FDI direction, FDI margin, and heterogeneous firms: evidence from the EU

I. Introduction Foreign direct investment (FDI) has long been exercised by multinational enterprises (MNEs) from industrialized countries. However, during the 1980s and 1990s some developing countries, especially the newly industrialized economies (NIEs) in East Asia, rapidly emerged as one of the major sources of world FDI flows (Suh and Seo 1997; UNCTAD 1995; Petri 1995). During this same period, annual flows of Korean outward FDI increased at an unprecedented pace. For example, Korea's total approved outward FDI, in nominal terms, increased by about 24-fold between 1985 and 2003: from US$219 million in 1985 to US$5,437 million in 2003. Manufacturing was the leading sector, representing almost 53 per cent of the total outward Korean FDI during this period. The trading sector was the next largest sector, with 24 per cent of the total amount (Korea Export-Import Bank 2003). In terms of factor intensity, labour-intensive manufacturing industries mostly relocated to developing countries, particularly ASEAN countries and China, while most Korean FDI conducted in industrialized countries was capital-intensive manufacturing (Tcha 1998). Such a rapid increase in outward FDI has raised some concern among policy-makers and researchers, primarily about the impact of outward FDI on the domestic economy, and potential welfare implications. (1) One major impact of outward FDI is the trade effect, particularly on the exports of a home country. As for the relationship between FDI and trade, theoretical arguments have been made that the two complement or substitute each other. Earlier theoretical efforts, like Mundell (1957), highlight the trade-substituting nature of FDI, and more recent efforts tend to favour FDI being trade-complementing (Markusen 1983, 1984; Helpman 1984, 1985; Helpman and Krugman 1985; Kojima, 1978, 1991 among others). As Petri (1995) and Pfaffermayr (1996) argue, however, the relationship is not predictable because the trade impact of FDI can be influenced by a range of factors, such as firm strategies, motivations for FDI, and government policies. Therefore, the relationship between FDI and trade remains a subject requiting empirical investigation. There is a mixture of results from empirical studies of FDI on home country exports. Some, like Mundell (1957) and Svensson (1996), found FDI had a negative effect on home country exports. Others found outward FDI had a positive effect on exports: Lipsey and Weiss (1981), Helpman (1984), Grossman and Helpman (1989), Lin (1995), Pfaffermayr (1996), Lim and Moon (2001), KOTRA (1997), Hejazi and Safarian (2001). More recently, Lewer and Terry (2003) demonstrate in their evaluation of the impact on trade stemming from capital account liberalization, that foreign capital in general--and FDI--have strong trade creating effects. In this paper, we study the trade impact of Korean outward FDI in four major ASEAN countries. Lim and Moon (2001) have shown the trade impact of FDI using Korean firm-level information. However, their study tends to show foreign affiliates' inclination to export back to the home country, as do other firm-level studies, rather than the trade-creating or displacing effects of FDI. This arises because they did not control for other trade-affecting factors, such as income and prices. Furthermore, firm-level studies ignore the possibility that foreign affiliates in a host country may drive out local firms in an export-oriented industry. In this case, a foreign affiliate's exports may not necessarily be complementing a home country's exports. Therefore, other trade-related variables need to be appropriately controlled in this type of analysis. In the next section, we discuss the theoretical background as to how FDI and trade are potentially related. In section III, a simple econometric model is constructed to empirically investigate the relationship between FDI and trade. The model is set to consider the impact of outward FDI on exports and imports separately, while taking into account country-specific fixed effects. …

