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The economic upheaval resulting from the COVID-19 pandemic has led many governments to enhance their foreign investment screening mechanisms or introduce new ones – in the midst of an already steep drop of global FDI flows. Investment screening was already enjoying a heyday before the COVID-19 crisis – the pandemic is accelerating, rather than triggering this trend. The accumulation of the two waves of new measures may bring about transformational change to investment screening policy practice and to the way governments and societies view the benefits and risks associated with foreign investment.

French

Unpredictable events and crises – such as the current COVID-19 pandemic –pose significant challenges to public authorities. Investment promotion agencies (IPAs) are at the forefront of business attraction and supply chain management and need to be ready to react quickly to these challenges. This note reviews the impact of the COVID-19 crisis on international investment flows and government responses. It summarises the findings of the OECD IPA Network meeting on 9 April 2020 and outlines short-term and long-term responses.

Japanese

The COVID-19 pandemic has brought an additional set of challenges to the economies of the Middle East and North Africa (MENA). The region has been struggling to attract more and better FDI, constrained by investment climate weaknesses and regional geopolitical tensions. While the projected short-term declines are expected to hit the MENA economies hard, the crisis could also bring new opportunities to benefit from global trends, such as reshoring and restructuring of global and regional value chains. The extent to which this is possible will depend on sustaining existing reforms underway, enacting targeted new strategies and measures for the post-COVID-19 context, and reinforcing regional cooperation. This brief provides an overview of the impact of the COVID-19 crisis on investment in the region and highlights MENA government policy responses to catalyse investment and foster an inclusive post-crisis recovery.

French

This article examines various efficiency and equity aspects related to the skill acquisition of young people and older adults. The analysis suggests that human capital investment is associated with significant labour-market gains for individuals, including higher post-tax earnings and better employment prospects, which exceed the investment costs, mainly foregone earnings and tuition fees, by a significant margin. It also shows that the net benefits are strongly influenced by policy related factors, such as study length, tuition subsidies and student support. Overall, the estimates reported in the article indicate that there are strong incentives for the average student to continue studying beyond the compulsory schooling age, and also point to the benefits of such investment in education for society as a whole. However, the net gains fall with age, mainly reflecting a shorter period to take advantage of the benefits that come with education. Finally, the article notes that students in higher education tend to come from more affluent backgrounds and that they benefit from large public subsidies, whereas young people from disadvantaged backgrounds are less likely to participate in tertiary education and thus benefit from public subsidies.

French
  1. There is growing interest in the potential for preventive interventions to improve average health status in OECD countries and to tackle remaining health inequalities. The interest is in a wide range of interventions spanning not only health services but also measures to influence behaviour and lifestyles and action to improve the contribution of the social, economic and physical environments to health. These interventions are referred to in this paper as examples of a government’s ‘population health investment’effort.
  2. The paper notes the evidence on trends in health and health inequalities in OECD countries and reviews the general case for population health investments and the evidence on the effectiveness of selected interventions.
  3. It focuses on population health investment strategies and institutions in five member countries: Australia, Canada, Korea, Sweden and Switzerland. In particular, it reviews the methods of financing population health investments and levels of ...

This paper examines various efficiency and equity aspects related to the skill acquisition of young people and older adults. The analysis suggests that such human capital investment is associated with significant labour-market gains for individuals, including higher post-tax earnings and better employment prospects, which exceed the investment costs, mainly foregone earnings and tuition fees, by a significant margin. It also shows that the net benefits are strongly influenced by policy-related factors, such as study length, tuition subsidies and student support. Overall, the estimates reported in the paper indicate that there are strong incentives for the average student to continue studying beyond the compulsory schooling age, and also point to the benefits of such investment in education for society as a whole. However, the net gains fall with age, mainly reflecting a shorter period to take advantage of the benefits that come with education. Finally the paper notes that students ...

The World Business Environment Survey (WBES) provided a unique look at the impact of the investment climate on enterprise performance, employing a standard core questionnaire to more than 10 000 firms in 80 countries between late 1998 and mid-2000. This paper examines results of a special module of the survey administered in 28 of the WBES countries that focused on issues of competition, trade and firm capabilities in terms of technology and worker education and training. It confirms that key attributes of the investment climate such as corruption, financing, tax administration, regulations and policy uncertainty all matter in explaining firm performance as measured by sales growth, employment growth and investment growth. Further, excessive labour regulation is negatively associated with both employment and investment growth. The new data on firm capabilities suggest that firm investments in technology and skills are also critically associated with firm performance. Investment in technological capacity strongly relates to sales growth, while international technological acquisition relates clearly to employment and investment growth. Training matters as well, and it is quite clear that investments in private training services are significantly associated with all dimensions of firm growth. What is equally clear is that public training bears no significant relationship with firm performance. Firms that make no investments in training appear disproportionately influenced by three types of market failure. This link has direct implications for governments as they shape technology policy and training policy.

