Economic impacts of investment facilitation

Balistreri, Edward J. / Zoryana Olekseyuk
External Publications (2023)

published on, 02.06.2023

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After the successful adoption of the Trade Facilitation Agreement (TFA) in 2014, investment facilitation is gaining importance as the next policy priority for a plurilateral agreement under the World Trade Organization (WTO). In fact, more than 110 WTO Members aim to conclude the negotiations on the Investment Facilitation for Development (IFD) Agreement by mid-2023 after only three years of formal negotiations. Investment facilitation refers to actions taken by governments designed to attract foreign investment and maximize the effectiveness and efficiency of its administration through all stages of the investment cycle. The IFD agreement focuses on allowing investment to flow efficiently for the greatest benefit, particularly to developing and least developed member countries, with the aim of fostering sustainable development. To provide policymakers with essential information for ongoing negotiations and to fill an existing research gap, we examine the economic impacts of a potential IFD agreement. Starting with a lower bound scenario, which incorporates investment facilitation commitments already present in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, we estimate that the IFD could improve global welfare by more than $250 billion. Pushing the boundaries of the policy scope by incorporating provisions from several proposals submitted at the beginning of the structured discussions, the ambitious IFD scenario suggests an increase of global welfare by almost $800 billion. Furthermore, extending the country coverage to India and the United States, currently disengaged from the negotiations, might boost global gains to as much as $1.1 trillion. Hereby, low and middle-income countries have the most to gain from a successful implementation of the IFD, given their low level of current practice in investment facilitation. Overall our analysis shows that the potential gains from an IFD agreement exceed those available from traditional trade liberalization. This provides a strong incentive for non-participating developing countries to join the IFD, reform their investment frameworks along the IFD agenda, and use the support structure contained in the section on special and differential treatment for developing and least-developed country members.

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