Internationalization and Economic Growth: The Comparison of European Economies

This study investigates the institutional factors influencing foreign direct investment within the Eurozone of the European Union (EU) and explores their correlation with economic integration. Attracting foreign direct capital investments is closely related to countries' efforts to make their institutional structures more competitive. Because economic integrations can contribute to economic growth by allowing these investments to increase. For his reason, the study focused on the course of foreign direct capital investments in the Eurozone in the 2002-2022 period and the institutional determinants of these investments were analyzed using the panel data method. The empirical analysis revealed that variables such as foreign direct investment, government effectiveness, political stability, and accountability did not experience any significant shocks. In the short term, a direct causal relationship between foreign direct capital investments and corruption has been found. Nevertheless, in the long term, it has been established that variables such as control of corruption, government effectiveness, political stability, rule of law, accountability, and regulatory quality collectively exhibit a causal relationship with foreign direct capital investments. These findings emphasize the importance of institutional structure for increasing foreign direct capital investments. Enhancements in governmental efforts to combat corruption, enhance governance effectiveness, promote political stability, uphold the rule of law, enhance accountability, and improve regulatory quality can significantly contribute to fostering foreign direct investment. In conclusion, this study provides valuable insights into the determinants of foreign direct investment in the euro area and offers guidance for future policy actions.

Foreign Involvement and Firm Productivity: An Analysis for Indian Manufacturing, Service, Construction and Mining Sectors

Essays on China's Outward Foreign Direct Investment

In recent years, India has emerged as a leading foreign direct investment (FDI) player, featuring prominently as both an origin and a destination of FDI. This study takes a firm-level perspective to empirically address the relationship between inward FDI, outward FDI, and firm-level performance in India. Using the Orbis database, our estimates reveal that Indian firms that have at least one foreign shareholder and/or one foreign subsidiary outperform those that do not. Controlling for endogeneity through propensity score matching and difference-in-difference techniques, we show that the deeper the FDI involvement, the larger the performance differentials. Moreover, compared with investing abroad, receiving foreign capital can contribute more toward enhancing the performance of Indian firms.

Foreign direct investment (FDI) is an extremely important factor that promotes national competitiveness and economic development through technology transfer, new management skills, foreign trade, corporate productivity, etc. This study aims to analyze the significance of FDI and its impact on tax revenue and competitiveness, focusing on the European Union (EU) economy. An empirical analysis is conducted to determine the relationship between inward and outward FDI and tax revenue by employing data on EU countries between 1999 and 2019. The data were extracted from the United Nations Conference for Trade and Development (UNCTAD) database and the World Development Indicators database (WDI) of the World Bank. To fulfill the objective of this study and to determine the effect of FDI on tax revenue, an econometric model was developed. The research methods include systematic and comparative analysis of scientific literature, panel data analysis, and multiple regression analysis. The regression analysis was based on the least-squares method, and the estimates of the econometric models were calculated by identifying robust heteroscedasticity-consistent standard errors. The study results reveal that the outward FDI has a significant stimulating impact on total tax revenue. In contrast, inward FDI has a dampening effect on tax revenue. The analysis of the lagging effect of FDI on tax revenue in the EU member states revealed a statistically significant lagging impact of the outward FDI made two years before. The estimations indicate that the lagging effect is an incentive. No statistically significant lagging effect of the inward FDI flows on tax revenue was found.

Fdii (Effects of Trade and Investment Liberalization on Korea's FDI)

Outward FDI - A New Dimension

FDI (Foreign Direct Investment) outflows from People's Republic of China increased dramatically since increasing firms' accelerated internationalization. But the conditions of Chinese firms' outward FDI are quite different from that of most firms from developed countries. FDI from developed countries to China is usually exploitation of advantages the investors already possessed like cutting-edge technology and global brand reputation. But FDI from China to developed countries is exploration of such advantages. In other word, outward FDI becomes an effective way for Chinese firms to gain strategic assets for internationalization. This paper adopts strategic asset-seeking as the motivation of Chinese firms' outward FDI and identified different internationalization paths through case studies. Based on interviews and complementary secondary materials we found out, 1) the most important two strategic assets for Chinese firms' internationalization are technology and brand, 2) the three different internationalization paths are path by technology sourcing outward FDI, path by brand acquiring outward FDI, and path by both technology and brand seeking outward FDI.

