The Nature of Dutch Trade and Investments
in Brazil and Colombia
By Marieke de Ruijter Supervisor: Dr. H. Vrolijk
Second supervisor: Dr. W. Westerman
University of Groningen Faculty of Economics and Business MSc International Financial Management
Abstract
This paper aims at examining Dutch trade and investments patterns in Brazil and Colombia. The developments in trade and investments between the Netherlands, Brazil, and Colombia during the past 20 years will be the main objective of this study, to discuss the premise that the Netherlands is not benefiting sufficiently from trade and investments with emerging economies. This point of view will be expanded by examining changes in different sectors of trade and by analyzing another form of internationalization; FDI. Finally, this analysis will be compared to trade and FDI patterns of Germany in order to examine the differences.
Looking at the share of trade and growth rates, this paper shows that the Netherlands is indeed benefiting from trade with emerging economies, however, to a lesser extent than Germany. Especially Brazil is an interesting market for the Netherlands, yet when considering the growth rates of trade with Colombia, the latter offers many opportunities for future trade. The Netherlands is mainly benefiting from the following top sectors: mineral fuels and chemicals. Moreover, it becomes apparent that Dutch trade in the top sectors machinery and transport and manufactured goods in Brazil is stagnating, whereas Colombia is experiencing a large increase in trade in these sectors. This is in contrast with Dutch FDI, which is relatively large in Brazil where FDI in Colombia remains behind.
List of Content
1. Introduction... 4
1.1 Research outline...5
1.2 Data collection and methodology...6
2. Internationalization of companies ... 8
2.1 What is internationalization ...8
2.2 Forms of internationalization...8
2.3 The process of internationalization ... 10
2.4 Definition of used statistics ... 11
2.5 In summary ... 12
3. The internationalization of Dutch companies ... 13
3.1 Trade patterns of the Netherlands ... 13
3.2 Investment patterns of the Netherlands... 16
3.3 Comparison of Dutch trade and investment pattern ... 17
4. General trade flows between the Netherlands, Brazil and Colombia 19 4.1 Trade between the Netherlands and Brazil ... 19
4.2 Trade between the Netherlands and Colombia... 21
4.3 In summary ... 22
5. Dutch investments in Brazil and Colombia ... 23
5.1 Foreign Direct Investments Brazil... 23
5.2 Foreign Direct Investments Colombia ... 26
5.3 In summary ... 29
6. The main sectors of trade ... 30
6.1 Trade between the Netherlands and Brazil per sector ... 30
6.2 Trade between the Netherlands and Colombia per sector... 33
6.3 In summary ... 35
7. Discussion ... 36
7.1 Comparing Dutch and German trade patterns... 36
7.2 Benefits from trade with top sectors... 37
7.3 Benefits from FDI... 39
7.4 The relation between exports and FDI ... 40
Conclusion ... 41
Limitations and implications for further research... 43
Appendices ... 48
Appendix I Internationalization of companies ... 48
Appendix II Internationalization of Dutch firms ... 51
Appendix III Trade in goods and services per share ... 53
Appendix IV General trade patterns the Netherlands, Brazil, and Colombia ... 55
Appendix V Foreign Direct Investment... 57
Appendix VI Dutch trade with Brazil per sector ... 65
Appendix VII Dutch trade with Colombia per sector... 69
Appendix VIII Discussion ... 77
1. Introduction
Prior research has shown that the Netherlands is not benefiting extensively from emerging economies in terms of trade (ING, 2011). For example, Dutch exports to BRIC countries are only a small part of the total trade when compared to exports to European countries (Groot et al., 2011). Moreover, imports from BRIC countries are much higher than exports to the emerging economies. Remarkable is that a part of the Dutch exports goes indirectly to emerging economies like the BRIC countries, mainly through Germany (Groot et al., 2011).
It is the question whether it is not a premature conclusion that the Netherlands is not benefiting a lot from trade with upcoming economies. Therefore, this research will expound this point of view by (i) looking to the differences and changes in the sectors of the trade flows (ii) looking to another type of internationalization: Foreign Direct Investment (FDI), and (iii) comparing these patterns of trade and investments of the Netherlands and Germany.
This research will focus on the changes in trade- and investments relations between the Netherlands and Latin American countries, Brazil and Colombia in particular.
For many Dutch companies Latin America is still an unknown market. Many prejudices such as political and economic instability, language barriers, corruption and difficult loan opportunities decrease the attractiveness of investment activities. However, the Latin American continent keeps, in contrast to Europe and other Western countries, showing economic growth despite of the worldwide crisis, which makes Latin American countries attractive to invest in. The future looks bright for Latin America and the political en economic situation is stable according too ECLAC (2011) and IMF1.
This paper focuses on the upcoming markets of Brazil and Colombia because of the following reasons.
First of all, the Brazilian economy grew rapidly and is now labeled as an economic superpower with an average annual GDP growth of 4,2% over the past years. The economy overtook the United Kingdom in 2011 to become the 6th largest economy in the
world and is expected to become the world’s 5th largest economy by 2017 (KPMG, 2012).
It accounts for more than half of total FDI inflow in Latin America. Yet, economic growth decreased in 2011, with the growth rate falling from 7,5% in 2011 to 2,7% in 2011 (KPMG, 2012). However, because of the World Cup, upcoming Olympic Games and the discovery of very large deep-sea oil field FDI inflow attracted and achieved a record amount.
Colombia is an interesting country because it is one of the strongest emerging economies in Latin America with an average annual growth rate of 5,5%. Furthermore, the country is the only Latin American member of the CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey, and South Africa). The Latin American country has a strong growing middle – class and due to the revaluation of the national currency in comparison to 2007 imports increased (Rijksoverheid, 2012). Also, exports increased in the past years. Interesting and promising sectors in Colombia are agriculture, food industry, water, energy, logistics and medical.
Colombia has a reasonably well-developed financial market, inflation is under control and Colombia is the third largest economy in Latin America (Rijksoverheid, 2012). However, it appears that Dutch companies still prefer investments and trade with Brazil2. This can be
explained by the fact that people associate Colombia with drugs or the guerilla organization FARC (Rijksoverheid, 2012), whereas Brazil has a safer image. This research will show if trade and investment flows from other EU countries into Colombia are relatively higher. The different images of both countries and the different stages of development that the countries are in, makes it interesting to compare these two Latin American countries. This comparison will be conducted in order to see whether the Dutch trade and investment decisions are the right ones or that there are maybe opportunities in other sectors and countries than where they currently focus on.
In this research the following research question will be answered:
To what extent is the Netherlands benefiting from emerging economies such as Brazil and Colombia in terms of trade and investments and in which sectors are there benefits in terms of trade?