Current weak labour productivity growth in many OECD countries reflects historically weak contributions from both total factor productivity (TFP) growth and capital deepening. The slowdown in trend productivity growth in the pre-crisis period is mostly explained by a long-established slowdown in TFP growth, but since the crisis the further deceleration is mainly due to weak capital deepening, a development apparent in practically every OECD country. Much of the weakness in the growth of the capital stock since the financial crisis can be explained by an accelerator response of investment to continued demand weakness, leading in turn to a deterioration of potential output via a hysteresis-like effect. For the most severely affected economies, the financial crisis is estimated to have reduced potential output by more than 2% via this transmission mechanism. In many OECD countries, declining government investment as a share of GDP has further exacerbated post-crisis weakness in capital stock growth, both directly and probably indirectly via adverse spillover effects on business investment. Finally, over a period when the use of conventional macro policy instruments was constrained, the slower pace of structural reform represents a missed opportunity, not least because more competition-friendly product market regulation could have boosted both investment and potential growth.

Investment treaty law – which is scattered over 3 000 international investment agreements adopted over a period of 50 years – is a crucial but complex basis for regulating international investment flows. Investment treaties are often thought to be silent on investors’ responsibilities to host societies and on their contributions to sustainable development. The present paper establishes a factual and statistical basis for understanding the relationship between investment treaty law and governments’ ability to advance the sustainable development agenda and promote responsible business conduct. The paper presents survey results of 2 107 investment treaties and 1 113 treaty-based arbitration cases in order to shed light on how (if at all) labour, environmental, human rights and anti-corruption considerations are referred to in investment treaties and investor-state arbitration cases based on them.
Investment treaty law reflects a permanent tension between stability and flexibility. Stability nurtures predictability, while flexibility helps legal systems stay in alignment with changing circumstances and evolving needs. This paper establishes an inventory of the mechanisms in investment treaty law that provide flexibility and surveys relevant treaty practice.

The paper: analyses the drivers of change in investment treaty law; provides an inventory of countries’ options – and limits – to alter their positioning vis-à-vis investment treaty law through ‘exit’ and ‘voice’; and analyses treaty provisions on, and States’ use of, flexibility in investment treaty law.

The paper finds that most treaties provide for little or no mechanism for countries to influence the use and interpretation of investment treaty law. The paper further finds that treaty provisions for ‘exit’ are likewise geared to provide stability rather than flexibility. Analysis of State practice presented in the paper shows that States rarely make use of the mechanisms available to them to influence treaty use and interpretation and that ‘exit’ from the system has likewise been rare so far.

Claims by company shareholders seeking damages from governments for so-called "reflective loss" now make up a substantial part of the investor-state dispute settlement (ISDS) caseload. (Shareholders’ reflective loss is incurred as a result of injury to “their” company, typically a loss in value of the shares; it is generally contrasted with direct injury to shareholder rights, such as interference with shareholder voting rights.) This paper considers the consistency issues raised by shareholder claims for reflective loss in ISDS. The paper first compares the approach to shareholder claims in ISDS with advanced systems of national corporate law (and other international law). ISDS arbitrators have consistently found that shareholders can claim individually for reflective loss in ISDS under typical BITs. This can be seen as a success story from the point of view of consistency of legal interpretation and improves investor protection for potential claimant shareholders in many cases. In contrast, however, advanced national systems and international law generally apply what has been called a "no reflective loss" principle to shareholder claims. Second, the paper analyses the policy issues relating to consistency that are raised by shareholder claims for reflective loss in ISDS. National and international law barring shareholder claims for reflective loss is often explicitly driven by policy considerations relating to consistency, predictability, avoidance of double recovery and judicial economy. Limiting recovery to the company is seen as both more efficient and fairer to all interested parties. In contrast, ISDS tribunals and commentators have generally given limited consideration to the policy consequences of allowing shareholder claims for reflective loss. The third part of the paper addresses the issue of company recovery (including two different existing systems which expand the ability of foreign-controlled companies to recover in ISDS) and its relevance to shareholder claims for reflective loss. The paper also contains a series of questions for discussion and has been discussed by governments participating in an OECD-hosted investment roundtable.
Advanced systems of domestic corporate law generally apply a “no reflective loss” principle to shareholder claims. Shareholder claims are permitted for direct injury to shareholder rights (such as voting rights). But shareholders generally cannot bring claims for reflective loss incurred as a result of injury to "their" company (such as loss in value of shares). Only the directly-injured company can claim.

