Empirical Determinants of Manufacturing Direct Foreign Investment in Developing Countries

As economic globalization is deepening, a new international division of labor emerges, which is, to a large extent, realized in the form of FDI. Sino-US trade is in the state of fast development, and foreign direct investment in China also goes through large-scale expansion in the meantime. With its huge market potential, broad development prospects and increasingly improved investment environment, China has attracted an increasing number of foreign investors to invest in China, thus China is gradually becoming a great power utilizing foreign investment. Foreign-funded enterprises in China play a significant role in the import and export trade between China and the United States and the development of Sino-US trade. The rapid growth of China-US trade is largely benefited by the rapid development of foreignfunded enterprises in China. In the long run, foreign direct investment in China has a great impact on Sino-US import and export trade. In this paper, the correlation between the volumes of foreign investments in China during the period between 1983-2019 and the Sino-US import and export trade is analyzed, and based on the co-integration relationship between foreign direct investment in China and the Sino-US import and export trade, it comes to a conclusion that foreign direct investment in China plays a catalytic role in both import and export trade between China and the United States, that is, foreign direct investment has a stimulating effect on Sino-US import and export trade, resulting in China’s ever-expanding trade surplus with the United States.

The role of state policy in the industrialization of Third World nations has become the subject of increasing interest in recent years. In the past, the debate over economic development has either focused on the traditional modernization approach' or the dependency theory of underdevelopment.2 Dependency theorists base their model of development on the belief that foreign investment from core countries is harmful to developing nations' long-term economic growth. Economic relationships between the core and the periphery are structurally detrimental for the latter because of the inherent dynamics of international capitalism. Yet, despite the claims of dependency theory, the recent experience of the East Asian newly industrialized countries suggests a wider range of development possibilities which include government policies specifically designed to attract foreign investment. These countries appear to have structured their domestic economies in order to mitigate the pernicious effects of dependent relationships with core countries. This raises new questions about the development process and the role of policy and foreign investment in the economic transactions between core and peripheral countries. Dependency theory, a neo-Marxist predecessor of world-systems research, claims that First World nations become wealthy by extracting surplus labor and resources from the Third World. Capitalism perpetuates a global division of labor which causes the distortion of developing countries' domestic economies, declining growth, and increased income inequality.3 Those countries on the periphery cannot become fully modernized as long as they remain in the capitalist world

Foreign direct investment (FDI) in China has a long history, much, or even most of it until recently, concerning inward FDI. This history of FDI into China goes back to at least the 18th century, when European traders were establishing their Chinese bases. Even before that the Portuguese had, by 1557, established a strategic foothold in Macau, when it was leased to Portugal by the Chinese empire as a trading port. Macau is now one of two Special Administrative Regions (SARs) of the People’s Republic of China (PRC), on Guangdong’s South China Sea coast, at the western side of the mouth of the Pearl River—the other is, of course, Hong Kong. The biggest cluster of foreign investments in the 19th and early 20th centuries was in Shanghai, the de facto commercial capital of China. However, things did not really “kick on” as might have been expected until the last two decades of the 20th century for a number of reasons: the Chinese civil war; the Japanese invasion of Manchuria in the 1930s; the Second World War itself; and the establishment of the People’s Republic of China nationally from 1949, under Mao Zedong. The last of these led to a quasi-closed economy with anti-foreign policies, which meant not only limited new FDI into China, but also expropriation of the assets of significant, extant foreign invested entities (FIEs), such as the Hong Kong and Shanghai Bank and Jardine Mathieson. (Both still exist, albeit the Bank’s holding company name is now HSBC Plc, with headquarters respectively in London and Bermuda.) The really significant move, seen from the present moment, began with the declaration of the “Open Door Policy” by Deng Xiaoping in 1978, as a means of modernizing and building the PRC economy; this was further facilitated by Deng’s open support and stimulus for the market economy, including foreign investment, in his talks delivered during his “Southern tour” in 1992. In the next twenty years or so, inward FDI built up markedly, at first quite slowly, then with much greater momentum. During that initial twenty-year period, China’s outward FDI was very modest in scale and was mainly aimed at strategic learning. More recently, outward FDI has begun to grow significantly, with strategic acquisitions in established economies, aimed at achieving market positions; and in developing economies in Africa and South America, targeted at accessing the raw materials China needs to fuel its manufacturing engine. The remainder of this piece will focus on the post “Open Door” period. The works logged here are almost exclusively written in English. When it comes to the key statistical data (see the relevant section below), the PRC Government publications have English versions. Guides on how to operate in China are intended for those who wish to invest in China as foreign entities, for whom English is the accepted language of international business. Finally, the bulk of academic articles written by foreigners (from a Chinese perspective), by members of the Chinese diaspora, or by PRC academics who wish both to have their work widely read and who wish to be seen to be producing articles of high quality, are now written in English.