1.1 Research outline
The structure of the paper is inspired by the working paper ‘’China’s trade and FDI in Africa’’ of Mary – Francoise Renard (2011). However, instead of focusing on one country this paper will focus on the comparison of two emerging economies; Brazil and Colombia. Moreover, the patterns of trade and investments in Brazil and Colombia of the Netherlands and Germany will be compared to put the analysis in a broader perspective. Furthermore, not only the growth of trade, investments, and sectors will be analyzed but also the change in share of total trade and investment flows to present a more encompassing overview like Vrolijk et al. (2012) applied in their research.
The thesis will be structured as follows. In the literature review I will discuss the main theories about the process of internationalization and discuss two main forms; export and FDI. Secondly, I present the main trends in bilateral trade and investments between companies located in the Netherlands and Brazil and Colombia by giving a historical perspective of the last 20 years, comparing import, export, and investment patterns. Thirdly, differences between sectors in the past 16 years will be investigated. The main sectors of trade where Dutch companies are engaged in will be analyzed. Finally in the discussion section, trade and investments patterns of the Netherlands and Germany will be compared. Top sectors in Brazil and Colombia will be selected to examine to what extent the Netherlands and Germany are focused on these sectors. This in order to find out to what extent Dutch firms are benefiting from investments and different sectors of trade with emerging economies and what the position of the Netherlands is compared to another developed European economy; Germany.
The research method of this paper is to start with a general birds-eye-view and from their zoom in to more specific areas. The process can be represented in the following figure.
2 During acquisition for the project of International Business Research of the Rijksuniversiteit Groningen, it
Figure 1. Research outline
1.2 Data collection and methodology
1.2.1 Data collection
For the purpose of this research, data concerning exports, imports, and investments between the Netherlands, Germany, Brazil and Colombia is used. The data covers trade and investment flows over the last 20 years. These time frameworks have been chosen since it is sufficient period to find patterns of trade and investments.
Data from UNCTAD Stat has been gathered to observe the general trade flows between the Netherlands, Germany, Brazil, Colombia and the world. These general trade flows cover a time frame of 20 years and is specified in exports and imports of goods and services. The statistics of general trade flows include re-exports.
Also general FDI statistics of the mentioned countries were retrieved from UNCTAD Stat from 1992 to 2012. The used FDI statistics of UNCTAD Stat include SPE’s3
Bilateral trade data between the Netherlands and Brazil is gathered through CBS Statline. UN Comtrade is used for bilateral trade statistics of Colombia. The same databases have been used for the trade data specified per sector. The data per sector cover a time framework of 16 years because of the availability of data.
FDI stock data between the Netherlands, Germany, Brazil, and Colombia from 1993 to 2012 is obtained by the database OECD Stat extracts. The FDI stock data exclude SPE’s in order not to overestimate these observations and offer a realistic impression.
1.2.2. Methodology
The focus of this research is on the details and specifics of the obtained data to discover important categories and patterns. Rather than to test hypotheses, exploration of the
subject will be undertaken through the analysis of literature and statistics. This research is therefore explorative with the aim to look for patterns, rather than to test or confirm a hypothesis.
To determine whether the Netherlands is benefiting from trade and investments with emerging economies this research will analyze these patterns. First, main theories of internationalization will be discussed to be able to draw conclusions as to whether these theories are applicable for the explored trade patterns. Second, the general trade patterns will be analyzed by looking at exports and imports data. Third, general FDI stock patterns between the Netherlands, Brazil, and Colombia will be examined. Fourth, differences and changes between sectors will be analyzed. The Standard International Trade Classification rev. 1 (SITC rev.1) has been used which defines the following ten product groups: 1. Food and live animals 2. Beverages and tobacco 3. Crude materials, inedible, except fuels 4. Mineral fuels, lubricants, and related materials, 5. Animal and vegetable oils and fats 5. Chemicals 6. Manufactured goods classified chiefly by material 7. Machinery and transport equipment 8. Miscellaneous manufactured articles 9. Commodities and transactions, not classified.
Finally, based on these findings and comparison with the German patterns of trade and investments with Brazil and Colombia, a conclusion will be drawn.
To compare the trade and investment developments of the mentioned countries in the past 20 years will be conducted as follows. The growth and share as a percentage of total trade or investments in Brazil/Colombia will be calculated. In order to obtain stable outcomes, averages will be measured. The growth rate and share of trade and investments of the Netherlands, Germany and the world will be compared to examine if the Netherlands is indeed benefiting from trade and investments with emerging economies and to what extent.
To test to what extent the Netherlands is benefiting from the specific product groups, top sectors in Brazil and Colombia were selected. The top sectors were selected based on the largest growth of imports of the particular product groups in Brazil and Colombia. Thereafter, it was examined whether the Netherlands and Germany were indeed focusing on the selected top sectors of Brazil and Colombia.
2. Internationalization of companies
The goal of this chapter is to define and analyze the forms and process of internationalization. The first paragraph of this chapter defines the concept of internationalization. Secondly, two forms of internationalization of companies will be discussed; export and FDI. Finally, the process of internationalization will be elaborated on.
2.1 What is internationalization
Before we look for patterns of trade and investments between the Netherlands and Brazil and Colombia it is important to understand the concept, forms, and process of firm internationalization.
Johansson and Vahle (1977) described internationalization as a process in which a firm gradually increases their international involvement. In contrast, Calof and Beamish (1995, p. 116) stated internationalization is ‘’the process of adapting firms’ operations (strategy, structure, resources, etc.) to international environments’’. They argue internationalization is a dynamic and not linear process because firms can also de-internationalize as a result of rapid changes in the international market, for example by quitting export, reducing investments in a market place or by withdrawing from international activities (Rundh, 2006).
In this paper the process of internationalization will be defined as follows; “A process through which firms grow and develop internationally, establish and manage their foreign operations, increase their exposure to international business through international transactions, establish and develop relationships and networks that extend across borders which is manifest and identifiable through specific entry-modes, in location in relation to time” (Jones, 2007). This definition emphasizes the dynamic process, cross-border transactions and foreign operation as the fundamentals of the process of firm internationalization. An entry mode can be defined as a way of organizing and conducting international business transactions (Calof and Beamish, 1995). These modes can be export, joint ventures and wholly owned subsidiaries. This paper will focus on the entry modes export and FDI.
2.2 Forms of internationalization
After describing the concept of internationalization, this paragraph will discuss the main forms of entry to a foreign market: export and FDI.
most appropriate entry mode when there are respectively low entry barriers4 in a foreign
market, maintaining the home location has a cost advantage, and customization is not crucial.
