Commonalities and differences between production-related foreign direct investment and technology-related foreign direct investment in developed and emerging economies

Abstract

This paper investigates commonalities and differences in firm-level determinants of internationalization of production (production-related investments or PFDI) and innovation (technology-driven investments or TFDI) by multinational enterprises. Our database is based on a cross-country survey which includes firms within Automotive, Agro-processing, and Information and Communication Technology sectors from both developing and advanced economies. Our results show that despite some differences, most of the determinants affect in a similar manner both the PFDI and TFDI which rather contradicts recent arguments claiming significant differences between the two. More interestingly, however, we found that institutional determinants such as policies related to foreign direct investments play almost no role in internationalization process of firms while managerial (internal to the firm) determinants had a far greater impact.