This study revisits region‐specific determinants of foreign direct investment (FDI) in Eastern, Central, and Western China using econometric and spatial analyses. It uses a data set covering 31 Chinese provinces and autonomous regions spanning the period 2005–15, together with panel data regression. Our statistical results show that in Eastern China, FDI is significantly associated with bilateral trade, orientation towards the service industry, industrialisation level, and availability of strategic assets in the region. In Central China, FDI is mainly pulled by availability of the domestic market and strategic assets in the region. In Western China, FDI inflows are mainly determined by natural resource endowment, industrialisation level, and regional innovation and production effectiveness in information and communication technology industries. Our analysis also reveals the impact of FDI in China's regional development and its capacity to hollow out the three Chinese macro‐regions. Our findings for China lead us to suggest that those governments seeking to attract FDI should not solely rely on it to facilitate local economic development and should make use of local circumstances in combination with FDI to boost their economies.

(ProQuest: ... denotes formulae omitted.)IntroductionEconomic development of a country depends on utilization of resources for increasing productive capacity. In many developing countries, utilization of resources is rendered impossible by the scarcity of domestic capital. One of these economic problems of developing countries is that they do not have enough national savings to finance their investments. They are in constant need of foreign capital in forms of both direct and indirect investments. Foreign direct investment (FDI) is a process whereby the residents of the source country attain ownership of assets with the intention to control the production, distribution and other activities of a firm in the host country (Khachoo and Khan,2012). Foreign direct investment (FDI) is a way of international loan, by which those countries that have better investment opportunities at the present borrow from those that have capital surplus.FDI can be a crucial instrument to foster economic growth. FDI provides developing countries with the much needed capital for investments and enhances job creation, managerial skills and transfer of technology for less developed countries. Furthermore, FDI encourages technological development and also support the accumulation of physical capital.FDI plays a significant role in the development of international trade, and it helps to establish direct, stable, and long-lasting links between economies. The Organization for Economic Co-operation and Development (OECD) states that; FDI can serve as an important vehicle for local enterprise development, strengthening the competitiveness of both the recipient and investor (Groh and Wich, 2012). For example, Turkey in particular is pursuing further political and monetary integration with Europe. In that case maintaining a government effectiveness that is conducive to foreign investment and increases comparative advantage is integral to its integrationist aspirations.The significance of foreign direct investment (FDI) flows is well documented in literature for both the developing and developed countries. Foreign Direct Investment (FDI) inflows to developing countries have been substantially increasing and, compared to other capital flows, have remained the largest component of net resource flows to developing countries. FDI is a key element in international economic integration. FDI creates direct, stable and long-lasting links between economies. As a definition FDI is a direct investment into production or business in a country by an individual or company of another country, either by buying a company in the target country or by expanding operations of an existing business in that country. It encourages the transfer of technology and know-how between countries, and allows the host economy to promote its products more widely in international markets (Todaro, 1994).The role of foreign direct investment in the development of Turkish economy cannot be over emphasized. Foreign direct investment provides capital for investment; it enhances job creation and managerial skills, and possibly technology transfer.We shall present our analysis with a brief history of the Turkish economy. Today, Turkey is one of the most attractive investment destinations for foreign investors. It benefits from a unique strategic location; a young, dynamic and skilled workforce, and a stable political and economic environment. Turkey received foreign investment inflows of only US$18m 33 years ago when it started to host foreign investors. Now, the cumulative value of foreign investments has surged to US$138.3b. While the aggregate volume of foreign investment inflows totalled only US$14.6b during the 80-year period from the establishment of the Turkish Republic to 2003, this figure rose to US$123.7b during the last decade. In other words, Turkey attracted 8.5 times more foreign inward investment over the last decade than it did in the previous 80 years. …