When companies engage in FDI, they can duplicate an existing production facility in a foreign country and serve the foreign market locally (Martinez – Martin, 2010). FDI moves production capacity and employment to other countries because of lower transport costs. Benefits for the company are that the firm remains control over foreign operations and their own technology, and has access to the target’s local knowledge.
FDI can occur in two forms which both have different advantages, namely a production facility or a distribution company. In a production facility the investing company benefits from advantages such as raw materials or cheap labor in order to produce products at low costs. Another possibility is a distribution company that only sells goods in a foreign country, this way a company can be present in the foreign country when customization is important.
When firms are uncertain about the profitability of a foreign market, they will most likely first serve the market via exports before switching to FDI. The main reason is that exports are characterized by lower fixed costs stemming from economies of scale and less risk. After entering a foreign market through exporting, three options remain open: exit the market, continue to export, or to establish a foreign affiliate.
According to Conconi et al. (2013) chances on entering a market through FDI increases when a company already has experience in export and knowledge about the demand and supply conditions in the foreign country. After serving the foreign market through exports many firms will stop exporting to this market since the profits decline because of increasing sales volume which comes along with increasing variable costs (Conconi et al., 2013). In this case it would be more beneficiary for a firm to set up a foreign subsidiary that reduces the high variable costs.
Melitz (2003) and Helpman et al. (2004) focused on productivity differences between companies that can determine their preferred strategy. More productive firms have higher sales volumes which result in higher costs per unit. Therefore, more productive firms are expected to implement an FDI strategy that generates higher fixed costs but lower variable costs. In contrast, export strategy generates lower fixed costs and higher variable costs which makes the strategy more suitable for less productive companies with lower sales volume and therefore lower costs per unit.
Many authors have argued that exports and FDI are alternative modes of entering foreign markets and that these forms can be considered as perfect substitutes. Expected is that FDI will probably be accompanied by lower export levels from the home to host country. In contrast, Conconi et al. (2013) argue that the two entry forms can also be complementary since the acquired knowledge through export experiences can make companies decide to start investing abroad. Furthermore, FDI can be seen as a way of expanding a domestic firm’s control in a foreign country and thereby improving access and enhancing their sales facilities. As a result, FDI may eventually result in a higher level of export from the home to host country on an inter-firm level, because of the improved knowledge and access to the market obtained by other companies (Martinez – Martin, 2010).
2.3 The process of internationalization
In the previous paragraph exports and FDI were described. Also, the process of internationalization of firms has drawn much interest from practitioners and researchers (Dunning 1977; Oviatt et al., 2005). The process of internationalization is important to take into account to determine when and why firms take certain decisions at specific stages.
This paper classifies three main groups of theories of internationalization that describe the process of internationalization; the stage approach, learning approach, and network approach. The main theories and definitions of the approaches will be discussed and the extensive descriptions of the internationalization approaches are presented in appendix I.
2.2.1 The stage approach
Authors of the stage approach state that ‘’Firms start with modes of entry which require the least commitment of resources and with experience in the market increase their commitment of resources to international activities’’ (Korsakiene and Tvaronaviciene, 2012). This approach confirms the pattern in which companies start exporting because of lower costs, commitment, and acquired knowledge, and finally pass into FDI.
One of the important practitioners of this approach is Vernon (1966), who developed the product life cycle model by identifying five stages that products and processes experience. In the first stage of the cycle, a company has an advantage by possessing new technologies and the firm starts exporting the products. Consequently, competitors start imitating the products that the firm was exporting to foreign countries. This forces the company to place production facilities on the local markets to maintain their market shares.
2.2.2 The learning approach
The main theory in the learning approach is the Uppsala Model (Johanson and Vahle, 1977). They argue the internationalization process of a firm can be seen as a process of experiential learning with incremental commitments that leads to development in a foreign market. Firms start their foreign operations at markets with low physical and psychic distance and move gradually to culturally and geographically more distant countries. Looking at the forms of internationalization; firms start their foreign operations by using traditional exports and gradually move to using more expensive operation modes such as FDI. Critiques on the Uppsala Model mainly concern the fact that companies can skip stages and immediately move to a far distance country. Furthermore, the model is sometimes considered as too deterministic since different organizations use different processes of internationalization (Reid, 1981). Moreover, the concept of psychic distance is deemed less important due to globalization (Fletcher, 2001).
2.2.3 The network approach
The network approach is the most common approach for small companies to internationalize (Lettice et al., 2004). The network approach states that the process of internationalization occurs through networks. Several authors (Buckley and Ghauri, 1994; Chetty and Holm, 2000) argue that internationalization can occur in three ways: through relationship building with business partners in foreign countries, through commitment to old created foreign networks, and through integrating their situations in networks in several foreign markets. Therefore, the important factors that determine success when entering foreign markets is the firm’s position in the network and their strong relationships within the market (Korsakiene and Tvaronavicience, 2012). The theories of the network approach can be applied to export and FDI both.
2.4 Definition of used statistics
This section will focus on the statistics that have been used and how these are defined and interpreted.
Patterns and trends of companies located in the Netherlands and Germany will be described; therefore country statistics of the Netherlands, Germany, Brazil, and Colombia will be used. For all depicted graphs, the Netherlands and Germany are the reporting countries, meaning that the terms export, import, trade balance, inward and outward FDI, and capital balance are applicable for the Netherlands and Germany and take on a Dutch and German perspective.
Especially, for the Netherlands re–exports are important to consider because the Netherlands is a transito economy and re–exports many products into Europe (figure 3) because of the Rotterdam harbor. As can be seen in Appendix I figure 1, Dutch exports to European countries such as Sweden, Finland, Hungary, Poland and Spain are dominated by re–exports (CBS, 2010). Re–exports are foreign goods that are re–exported in the same state as previously imported (Comtrade, 2013). However, profits on re–exports are relatively low, therefore it is important to take this category into account because the Netherlands is benefiting less from re–exports than exports.
The export data of Comtrade, UNCTAD Stat and ING reports always include re–exports. Since re–export is mainly profitable for nearby countries (appendix I figure 1), the share of Dutch re–export to distant countries such as Brazil and Colombia is relatively low (CBS, 2010). For this reason I decided not to leave out re–export from the statistics since the share of re–export is relatively low for these far distance countries and will not overestimate the Dutch export statistics to a large extent.