In contrast, shareholder claims for reflective loss have consistently been permitted under typical bilateral investment treaties (BITs) in recent years. This paper analyses investment treaty provisions relating to shareholder claims. It addresses (i) treaty regimes for shareholder recovery and company recovery of damages, including their consequences for investor protection and government liability; (ii) the interaction of reflective loss claims with treaty provisions that seek to limit multiple claims; and (iii) treaty provisions applicable to government objections to shareholder claims for reflective loss.

Corporate law in advanced domestic legal systems on the one hand, and typical treaties for the protection of foreign investment on the other hand, treat claims for damages by company shareholders differently. Advanced domestic systems generally bar shareholders from claiming for reflective loss – loss that arises from injury to "their" company (such as a decline in the value of shares). The claim for the loss belongs to the injured company and not to its shareholders. In contrast, shareholder claims for reflective loss have been widely permitted under typical investment treaties over the last 10 years. Ongoing OECD-hosted inter-governmental dialogue on investment law is considering whether there are policy reasons justifying the different approaches to shareholder claims for reflective loss.

This paper examines shareholder claims for reflective loss under investment treaties in light of comparative analysis of advanced systems of corporate law. The paper considers the impact of allowing shareholder claims for reflective loss on key characteristics of the business corporation. The paper also explores possible responses by different categories of investors to the availability of shareholder claims for reflective loss under investment treaties.