Korean Abstract: 본 연구의 목적은 한국의 對중국 직접투자에 대한 결정요인을 분석하기 위한 것이다. 본 연구에서는 1988~2002년까지 중국의 각 省別 자료를 패널자료로 구축하여 중국에 직접투자를 실행한 한국기업의 FDI 결정요인을 분석하였다. 한국기업의 대중국 직접투자가 생산요소의 가격차이를 이용하기 위한 생산효율추구형 투자(factor proportions FDI)인지 아니면 투자지역의 시장진출을 목적으로 하는 시장추구형 투자(market access FDI)인지 분석하였다. 특히 對중국 FDI 투자시기를 투자 초기(1988~1997)와 최근(1999~2002)의 두 기간으로 구분하여 분석함으로써 對중국 FDI 투자의 결정요인이 어떻게 변화되어 왔는지 살펴보았다. 아울러 전 세계의 對중국 직접투자 결정요인과 비교 분석도 함께 시도하였다. 분석 결과 한국의 對중국 FDI는 시장추구형과 생산효율추구형의 혼합형으로 나타났다. 이를 좀더 세분화하여 분석했을 경우 투자 초기의 對중국 FDI는 생산효율추구형 투자가 지배적이었으나 최근의 對중국 FDI는 생산요소 가격차이를 활용하기 위한 투자보다 시장추구형투자가 더 일반적인 경향으로 나타났다. 이러한 분석결과는 최근의 전 세계 투자패턴과도 일치하는 것이다. 또한 본 연구의 분석결과에 의하면 한국의 對중국 FDI에 있어서 인프라(infra) 수준은 상대적으로 입지결정에 영향을 미치지 못하며, 각 省別 개혁정도가 직접투자에 상당한 영향을 미치고 있음을 발견할 수 있었다. 이는 중국의 개혁과 개방속도가 가속화될수록 한국의 對중국 FDI는 증가할 것이라는 추론을 가능케 한다. 이상의 분석결과를 종합하면, 현재 한국의 對중국 FDI는 중국의 저렴한 노동력을 이용하는 초보단계의 직접투자에서 벗어나 중국의 방대한 시장을 공략하고자 하는, 보다 적극적인 투자로 변화되어가고 있는 단계로 볼 수 있다. 다시 말해서 對중국 직접투자 초기에는 노동집약적인 산업 중심의 소규모 단위 투자에서 점차 자본집약적인 산업 중심의 대기업 위주 투자로 변모해가고 있는 것으로 분석되었다 English Abstract: Recent literature maintains there are at least two explanations for the motivations of FDI, one involving trade barriers (horizontal-FDI) and the other factor proportions hypothesis (vertical-FDI). The first view is that multinationals act in order to overcome trade barrier, and the second view is that multinationals arise to take advantage of international factor price differences. The purpose of this paper is to study the motivations of Korean foreign direct investment in China. Using the panel data on Korean FDI in China for the years 1988-2002, we examined the geographic determinants of direct investment in China from Korean firms. In doing so, we investigated, on the one hand, to what extent multinational activity is consistent with the factor proportions theory, i.e., to what extent multinational activity is related to cheap factor supplies. On the other hand, we study the market access motivation for multinational activity. Our econometric results suggest that factor proportions hypothesis is indeed the dominant influence on investor calculations for the early period of Korean FDI in China. Since end of 1990s, however, market-seeking FDI pattern is more common than FDI motivated by factor price differentials. We also find that the hypothesis that good-quality infrastructure is conducive to attracting FDI is not supported for Korean firms. Evidence supports the claim that regions with high degree of reform, which implement preferential treatments to foreign investors, still have advantage over other regions in attracting FDI. In sum, the findings in this paper indicate that Korean FDI for the early period of Korean FDI in China is consistent with motives related to the factor proportions hypothesis, which explains that one of the determinants of FDI is to exploit the cheap labor of this country. On the other hand, recently motives related to horizontal FDI are more common.