CBS (2010) reports FDI as a category of cross-border investments made by a resident in one economy (the direct investor), with the objective of establishing a lasting interest in an enterprise (the direct investment enterprise) resident in an economy other than that of the direct investor. The motivation of the direct investor is a strategic long-term relationship with the direct investment enterprise to ensure a degree of influence in the management of the direct investment enterprise (CBS, 2010).
establishment. The SPE’s are only registered with the Chamber of Commerce, at the address of a trust office that is responsible for their administrative obligations. SPE’s are used either as a holding company, in this case used by a parent company to transfer investments to mainly third world countries, or as a financing company, that puts or obtains money in the international capital market for the benefit of other group members. The assets and liabilities of SPE’s are generally not located in the home country and can enlarge FDI data, therefore it does not offer a realistic image of the FDI of a country. In this paper, the FDI statistics gathered by OECD Stat concerning FDI data between the Netherlands, Germany, Brazil and Colombia does not include SPE’s. This is in order to reduce the overstatement of FDI statistics and to provide a more realistic analysis (DNB, 2013). However, general FDI data of UNCTAD Stat, used for analyzing the investment patterns between the selected countries and the world, do include SPE’s. Therefore, statistics of UNCTAD will provide a larger value of FDI since SPE’s are included. Hence, statements about growth and share of FDI stock must be made with caution since the value of investments between the selected countries will be relatively lower since SPE’s are excluded.
The aim of this paper is to analyze patterns. This can better be observed by using FDI stock instead of FDI flows since the latter causes large fluctuations, making it more difficult to analyze the general pattern.
FDI stocks represent the value of the stock of direct investments held at the end of the reference period, in this case at the end of each year. FDI stock is not only affected by financial transactions recorded prior to and during the year, but also by other changes in price, exchange rates, and volume (OECD Stat Extracts, 2013).
2.5 In summary
In this chapter the concept of internationalization has been briefly introduced. In addition, the two main forms of internationalization of companies, exports and FDI, have been defined. Finally, different processes of internationalization were elaborated on.
The concept and forms of internationalization explained in this chapter function as an introduction to- and as a foundation of the explorative research performed in this thesis. The pattern of Dutch trade and investments in Brazil and Colombia will be analyzed and conclusions will be drawn as to whether the discussed theories of this chapter are applicable for the explored trade patterns.
3. The internationalization of Dutch companies
After discussing the concept, forms, and process of internationalization, the internationalization of Dutch companies will be analyzed. First, trade patterns of the Netherlands from 1992 to 2012 will be described. Second, the investment patterns of the Netherlands in the past 20 years will be discussed. Finally, these patterns will be compared. As mentioned in chapter 2 the used trade statistics include re–exports and the general FDI stock statistics include SPE’s.
3.1 Trade patterns of the Netherlands
Figure 2. Trade in goods and services in the Netherlands, 1992 – 2012
Source: Author’s own calculations using data from UNCTAD Stat
Figure 2 shows the patterns of trade of goods and services in the Netherlands from 1992 to 2012. The value is given in million Euros.
The exports of services are only a small amount compared to the exports of goods. Figure 1 in appendix III represents the composition of shares of export and import of goods and services in the past 20 years and shows it almost remained the same.
Exports of goods and services increased in 1995 and remained stable till 2001. Remarkable is that only a relatively small decline in growth can be found during the economic recession around 2000. After 2002 export rose tremendously with a growth of 145% in 2008. In 2009 a decline can be observed which can be explained by the global financial crisis. According to CBS (2010), the economic crisis resulted in a strong decline in total Dutch exports of almost 22% in 2009, and imports of goods decreased even more strongly.
considerably lower share of imported services than imported goods. Imports of goods and services shows almost the same trend in the past 20 years with a stable pattern till 2002 followed by a large increase that is interrupted in 2008 by the crisis.
Figure 3. Composition of Dutch export value
Source: Vrolijk (2013) calculations of CPB, CBS
Figure 3 shows the composition of the Dutch share of re-export, export of services and export of goods in percentages. The figure shows that the Dutch export pattern has changed especially due to the growth of re–exports. It shows that re–exports are a large part of the total export value of the Netherlands. The share of re–exports of the total value of exports increased in the period 1990 – 2009 from 21% to 40%. This increase of re–exports was at the expense of the share of category export goods, which decreased in the period from 1990 to 2009 (Vrolijk, 2013). The share of services increased slightly from 18% to 21% in the same period (Vrolijk, 2013). The Netherlands ranked 7th in the
world by export size, and 8th when excluding re–exports (ING, 2011).
Because services are a relatively small part of the total export- and import value between the Netherlands and the world, the rest of this paper will only focus on the trade of goods. ING (2011) performed a study, based on CBS data, on the development of Dutch trade over the past two decades. The research focused on how Dutch trade has been shaped by globalization and specialization. The export data includes re-exports. The report showed the following developments of Dutch trade.
• Although the Netherlands is a small country with 0,24% of the total population, its role of international trade is exceptional. The Netherlands is the 5th largest
exporter of goods and services in the world. In the field of agriculture the Netherlands is even the world’s second largest exporter. Dutch exports as a percentage of GDP increased from 60% in 1996 to almost 80% in 2010, which indicates the open character of the Dutch economy (ING, 2011).
Figure 1 in appendix I presents seven economies5 of the world where exports as a
percentage of GDP is the highest. The figure shows that in Belgium, the export-GDP ratio is the highest in the world. The Netherlands ranked second and in 2010 exports reached almost 80% of GDP. The dotted line in figure 1 (appendix II)
shows the Dutch exports corrected for re-exports, which still presents a relatively high export-GDP ratio.
• Trade with the European Union covers the major part of the trade balance as can be seen in figure 2 in appendix II. Besides geographical and historical facts this can also be explained by the increased European integration (CBS, 2010). Bilateral trade balances show as well that Dutch exports are mainly focused on Europe and results in growing surpluses, whereas bilateral trade with countries outside Europe leads to trade deficits. The largest trade surpluses are with Germany, France, Italy, and Belgium. Whereas, the largest trade deficits of countries outside Europe are with: China, U.S., Russia, Japan, and Brazil (ING, 2011).
When excluding the flows to and from the European Union, there is a resulting trade deficit of about 10% (figure 2 in appendix II). This indicates the import function of the Netherlands as a gateway for the European hinterland with imports overseas being exported (ING, 2011).
• According to CBS data, about 45% of the increase in the trade balance covers domestically produced goods exported to Western Europe. This analysis corresponds to the previous mentioned literature in chapter 2 concerning internationalization approaches. Vernon’s product life cycle model states that companies increase exports activities to countries similar to their home country. Furthermore, the Uppsala model argues that companies start in their home market and consequently expand to well-known markets with low physical and psychic distance, which is the case of the Netherlands and Western Europe. After Europe, the largest trading partner is the U.S., which is also corresponding to the literature. Not surprisingly, emerging markets such as Asia and Latin America (only 2% of total Dutch exports) with a larger physical and psychic distance are the smallest export partners of the Netherlands.
