unchanged. Moreover, by the 2010s GDP per capita presented a period slight decline, whereas OFDI presented continuous increases. Thus, because the variations of these two variables have presented several differences in many of the years observed in this research, this hypothesis does not seem to be applicable to India.

As for Brazil, both levels of GDP per capita and OFDI have also presented, generally speaking, significant increases over the years, with the most substantial increases taking place from the 2000s onwards. The variations of these two variables, however, presented several differences as well. Up until the early 2000s the Brazilian economy went through a period of monetary instability and financial distress. These factors seem to be reflected in the constant oscillations of GDP per capita

62 throughout the 1980s and 1990s. Whereas GDP per capita presented several increases and decreases during these two decades, the Brazilian levels of OFDI remained virtually unchanged. Moreover, during the first half of the 2010s GDP per capita began to present significant decreases, whereas levels of OFDI kept rising. Thus, because these observations have shown that the variation of OFDI and GDP per capita have presented differences in many occasions, the first hypothesis being tested in this research cannot be applicable to Brazil either.

The second hypothesis being tested in this research suggests that an increase in expenditures on research and development coincides with an increase in levels of OFDI in Brazil and India. According to the findings included in the case studies, there seems to be enough evidence indicating that this hypothesis can be accepted for both countries.

The observations in the case study on India have shown that in each year observed both levels of OFDI and expenditures on R&D have presented increases. In this case, the rationale put forward by the IDP hypothesis might be applicable to India. That is, the extended version of the IDP hypothesis suggests that investments in R&D can lead firms to become more capable to expand their activities and, consequently, start engaging in OFDI to reach new markets and resources to increase their profits (Stoian, 2013). The observations on India have shown that, in this country, the most significant increases on R&D expenditures have occurred in the early 2000s, whereas the most significant increases in OFDI took place by the mid-2000s. This might be a sign that increases in expenditures on R&D have been followed by increases in OFDI, as the IDP hypothesis suggests. In the case of India, therefore, the second hypothesis can be accepted.

In the case of Brazil, observations were limited by data availability. Therefore, only the timeframe ranging from 2000 until 2011 was observed. During most of the years observed, however, both levels of OFDI and expenditures on R&D have presented increases, and both variables have presented their most significant increases throughout the second half of the 2000s. Only in 2002 did the two variables present different trends, with levels of OFDI increasing and expenditures on R&D decreasing. This difference, however, only represents nine percent of the time observed, meaning that during 91 percent of the remaining time under observation both variables presented increases. In the case of Brazil, therefore, the second hypothesis is applicable during the great majority of the time observed. For this reason, thus, it seems to be safe to accept this hypothesis here.

63 The third hypothesis being tested in this research suggests that an increase in inward FDI coincides with an increase in outward FDI in India and Brazil. Based on the findings obtained through the case studies, this hypothesis can be applicable to both countries.

The case study on India has shown that, in that country, both inward FDI and OFDI presented continuous increases throughout the period under observation; moreover, their variations presented very similar patterns over the years. For that reason, the third hypothesis being tested in this research can be accepted for India.

In the case of Brazil, in general, inward FDI and OFDI have also presented increases, with their most substantial increases taking place from the mid-2000s onwards. However, whereas levels of OFDI have presented continuous increases, Brazilian levels of inward FDI have presented a decline in three different occasions, in 1995, 2002, and 2008. These three years, nevertheless, represent only nine percent of the time period observed, meaning that during the remaining 91 percent of the years under observation both levels of inward FDI and OFDI have presented increases. Thus, because both variables increased during the great majority of the years under observation, it should be safe to accept the third hypothesis in the case of Brazil as well.

In short, the analyses included in this section confirmed that the IDP hypothesis cannot be entirely applicable to either India or Brazil. From the three independent variables analyzed, only ‘inward FDI’ and ‘expenditure on R&D’ seem to be applicable to both countries. The variable ‘GDP per capita’, which is the main variable of the IDP hypothesis (see literature review), does not seem to apply to any of the countries observed. These findings indicate that economic factors alone are not sufficient to explain the levels of OFDI in the two countries. Therefore, to provide an alternative explanation to this phenomenon, the next section will offer an analysis on some institutional factors that could have an influence on OFDI in India and Brazil.