This paper carries on an empirical research dynamically on US foreign direct investment in China and Sino-American trade, adopting Johansen cointegration test, the VEC Model, Granger Causality Test and implus response technology, based on analytical quarterly data in the period from 1995 to 2009. The studying result demonstrates that there is a stable relationship among the US foreign direct investment in China, China's GDP and Sino-American trade. The implus of US foreign direct investment in China and Sino-American trade makes China's GDP a long-term volatility.

Since 1979 when the process of economic reforms started, foreign direct investment in China has increased dramatically as substantial legal and economic reforms have made foreign direct investment more predictable and more profitable. It is very crucial for foreign investors to select a proper type of foreign direct investment to be successful in China. Although there are a number of types of foreign investment, including companies limited by shares, most foreign investment enterprises have taken the form of joint ventures. In practice, a major consideration that most foreign investors face is how to successfully conclude a joint venture contract in conjunction particularly with antitrust issues and laws governing joint ventures. Thus, this paper examines major types of foreign direct investment, focusing on joint ventures, and also analyzes legal considerations of joint venture contracts, emphasizing their significance in foreign direct investment.

The research was conducted to examine the factors that impact on the provincial-level of foreign direct investment (FDI) in Vietnam. This research makes a significant contribution by identifying the factors influencing foreign direct investment with the regional factor key focus of the study and is explored as a meaningful finding. Through statistical data of provinces and cities for the period 2010 – 2022 using the Generalized Least Squares regression, with interaction variables of 6 economy regions of Vietnam, and regional factors also play a significant role in the provincial-level determinants of foreign direct investment (FDI) in Vietnam. The results show that foreign direct investment in Vietnam is influenced by factors such as gross domestic product, production and import turnover of goods, and the quality of human capital, the number of students studying at the high school level and the proportion of the population aged 15 and older who are literate. The gross regional domestic product, trade, human capital has the positive impact on foreign investment capital flows of the provincial-level in Vietnam. Meanwhile, the interplay of regional variables including Central Coast and Central Coast, Central Highlands, Southeast inverts the effect of these factors on FDI streams, suggesting that these regions warrant particular attention for further FDI attraction. From there, the study proposes several recommendations related to the factors that affect foreign direct investment capital to encourage increased ability to attract this capital source in the future.

he US foreign direct investment in China plays a leading role in the process of introducing FDI to China. This paper carries on an empirical research dynamically on the location factors of US foreign direct investment in China, adopting Johansen cointegration test, the VEC model, Granger causality test and variance decomposition technology, based on analytical data in the period from 1983 to 2006. The studying result demonstrates that there is a stable relationship among the US foreign direct investment in China, China’s GDP, fixed asset investment in China and the prophase stock of the US foreign direct investment in the long-run. And China’s GDP is the major power to induce the US FDI to bias the long-term equilibrium.