As mentioned earlier, another important clarification of the fact that 45% of the trade balance covers domestically produced goods exported to Western Europe is that the Netherlands is a transit economy.
• A remarkable change in the trend of the increasing account surplus since the mid 1990s can be noticed due to the global financial crisis in 2008 that followed the collapse of Lehman Brothers.
In conclusion, based on the ING report we can state that Dutch exports are mainly focused on Western Europe instead of emerging Europe. In contrary, this trend does not appear in imports since imports are more focused on countries outside Europe. Figure 4 presents the exports and imports of the Netherlands to and from six regions in the world. The orange arrows show exports to the various regions and the grey arrows present imports to the Netherlands. The given value and is for the year 2010 and the given percentage is the CAGR6 which covers the period from 1996 to 2010. As can be seen in
figure 4, exports are heavily focused on Western Europe, trade with Latin America is still relatively small and imports from Latin America exceed exports.
6 ING does not describe the definition of CAGR but according to Investopedia CAGR provides the
Figure 4. Trade with six regions – Dutch total domestic export and import
Source: ING(2012) based on UNCTAD Stat
3.2 Investment patterns of the Netherlands
Figure 5 presents the developments of Dutch inward and outward FDI stock during the past 20 years with the world. The FDI stock data is gathered by UNCTAD Stat and includes SPE’s. The value of FDI stock is presented in million Euros.
Outward FDI has always been greater than inward FDI. Both FDI stocks show increasing growth patterns in the past 20 years. Especially after 2000, large increases can be found. In 2007 inward FDI increased much, which can be explained by the takeover of ABN AMRO by foreign banks (CBS, 2012). An explicit decrease in both outward and inward FDI is shown in 2008 due to the global financial crisis. This partly occurred due to the acquiring of the Belgium company Fortis by the Dutch government. The Netherlands follows the general trends in worldwide investments, which showed the same growth and recovery pattern during and after the financial crisis. In 2011 and 2012 FDI stock showed signs of recovery.
SPE’s. Taking this in consideration, we can assume that the Netherlands is benefiting less from investments than the amount presented in figure 5.
Figure 5. FDI stock in the Netherlands, 1992 – 2012
Source: Author’s own calculations using data from UNCTAD Stat
CBS (2012) reports that outward FDI mainly goes to developing countries compared to inward FDI, which is originating more from developed countries. Appendix II figure 3 shows inward and outward FDI stock of four regions in the year 2000 and 2011. The figure shows that FDI to developing countries is growing faster than to developed countries. For instance, Dutch FDI to the BRIC countries tripled from 2000 to 2011 to a value of 26 billion. In contrast, Dutch FDI to the U.S. declined (CBS, 2012).
3.3 Comparison of Dutch trade and investment pattern
Comparing figure 2 and 5 we can draw the following conclusions about Dutch trade and investment patterns. For both trade and investments there are more exports and outward FDI than imports and inward FDI. Both graphs show almost the same patterns in the past 20 years, yet some differences can be mentioned:
- There is a particular increase in trade around 1995.
- Until the economic recession in 2002, trade shows a stable pattern with no major increases. This is contrary to investments that show a strong increase.
- After the economic recession in 2002 trade shows a strong increasing growth, whereas FDI shows a drop around 2005 and 2006.
Because the share of re–exports to Brazil and Colombia is relatively small, we can state that the value and growth of exports to Brazil and Colombia is indeed beneficial for the Netherlands and does not mainly consists of less profitable re-exports.
Additionally, the general FDI statistics of UNCTAD used to analyze investments patterns between the Netherlands and the world include SPE’s. This means that the large value and growth of Dutch outward and inward FDI is mainly derived from the value and growth of SPE’s. This is important to notice because SPE’s generate less profit for the
Netherlands since it does not affect the Dutch real economy. Hence, the Netherlands is benefiting to a lesser extent from these investments.
4. General trade flows between the Netherlands, Brazil and
Colombia
This chapter will discuss the main trends in trade of goods between the Netherlands and Brazil and Colombia over the last 16 years. First, the general trade patterns between Brazil and the world will be discussed. Second, exports and imports between the Netherlands and Brazil will be emphasized. Thereafter, the same trade patterns will be analyzed between the Netherlands and Colombia.
In the graphs the Netherlands is the reporting country, which means that the terms exports, imports, and trade balance, are applicable for the Netherlands and take on a Dutch perspective7.
For the general trade of Brazil and Colombia data of UNCTAD Stat has been used. Two different data sources have been used for trade statistics between the Netherlands, Brazil, and Colombia because of data access and availability. For Brazil CBS Statline has been used, whereas Comtrade has been used for Colombia. Exports and imports data are provided over the period 1996 – 2012.
As explained in chapter 2, all trade statistics of UNCTAD Stat, CBS Statline, and Comtrade include re-exports because it is a relatively low share of total exports, hence acceptable to include this data.
4.1 Trade between the Netherlands and Brazil 4.1.1 General trade Brazil
Appendix IV figure 2, shows the trade in goods and services between Brazil and the world from 1992 to 2012, given in million Euros. From 1995 to 2002 imports were of greater value than exports. In the following years exports of goods and services increased and became larger than imports. Both exports and imports reveal stable patterns of growth. For both imports and exports the share of services was considerably lower.
In 2000 a rise in both exports and imports can be observed. This might be the result of the fiscal adjustment program on structural reform when Brazil received a US $41500 million international support program in November 1998 by the IMF. In January 1999 it was announced that the Real would no longer be pegged to the USA dollar. This devaluation helped to moderate the downturn in economic growth in 1999.
4.1.2 Dutch exports to Brazil
Figure 7 illustrates the trade in goods between the Netherlands and Brazil from 1992 to 2012 in 1000 Euro. Dutch exports to Brazil are much lower than imports from the Latin American country. Exports remain moderately stable over the period 1996 – 2006. The slight decline from 2000 to 2003 is likely a result of the economic crisis that hit Brazil and Argentina (EIM, 2011). In 2007 and 2012 a large expansion in exports can be observed. The main explanation for the increase of Dutch exports to Brazil is that since
1990 Brazil has undergone trade reforms that included major reductions in trade barriers for goods and services, in terms of both tariff- and non-tariff barriers (EIM, 2011).
4.1.3 Dutch imports from Brazil
Figure 7 illustrates a stable growth pattern of imports from Brazil from 1996 till 2000. In 2000 a rapid growth can be observed with a rise of 33,5% compared to the imports of 1999. This is in line with the increase in exports from Brazil to the world around 2000 (appendix IV figure 2).