This paper explores how uncertainty over investment returns affects pension systems. This issue is becoming more important because of the dramatic spread of defined-contribution pension provision around the world. It has also been highlighted by the recent financial crisis: the OECD estimates that pension funds lost 23% of their value in 2008, worth a heady USD 5.4 trillion. The scale of investment risk is measured in this paper using historical data on returns on equities and bonds in major OECD economies over the past quarter century. The results show a median real return of 7.3% a year on a portfolio equally weighted between equities and bonds (averaging across the countries studied). It might be expected that, over a very long period, the degree of uncertainty in investment returns is small. After all, a few bad years in the market are likely to be offset by boom years. Nevertheless, the degree of uncertainty, even with the relatively long investment horizons of pensions, is found to be large. In 10% of cases, an annual return of less than 5.5% would be expected, while in 10% of cases, this should exceed 9.0%. Compounded over the time horizon for pension savings of 40 years or more, such differences in rates of return amount to enormous sums of money. However, there is a series of reasons why returns achieved by individuals on their pension funds are less than the market return (as measured by conventional indices). These factors include administrative charges, agency and governance effects and demographic change, depressing investment returns below the high levels recorded over the past two decades. As a result, a more conservative assumption for future investment returns than the record over the past quarter century is appropriate. Settling on a median of 5.0% annual real return net of charges implies that 80% of the time, the investment return on pension savings should be between 3.2% and 6.7% a year.
The current financial and economic crisis has highlighted the importance of investment risk for pension systems. In particular, the dramatic spread of defined-contribution pension provision around the world means that investment risk has a direct effect on living standards in old age. This paper explores how uncertainty over investment returns affects individuals’ retirement incomes and government budgets. The key finding is that public pensions, old-age safety net benefits and the tax system act as “automatic stabilisers” of retirement incomes in the face of investment risk in defined-contribution pension plans. However, the degree of protection offered by these policies, and therefore the exposure of individuals’ retirement incomes to investment risk, varies significantly between countries. The paper uses the OECD pension models to explore the implications of a range of possible outcomes for investment returns. (The distribution of investment returns used is derived from historical data in D’Addio, Seisdedos and Whitehouse, 2009.) The analysis begins with the individual pension-scheme member. The results demonstrate that the overall design of the retirement-income package must be taken into account when assessing exposure of individual incomes in old age to investment performance. Many elements of pension systems are not subject to investment risk. And resource-tested benefits can act to mitigate investment risk by paying a larger benefit when returns are poor. Analysis of net pensions shows how taxes can also act to offset the effect of investment risk on living standards in retirement. The differences between countries in the extent to which these different factors affect exposure to investment risk are huge. Together, taxes and meanstested benefits can be termed “automatic stabilisers” for retirement incomes in the face of investment risk. Secondly, the paper uses the OECD pension models to look at the impact of investment risk on the public finances. The corollary of the reduction in investment risk for individuals through tax and transfer policies is exposure to investment risk of the public finances. In countries with resource-tested benefits, the government has a “contingent liability” that depends on investment returns. Better performance means lower expenditure on safety-net benefits. Similarly, the tax system means that the government is effectively a “co-investor”, with the individual retiree, in the defined-contribution plan. Higher returns mean more tax revenues. This effect is particularly large where the tax burden on pensions in payment is high. Adding these two effects together, governments (and so taxpayers) are in many countries significantly exposed to investment risk. This demonstrates how it is impossible to make risks go away: it is only possible to reallocate the risk between different actors in the pension system.
This paper assesses the impact of different quantitative approaches to regulate investment risk on the retirement income stemming from defined contribution (DC) pension plans. It looks at how such regulations affect the spectrum of investment policies available and, through this channel, how they affect the retirement income that an individual may expect from a DC pension plan. The analysis shows that there is a trade-off between potential retirement income and protection from bad outcomes. Reducing the downside risk on retirement income from DC pension plans requires moving into relatively conservative investment policies where the share of assets allocated to bonds may be quite large. However, this comes at the cost of renouncing potentially higher replacement rates that are attainable but at a higher risk of unfavourable retirement income outcomes. Less risk adverse regulators and supervisors would aim at lower probability requirements as regard the downside risk, which will increase the range of investment policies available and thus the share of riskier assets.
While many countries have become ever more open and welcoming for foreign investment, the awareness of risks for national security stemming from or related to international investment has increased. Many governments have thus introduced policies that seek to protect their national security with the smallest possible impact on investment flows. Guidelines for recipient country investment policies relating to national security adopted at the OECD in 2009 provide recommendations for the design and implementation of such policies. This paper reviews commonalities and differences of policies implemented in 54 countries with a special focus on arrangements in 17 economies that have explicit policies in this area. It offers a comparative analysis of countries’ investment policy approaches to address national security concerns stemming from foreign investment; classifies the different forms of restrictions to address these concerns; identifies differences between restrictions on ownership and acquisitions; and presents how countries define the scope of application of their policies. The study also assesses how countries have implemented some of the key principles set out in the 2009 Guidelines in actual policy in order to meet their need to safeguard national security while reducing the impact of these policies on international investment.

Reports on trends in international direct investment tend to focus on recent developments. While such information is clearly of most relevance for policymakers and others interested in the pace and scale of globalisation, it fails to provide any perspective on the nature of globalisation itself. By their nature, recent developments give more weight to the cyclical element in global investment flows. A country’s performance in terms of annual inflows is often taken as a measure of the appropriateness of its policies and, by extension, of its relative attractiveness as a location for investment. Such important issues can only be assessed over a long time period and relying on more sources of information than simply flows of foreign direct investment (FDI). This study focuses on such long-term trends and includes, where appropriate, other estimates of multinational activity.

By focusing on long-term patterns, this paper demonstrates how FDI has evolved from an activity largely ...

The downturn in fixed investment among advanced economies from the onset of the global crisis was unusually severe, widespread and long-lasting relative to comparable episodes in the past. As a result, investment gaps are large in many countries, not only in relation to past norms but also relative to projected future steady-state levels, with a gap of 2 percentage points of GDP or more in several countries. A significant proportion of this investment shortfall is attributable to soft demand conditions (the accelerator effect) but financial factors and heightened uncertainty have also played a role. In addition to continued support to demand from macroeconomic policies, the recovery in investment could be boosted by tackling longer-term policy issues that bear on investment decisions indirectly, by reducing financial fragmentation in the euro area and by undertaking growth-friendly structural reforms.

Lifelong learning is especially important for immigrants, who are often at a disadvantage in terms of the languages and skills that are valued in the labour market of their host country. Yet foreign-born adults are less likely to participate in training than native-born ones, and face higher financial and non-financial barriers to training. Policy efforts should focus not only on providing more training opportunities, but also on removing barriers to participation.

French
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