The determinants of foreign direct investment in China: The case of Taiwanese firms in the IT industry

Foreign Direct Investment (FDI) in recent years has created a positive impact for ASEAN countries. FDI give spillover effects that directly contribute capital improvements, technological developments, and global market access, also skills and managerial transfers. In order to attract FDI inflow into country, ASEAN member countries need to know what factors which attract investment related to the needs of infrastructure types and other factors. The purpose of this study is examine the determinant of FDI in ASEAN countries. This research method used is panel data regression period 2005-2015 from 10 countries in ASEAN. The results showed simultaneously and partially telecommunication infrastructure, market size, trade openness, and labor force variable have significant relationship with FDI inflows in ASEAN countries.Keywords: panel data regression, telecommunication infrastructure, market size, trade openness, labor force, FDI.ReferencesAppleyard, DR. Field, JF. and Cobb, SL. 2008. 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This book focus on investing in Mainland China and investment abroad from Mainland China. The foreign investment in China started in 1979 from the first Sino-foreign joint ventures called Beijing Aviation Food Co., LTD. Since then, the foreign direct investment in China developed in a dramatic speed. Since 1993, China has become the largest developing country in the world to attract foreign direct investment (FDI for short), and in 2002 it surpassed the United States as the world’s first foreign direct investment host. At end of 2015, China has approved a total of 838,087 foreign investment projects, and the amount of actual utilization of foreign capital has accumulated to 1479.401 billion dollars.

Traces the growth of US foreign direct investment (FDI) in India and the changing attitude of the Indian government towards it as part of its liberalization programme. Reviews previous research on the determinants of FDI and uses regression analysis on 1962‐1994 data to identify the factors affecting US FDI in India, current trends and the impact on the Indian economy. Finds that only the relatively weak exchange rate appears to be a significant factor and that US FDI has been increasing in dollar amounts and relative percentage growth, especially since the economic reforms of the 1990s. Calls for improvements in infrastructure and reductions in red tape and protectionism to encourage further growth.

Foreign Investment in Developing Countries. Edited by H. S. Kehal. Hampshire and New York: Palgrave Macmillan, 2004. Pp. 261. This book is an edited volume consisting of twelve diverse chapters that focuses on the theoretical, empirical, and policy issues of attracting foreign direct investment (FDI) in developing countries. While the first two chapters focus more on the theoretical aspects of FDI and its determinants, the remaining chapters are more empirical in focus and constitute country studies on the determinants of FDI or the impact of FDI on their economies. Some of these studies focus on the experience of the ASEAN countries. Among the empirical studies, Chapters 3 and 4 focus on China, which attracted the largest share of world FDI among the developing countries. These two chapters address two very interesting questions: (1) the impact of inward FDI on the Chinese economy and its determinants; and (2) how to maximize benefits from FDI and minimize the risks associated with it, and the lessons that can be learnt from China's experience. The analysis holds important implications for other developing countries that are too much FDI-dependent for their growth prospects and need to strike a balance between technology transfers and domestic market protection. The next two chapters involve studies on the Indian economy, which is emerging as a favourable investment destination, after a decade of economic reforms that has integrated it further with the global economy. Chapter 5 does not specifically focus on FDI but analyses the ways to enhance foreign investment flows in a broader sense. Chapter 6 specifically deals with FDI and the resource gap in India. It argues that FDI has not played a significant role in enhancing the profitability and efficiency of Indian firms even after a decade, and identifies the important constraints that deter the flows of FDI into India, including the policy environment for investment. This chapter comes out with a very interesting fact that after liberalization of the economy, Indian FDI and non-FDI companies seem to be competing against each other via larger advertisement expenditure than R&D expenditure or selling commission, indicating that unlike China, most of the FDI in India appears to be market oriented, with little focus on R&D. Chapters 7 and 8 then undertake empirical studies on ASEAN economies, viz. Indonesia and Malaysia, with the former specifically focusing on bilateral FDI flows from the EU. These two chapters undertake an econometric exercise of the determinants of FDI flows in each of them, and observe that while these countries have been generally successful in attracting FDI for their growth prospects, they face increasing competition from other developing countries, and need to undertake important policy changes to continue to be competitive in attracting global FDI. Chapter 9 by Sadhana Srivastava and Ramkishen S. Rajan, by far the longest and one of the most interesting chapters of this book, makes an important contribution to the policy discussion on the impact of China's economic rise on trade and FDI flows in ASEAN and India. …