In 2007 another boost in imports can be found with an increase of 32,3% compared to the Dutch imports of 2006. Till 2012, imports in the Netherlands keep showing large expansions with only a decrease in 2008. This is similar to what CBS (2010) stated about the total Dutch trade with the world.
All in all, exports and imports between the Netherlands and Brazil result in a negative trade balance (figure 7). Brazilian imports in the Netherlands increased in the past 20 years and Brazil has become of greater importance for the Netherlands.
Figure 7. Trade between the Netherlands and Brazil 1996 – 2012
4.2 Trade between the Netherlands and Colombia 4.2.1 General trade Colombia
Appendix IV figure 3 shows the trade in goods and services between Colombia and the world from 1992 to 2012, given in million Euros. It becomes apparent that Colombia is mainly focused on imports. Exports remained considerably low compared to imports in the past 20 years. Both exports and imports experienced a stable growth pattern with slight declines around 1999 and 2009.
For both trade flows the share of services is relatively low compared to goods.
4.2.2 Dutch exports to Colombia
Figure 8 illustrates the trade in goods between the Netherlands and Colombia from 1992 to 2012 in 1000 Euro.
As can be seen in figure 8, Dutch exports to Colombia are lower than Dutch imports from Colombia. Exports to Colombia show a stable pattern in the past years with no major peaks or declines.
The trade balance is similar to the trade balance of the Netherlands and Brazil (figure 7) and presents a large trade deficit. In 2011 and 2012 the trade balance became increasingly negative and started showing a declining trend. According to Agentschap NL (2012) this deficit is mainly caused by Dutch import of coals, iron, steel, vegetables and fruit.
In December 2012 the European Union confirmed a Free Trade Agreement with Colombia, which can have positive result for the trade between the EU and Colombia and thereby for the Netherlands.
4.2.1 Dutch imports from Colombia
Figure 8. Trade between the Netherlands and Colombia 1996 – 2012
Source: Author’s own calculations using data from Comtrade
4.3 In summary
Dutch imports from Brazil and Colombia are larger than Dutch exports to the Latin American countries, which results in large trade deficits. In both countries Dutch trade experiences a large growth. Yet, Dutch exports show a relatively slower growth than Dutch imports.
Based on the trade patterns with Brazil and Colombia we can state that the Netherlands is benefiting a little from trade with the emerging economies since imports are
considerably larger and shows a higher growth rate than Dutch exports. In the next
5. Dutch investments in Brazil and Colombia
In chapter 4 patterns of trade between the Netherlands, Brazil and Colombia were illustrated. The analysis till now showed that the Netherlands is benefiting a little from trade with emerging economies. Yet, trade with Brazil and Colombia shows high growth rates and could become of more importance for the Netherlands in the future. Because FDI has grown at a phenomenal rate since the early 1980s (IMF, 1999) it is also interesting to analyze Dutch investments. Especially FDI in developing countries is experiencing a large growth because they are becoming increasing attractive destinations, partly because emerging economies offer investors a range of assets, market size, and growth prospects.
In this chapter trends in FDI stock between the Netherlands, Brazil, and Colombia will be examined and possible clarifications for relatively large declines or increases will be provided. First, the general patterns of outward and inward Brazilian FDI and the rest of the world will be emphasized. Second, FDI stock between the Netherlands and Brazil will be discussed. Thereafter, the same analyses will be done with regard to Colombia.
For general outward and inward FDI stock, data of UNCTAD Stat has been used over the period 1992 to 2012. For the developments of FDI stock between the specified countries for the period from 1992 to 2011 data from OECD Stat was retrieved. Notice that FDI data of UNCTAD Stat includes SPE’s, yet OECD Stat provides FDI data that excludes SPE’s. Therefore, conclusions must be made with caution when comparing FDI stock of the two different databases. The value and growth rates of UNCTAD Stat will be higher because SPE’s are included. Moreover, calculating the share of FDI stock of OECD Stat as a percentage of general outward and inward FDI of UNCTAD Stat can result in a lower share of the Netherlands, Brazil, and Colombia.
In the graphs the Netherlands is the reporting country which means that the terms inward, outward, and capital balance are applicable for the Netherlands and take on a Dutch perspective8.
5.1 Foreign Direct Investments Brazil 5.1.1 General FDI patterns Brazil
Figure 2 in appendix V represents general FDI stock patterns of Brazil from 1992 to 2012 given in million Euros. Inward FDI in Brazil shows much higher values than outward FDI in the past 20 years. Yet, outward FDI illustrates a slight increase. Several clarifications and several policies in Brazil were implemented which fostered outward FDI from Brazil into the world and are further explained in appendix V section 5.1.1.
From 1995 onwards, inward FDI have played a salient role in the Brazilian industrialization that was mainly attracted by the large domestic market of the country and government policies (Da Motta Veiga, 2004). The FDI policies in Brazil have been liberal and foreign capital is viewed positively by the large majority of political parties, who see FDI as a source of employment and modernization of the economy. Total FDI inflows in Brazil grew sharply in 1995, interrupting the trend of FDI flows over the previous 15 years (ECLAC, 1999). Since 1995, FDI inflows have been higher than the stock accumulated throughout the history of the Brazilian economy (ECLAC, 1999). A slight
decline of inward FDI can be noticed in 2008 which can be explained by the global financial crisis (appendix V figure 2). From 2008 onwards, inward FDI reveals major increases and in 2010 a large peak can be observed.
5.1.2 Dutch FDI in Brazil
Figure 9 represents FDI stock patterns between the Netherlands and Brazil from 1993 to 2011 in million Euros. As previously mentioned total inward FDI in Brazil grew sharply in 1995 and the following years. The same trend is noticeable with Dutch FDI in Brazil. Figure 9 shows an increasing growth pattern of outward FDI into Brazil. Over the period from 1996/97 to 2010/11 Dutch FDI in Brazil grew with 343%. The position of Brazil as a preferred destination for Dutch FDI and the strengthened FDI inflows into the Brazilian economy might be the result of the stabilization policy, the Real Plan, and the liberalization of the Brazilian economy in the mid 1990’s.
In 2008, a decline of 46% compared with 2006 can be observed. This is the result of the global economic and financial crisis in 2008 after the fall of the Lehman Brothers. CBS (2010) mentioned several effects and possible implications that the crisis can have on FDI and are described in appendix V section 5.1.2.
After the decline in outward FDI during the global financial crisis in 2008, a recovery emerges in 2009 and the following years.
Comparing the pattern of Dutch FDI into Brazil (figure 9) with the total inward FDI into Brazil (appendix V figure 2), almost the same trends appear. Both graphs show large increases in FDI, yet only a decline in Dutch outward FDI around 2008 is shown which is not present in total inward FDI in Brazil. Based on these figures we can assume that the Netherlands is an important player for Brazil in terms of FDI.