6.2- Hypotheses based on institutional factors

This second part of the analysis will test the remaining four hypothesis of this research, which focus on the institutional factors that could have an influence on OFDI in Brazil and India. The first institutional hypothesis that is being tested in this research suggests that the existence of national policies easing capital controls for OFDI activities coincide an increase in OFDI.

64 The case studies on India and Brazil have shown that both countries have adopted policy reforms easing capital controls for OFDI. In the case of India, at least nine policies easing capital controls were adopted throughout the 1990s and 2000s, and each of these policies was followed by increases in levels of OFDI in the country. Thus, based on these findings, the fourth hypothesis being tested in this research can be accepted for India. In the case of Brazil,two policies easing capital controls were adopted in the 1990s and one policy which completely removed capital controls on OFDI was adopted in 2005. As the case study has shown, the first two policies have not been followed by any significant increase in OFDI; however, the last policy was followed by a substantial increase from USD 79,259 million in 2005 to USD 113,925 in 2006. Because the adoption of two policies easing capital controls in the 1990s have not been followed by any significant increase in OFDI, however, the fourth hypothesis being tested in this research cannot be accepted for Brazil.

Since the ease of capital controls appears to be effective to increase levels of OFDI in India, and also because it seemed to be effective in Brazil in 2005, it might be interesting to understand in more details why this type of policy did not work in Brazil in the 1990s. Based on the information included in the case study on Brazil, it might be possible to infer here that the ease of capital controls in the country leads to an increase in OFDI only when the economy is stable. If this line of thought is correct, this could explain why the policy seems to have worked in 2005, but not in the 1990s. As the graph depicting GDP per capita in Brazil has shown (see case study on Brazil), the levels of GDP per capita in the country have presented many oscillations throughout the 1990s, possibly due to the economic instability that the country was going through in that decade. In the 2000s, however, the economy was more stable after a new currency was adopted and inflation rates were controlled. Based on this, there might be a chance that capital controls might work in Brazil; however, if the economy is unstable Brazilian firms might be less confident and enabled to expand their operations internationally, therefore, they might be less inclined to engage in OFDI. This is, however, one hypothesis, which cannot be tested in this research due to its scope, but could be considered for further research.

The fifth hypothesis of this research suggests that the presence of pro-market policy-makers holding central positions in strategic policy-making institutions coincide with an increase in the

65 occurrence of OFDI in Brazil and in India. As the case studies have shown, this hypothesis seems to be applicable to India but not to Brazil.

According to the observations made on India, during the 1980s many policy-makers in the country were influenced by socialist ideologies. It was only by the early 1990s onwards that international markets and pro-market policies gained more acceptance among Indian policy-makers. Politicians such as Manmohan Singh and Chidambaram Palaniappan have been influential to open the Indian economy to foreign markets and to promote competition inside the country from the 1990s onwards. It is important to stress, however, that even though Indian policy-makers have become more open to pro-market policies, international organizations such as the IMF might also have had an influence in this shift of preferences. This is mainly because, as the case study has shown, the IMF has prescribed some policies that Indian authorities had to implement in order to enhance competitiveness in the country’s economy. Thus, it is possible to argue here that, from the early 1990s onwards, Indian policy-makers have become more open to pro-market policies, and the IMF might also have played a role in promoting pro-market ideas to these policy-makers. In short, it was indeed from the 1990s onwards that Indian levels of OFDI began to present continuous increases, thus, in the case of India the fifth hypothesis being tested in this research can be accepted.

In the case of Brazil, the case study has shown that during all the years observed the country was being governed by politicians who were open to – or at least not explicitly against - pro-market policies and international markets. Nevertheless, even though many politicians have taken measures to deregulate and open the Brazilian economy throughout the 1980s up until 2014, the case study has shown that it was only by the mid-2000s that Brazil started to present significant increases in its levels of OFDI. Thus, in the case of Brazil the presence of pro-market policy- makers does not seem to be enough to explain the occurrence of OFDI in the country. For that reason the fifth hypothesis being tested in this research cannot be accepted for Brazil.