Comparing Dutch FDI in Brazil (figure 9) and Dutch FDI in the world (appendix V figure 1), it becomes apparent that both outward FDI stock shows the same increasing growth pattern. However, Dutch FDI in Brazil shows more fluctuations and responds more heavily on the crisis in 2008.
The pattern of Brazilian FDI into the Netherlands (figure 9) is not identical to Brazilian FDI into the world (appendix V figure 1). Brazilian FDI into the world shows a stable pattern, more growth and no declines are noticeable during the economic recession in 2000 and the financial crisis in 2008.
Appendix V figure 4 and table 19, show the position of the Netherlands in terms of FDI
flow into Brazil. Between 2006 and 2009 the Netherlands was responsible for 18% of the total inflows of Brazil FDI and ranked first. Also according Groot et al. (2009) the Netherlands is a relatively large investor in all other BRIC countries compared to the rest of EU-15. Brazil is the largest recipient of FDI (Groot et al., 2009).
In 2010, Dutch FDI flows into Brazil were considerably lower and the Netherlands ranked 4th with 8%. This can also be seen in figure 9 when Dutch FDI into Brazil dropped in 2009 and 2010. The Brazilian Central Bank estimated that FDI inflow from the Netherlands have grown from USD 3.5 billion in 2006 to reach USD 17.6 billion in 2011. Moreover, the Compound Annual Growth Rate (CAGR) has been 20,1% between 2008 and 2010.
5.1.3 Brazilian FDI in the Netherlands
Looking at the pattern of Brazilian FDI in the Netherlands in figure 9 we can argue the following. Brazilian FDI in the Netherlands experienced a lower growth compared to Dutch FDI in Brazil. Yet, from 1998 onwards rises can be observed. Brazilian FDI in the Netherlands shows decreases in 2002 and 2009, what can be the result of the 2000 economic recession and the 2008 global financial crisis as previously mentioned. Remarkable are the negative flows of stock in 2009 and 2010 during the global financial crisis, due to repatriation of capital, which are recorded as disinvestments. These disinvestments can be explained by parent companies that want to preserve liquidity and credit in turbulent times like the financial crisis, in order to do this they withdraw funds from their foreign subsidiaries. After 2010, a slight increase in inward FDI stands out. The patterns of Dutch inward FDI from Brazil and from the world are corresponding (figure 9 and appendix V figure 1). In both graphs, a decrease of inward FDI can be noticed during the two crises. Though, inward FDI from Brazil shows recovering signs after 2009 whereas inward FDI from the world still shows decreasing numbers.
Figure 9. FDI stock between the Netherlands and Brazil, 1993 - 2011
Source: Author’s own calculations using data from OECD Stat Extracts
5.1.4 Dutch growth and share of FDI stock in Brazil
In this paragraph the FDI patterns of the Netherlands, Brazil, and the world will be compared by showing the value, growth and share of Dutch FDI stock in Brazil.
Table 1 illustrates the Dutch growth rate and share Dutch FDI stock in Brazil10. The table
makes a comparison between the situation in 1996/97, when the increase in FDI
started, the situation in 2002/03 after the economic recession, and 2010/11 after the global financial crisis. In this manner, the period of 20 years has been divided in 3 sections. Averages of two years have been calculated for stable outcomes. First, the value of Dutch FDI in Brazil in million Euros is provided. Second, the growth rate for the years 2002/03 and 2010/11 based on 1996/97 is presented. Finally, the Dutch share as a percentage of total FDI stock in Brazil is given. To calculate the Dutch share, FDI stock between the Netherlands and Brazil without SPE’s is divided by the general FDI statistics of UNCTAD Stat that includes SPE’s. This will result in a lower Dutch share since Dutch SPE’s are excluded. The complete table is presented in appendix V table 2.
As can be seen in table 1, the value of Dutch FDI in Brazil increased during the years and in 2010/11 a growth rate of 343% compared with 1996/97 can be observed. Despite the increasing value of Dutch FDI in Brazil, the Dutch share of total FDI stock in Brazil decreased to 1,9% in 2010/11.
Table 1. Dutch growth rate and share of FDI stock in Brazil
1996/97 2002/03 2010/11 Value in million Euros 2121 5251 9392 Growth in % based on 1996/97 (index) - 148% (248) 343% (443) Dutch FDI in Brazil Dutch share of
total FDI in Brazil 4,6% 6,1% 1,9%
Source: Author’s own calculations using data from OECD Stat Extracts
5.2 Foreign Direct Investments Colombia 5.2.1 General FDI patterns Colombia
Figure 3 in appendix V represents general FDI stock patterns of Brazil from 1992 to 2012 given in million Euros. As expected, inward FDI in Colombia exceeds outward FDI. Inward FDI presents a stable growth pattern with a peak in 1997 followed by a slight decrease till the economic recession in 2000. Inward FDI experienced a growth of nearly 350% over the period 2004 to 2012.
Until 2004 outward FDI remained relatively low and in 2004 it experienced a large stable growth. Over the period from 2004 to 2012 outward FDI increased with about 626%. After 2011 a large increase can be found in inward FDI into Colombia. An explanation for this increase might be that credit rating agencies Standard & Poors, Moody’s Investor Services, and Fitch Ratings, upgraded Colombia’s credit debt rating in 2011. This upgrading gave a boost to the confidence in the Colombian economy and fostered investments (Posada Betancourt, 2012).
5.2.2 Dutch FDI in Colombia
Figure 10 illustrates FDI stock patterns between the Netherlands and Colombia from 1994 to 2011 in 1000 Euro.
As can be seen in figure 10, Dutch FDI in Colombia is higher than inward FDI. In contrast to inward FDI, outward FDI shows a turbulent pattern over the last 17 years. From 1994 onwards a stable increase can be noticed, which is interrupted in 2000. Similar to Dutch FDI into Brazil the economic recession from 2000 till 2003 stands out. During this period even negative outflows of FDI stock occurred which can be recorded as disinvestments as explained in the previous section.
Remarkable is that Dutch FDI in Colombia from 2000 to 2003 shows a relatively large decline compared to the general outward FDI from the Netherlands into the world (appendix V figure 1).
From 2003 onwards, FDI increased and almost doubled compared to the enormous decline in the period from 1994 to 2000. However, during the global financial crisis in 2008 another large drop in outward FDI stands out.
Furthermore, an interesting observation is that FDI in Colombia from the world increased sharply after 2011 (appendix V figure 3). Posada Betancourt (2012) explained this as the result of the upgraded credit rating by Standard & Poors etc., which gave a boost to the confidence in the Colombian economy and should fostered investments. However, this development is not present in Dutch FDI into Colombia (figure 10). Dutch FDI in Colombia even declined with a large amount after 2011.
Figure 9 and 10 illustrate that Dutch FDI in Colombia revolved more around zero in the past 17 years compared to Brazil. However, total FDI into Colombia showed the highest growth in Latin America (92%) in 2011, from US$6,746 million in 2010, to US$13,297 in 2011. Moreover, the Netherlands is responsible for a large amount of FDI in Colombia. As can be seen in appendix V table 511, which presents the inflow into Colombia by country,
the Netherlands ranked first and is responsible for 16,5% of FDI inflow into Colombia.
5.2.3 Colombian FDI in the Netherlands
Dutch FDI from Colombia remained mainly around zero until 1999. The growth of inward FDI from Colombia increased from 2002 onwards and reflects the internationalization of the Colombian economy that followed policy reforms and economic liberalization in the 1990s. Total outward FDI from Colombia, which is shown in appendix V figure 3,
11 Notice that table 2 in appendix V uses FDI flows instead of FDI stock. Therefore, comparisons must be
expanded from US$ 3 billion in 2000 to US$ 23 billion in 2010. However, these large increases are not present in Colombian FDI to the Netherlands (appendix V figure 1). This can be explained by the fact that outward FDI of Colombia is mainly directed towards host countries in Latin America. Furthermore, most Colombian MNE’s are ‘‘translatinas’’12.
This explains why Colombian FDI into the Netherlands is considerably lower than the enormous growth of Colombian FDI in the world what can be seen in appendix V figure 3. Figure 10. FDI stock between the Netherlands and Colombia, 1994 – 2011
Source: Author’s own calculations using data from OECD Stat Extracts
5.2.4 Dutch growth and share of FDI stock in Colombia
In this paragraph the FDI patterns of the Netherlands, Colombia, and the world will be compared by presenting the value, growth and share of Dutch FDI stock in Colombia. Table 2 provides the Dutch share and growth of Dutch FDI stock in Colombia13. Other
timeframes than Brazil have been used because of missing years in OECD Stat statistics. Table 2 makes a comparison between the situation in 1994/95, when the increase in FDI started, the situation in 2002/03 after the economic recession, and 2008/09 after the global financial crisis. Averages of two years have been calculated for stable outcomes. The complete table is presented in appendix V table 6.
First, the value of Dutch FDI in Colombia in million Euros is provided. Second, the growth rate for the years 2002/03 and 2008/09 based on 1994/95 is presented. Finally, the Dutch share as a percentage of total FDI stock in Colombia is given. To calculate the Dutch share, FDI stock between the Netherlands and Colombia without SPE’s is divided by the general FDI statistics of UNCTAD that included SPE’s. This will result in a lower Dutch share since Dutch SPE’s are excluded.
12 Translatinas are Latin American MNE’s whose outward FDI is mainly within Latin America.
From table 2 it becomes apparent that Dutch FDI in Colombia illustrates a decrease in 2002/03 and increases afterwards. In 2010/11 the total value increased with 103% compared with 1996/97. Similar to Brazil, the total value of Dutch FDI increased however the Dutch share of total FDI in Colombia decreased with 0,4% in 2010/11.
Table 2. Dutch growth rate and share of FDI stock in Colombia
1994/95 2002/03 2008/09 Value in million Euros 138 17,5 280 Growth in % based on 1994/95 (index) - -87% (13) 103% (203) Dutch FDI in Colombia Dutch share of total FDI in Colombia 1,2% 0,1% 0,4%
Source: Author’s own calculations using data from OECD Stat Extracts
5.3 In summary
From appendix V figure 2 and 3 we can conclude that the value of FDI into Brazil is much higher than into Colombia. This is not surprising looking at the different sizes of the economies and the attractive large domestic market that Brazil has. However, total FDI stock of Brazil and Colombia did experience almost the same pattern of growth.
This is not the case when looking at Dutch FDI in the two Latin American countries, which shows a much higher growth of FDI into Brazil than Colombia. Furthermore, the Dutch share of total FDI in Brazil is higher as well compared to Colombia. A possible explanation might be the status Brazil has as a BRIC country and Colombia is still an upcoming market in a very early phase of development whereas Brazil is several stages further. It is remarkable that Dutch trade with Colombia is intensifying and becoming of more importance in terms of trade, yet investments did not increase at the same pace. Dutch trade with Brazil on the other hand, was already more developed than Colombia. This can explain the higher growth of Dutch FDI in Brazil. This assumption corresponds to the traditional theories mentioned in chapter 2, which state that companies start first with exporting their goods and services and in a later stage when companies acquired market specific knowledge firms start investing in the specific countries. An expected trend for the future might be that when trade between the Netherlands and Colombia intensifies, Dutch FDI in Colombia will subsequently increase as well.
6. The main sectors of trade
In the previous chapters the patterns of trade and investments have been examined. Trends and remarkable peaks and declines in export, import, and FDI have been discussed and possible explanations were given.
This chapter will zoom in on the main sectors of export and import. The objective is to analyze differences and changes of the main sectors where Dutch companies are engaged in, in terms of trade.
Data has been gathered through the database CBS Statline and Comtrade according to SITC rev. 1 classification14. Trade between the Netherlands and the two Latin American
countries specified per sector is presented in each two graphs. The first graph shows the developments in exports and imports per sector based on value. The second graph illustrates the share of the particular sector as a percentage of the total amount of trade per year in order to see the changes in the shares in the past 16 years.
6.1 Trade between the Netherlands and Brazil per sector
The value of sectors of the bilateral trade between the Netherlands and Brazil from 1996 till 2012 has been examined.
6.1.1 Exports per sector
Appendix VI figure 1 represents Dutch exports to Brazil specified per sector in the period from 1996 to 2012 in 1000 Euro. Figure 2 in appendix VI shows the share of Dutch exports per sector of the total exports in percentages.
Dutch exports to Brazil has grown tremendously with 408% in 2012 compared to 1996. The main exported product group is chemicals which represents a stable growth. However, the share of chemicals of total exports declined during the years and in 2012 it is responsible for about 30% of total exports. Yet, in previous years it represented about 35% of total export.
The sector mineral fuels strikes out as well. Mineral fuels remained quite low until 2007 when exports suddenly increased, especially over the period from 2010 to 2012 a high peak stands out. In 2012 the share of mineral fuels almost represented 35% of total Dutch exports to Brazil.
Dutch exports of the sector machinery and transport stayed dominant over the last 16 years and represents a small but stable growth pattern.
The sectors food and live animals, crude materials and vegetable and animal oils exports remained quite low.