The sixth hypothesis being tested in this research suggests that the presence of institutions providing low-interest loans to firms engaging in OFDI coincides with an increase in OFDI. As the case studies have shown, in India there seems to be no institution providing low-interest loans to firms engaging in OFDI, therefore for this country this hypothesis is not applicable. As for Brazil, the case study has shown that since 2002 the National Bank for Social and Economic

66 Development (BNDES) has provided low-interest loans to Brazilian firms that want to open new units or take part in joint ventures abroad. The existence of this financial service coincided with an increase in the levels of Brazilian OFDI, thus, technically, the sixth hypothesis could be accepted for Brazil. Nevertheless, based on the findings included in the case study, the loans provided by the BNDES correspond to a considerably small portion of Brazilian OFDI. For most of the years observed, the loans by the institution corresponded to less than one percent of the total amount invested by Brazilian firms through OFDI. This indicates that, even though this service might be of great relevance to the internationalization of those firms that have access to it, in general this service might not have a significant influence on levels of Brazilian OFDI as a whole. The last hypothesis being tested in this research suggests that the adoption of adjustment policies from the IMF and/or World Bank promoting the deregulation of OFDI activities in Brazil and India precede an increase in OFDI in these countries. According to the findings included in the case studies, however, this hypothesis is not applicable to either India or Brazil.

The case studies have shown that the IMF has prescribed several policies to both India and Brazil with the purpose of deregulating their economies to enhance competition. The observations included in this research, however, indicated that the policies prescribed by the IMF seem to focus mainly on opening the Brazilian and Indian economies to foreign competition (e.g. reducing barriers to trade and to foreign investors). To date, the IMF has not prescribed any policy focusing on deregulating, or at least reducing restrictions to OFDI for Brazil and India. For that reason, the seventh hypothesis being tested in this research is not applicable for both countries.

In short, this second part of the analysis has confirmed that certain institutional factors seem to be applicable as alternative explanations for the occurrence of OFDI in Brazil and India. For the case of India, the adoption of policies easing capital controls for overseas direct investment seem to be effective to enhance this activity in the country. This finding goes in line with the findings by other scholars (e.g. Luo et al., 2010; and Khoon & Wong, 2011) who suggest that the ease of capital controls might contribute to the occurrence of OFDI in developing countries. In addition to that, this research has also shown that the presence of pro-market policy-makers in strategic policy- making institutions seems to have a relation with the occurrence of OFDI in India as well.

67 Differently from India, in the case of Brazil the findings obtained through this research can lead to mixed conclusions. For instance, the provision of low-interest loans by the BNDES seems to contribute to the occurrence of OFDI for a very small number of firms from the country. The loans provided by the institution correspond to a considerably small percentage (less than one percent) of the total OFDI by Brazilian firms. For that reason, even though it might be possible to argue that the provision of this financial service can contribute to the internationalization of certain Brazilian firms, this contribution does not seem to be significant enough to influence Brazilian levels of OFDI as a whole. Thus, this finding contrasts with the suggestions by other scholars (e.g. Luo et al., 2010; and Sauvant, 2005) that the provision of low-interest loans by the government to promote OFDI can enhance this activity in an economy.

Other factors, such as the existence of policies relaxing capital controls for OFDI, and the presence of pro-market policy-makers in key institutions, did not seem to have an influence on levels of Brazilian OFDI during the 1980s and 1990s. However, from the 2000s onwards there could be a possibility that these factors influenced the occurrence of OFDI in Brazil. This finding raised the observation that economic instability might play a role in constraining the occurrence of OFDI in Brazil. This is because, whereas these two factors seem to be applicable to India, they do not seem to be applicable to Brazil in those periods when the country was going through continuous phases of economic distress in the 1980s and 1990s. This observation, however, needs to be tested in further empirical research before being confirmed as a possible factor that could have an impact on OFDI.

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