This paper explores the dynamics of Foreign Direct Investment (FDI) and Outward Foreign Direct Investment (OFDI) in India, focusing on the factors driving these investments, their economic impacts, and the strategic role they play in shaping India's global economic position. FDI has historically played a crucial role in India’s economic growth by facilitating capital inflows, technology transfer, and employment generation, while OFDI reflects India’s increasing global presence through strategic investments by domestic firms in foreign markets. This study examines the trends, sectoral distribution, and policy frameworks that govern both FDI and OFDI, highlighting the symbiotic relationship between these two forms of investment. Furthermore, it provides a comparative analysis of FDI and OFDI flows, offering insights into how these investments contribute to India’s economic integration with global markets. The paper also discusses the challenges, opportunities, and future outlook for FDI and OFDI, with particular attention to regulatory reforms, infrastructure development, and emerging sectors such as digitalization and green energy.

In the current complicated and volatile international situation, maintaining the sustainable development of OFDI is critical to the economic recovery and growth of all countries. This study aims to examine the influence of foreign direct investment (FDI) and migration on the sustainable development of outward foreign direct investment (OFDI), the moderating effects of intellectual property rights (IPR) protection on the relationship between FDI and OFDI, and the relationship between migration and OFDI. Using the panel data of 85 countries from 2006 to 2018, we find that, globally, FDI positively affects OFDI and that the positive effect of FDI on OFDI is strengthened by the improvement of IPR protection. Migration negatively affects OFDI, and the influence of IPR protection on the relationship between migration and OFDI is not statistically significant. The study shows that in high-income countries, FDI positively affects OFDI, and IPR protection positively moderates the relationship between FDI and OFDI. For upper-middle-income countries, FDI positively affects OFDI, and IPR protection negatively moderates the relationship between FDI and OFDI. For lower-middle and low-income countries, the influence of FDI on OFDI is not statistically significant. Moreover, the influence of migration on OFDI is not significant in high- or upper-middle-income countries. For lower-middle and low-income countries, migration negatively affects OFDI, and IPR protection positively moderates the relationship between migration and OFDI.

Foreign direct investment (FDI) plays an extraordinary and growing role in the global markets and represents an integral part of the U.S. economy. This research has descriptive character and focuses on the latest trends in inward and outward U.S. foreign direct investment illustrating the impact of the recent financial crises on FDI performance in the United States. The study analyzes the US FDI stock contribution to the global FDI, performance of the inward and outward US FDI flow and stock, the US FDI flow and stock as a percentage of GDP and geographical distribution of inward and outward US FDI stock. The essential part of this research relates to inward and outward US FDI employment and the structure of inward and outward US FDI financial performance, which includes: equity, reinvested earnings and intercompany debt.

Foreign direct investment (FDI) plays anextraordinary and growing role in the global marketsand represents an integral part of the U.S. economy.This research has descriptive character and focuses onthe latest trends in outward United States foreigndirect investment (US FDI) illustrating the impact ofthe recent financial crises on FDI performance.The study analyzes the outward US FDI stockcontribution to the global FDI stock and itsperformance during the last decade includinggeographical and sectorial distribution. The nextparagraph focuses on outward US FDI corporateplayers ranking MNC’s by revenue and foreign assets.The essential part of this research relates to outwardUS FDI employment and financial performance, whichincludes: equity, reinvested earnings andintercompany debt.This study constitutes a base for the furtherexploration of the importance of outward US FDI inthe global markets and in the U.S. economy. The goalof this research is to illustrate the impact of currentfinancial crises on outward US FDI performance. Thebasic statistics related to outward US FDI flow andstock come from the UNCTAD’s FDI/TNC and fromthe Bureau of Economic Analysis (BEA), a section ofthe U.S. Department of Commerce.

The United States is the largest recipient of foreign direct investment (FDI) in the world and the largest investor abroad. American direct investment abroad has grown sharply since the mid-1990s, raising questions about the effects of such investment on the U.S. economy. Critics claim that MNC’s domestic and international operations need to be rebalanced through changes in U.S. tax, trade and investment policy. The introductory part of this research includes the global aspects of outward US FDI, followed by analysis of corporate players. The next part of this research focuses on empirical literature related to outward US FDI determinants, research methodology, model specification, adequacy of the resources, expected outcomes, empirical results and conclusions. The goal of this research is to illustrate the impact of the following variables on outward US FDI in the European Union countries:: the financial variables include: the real interest differential and real exchange rate; the economic variables are represented by: GDP per capita and GDP growth rate, the globalization process includes openness and is measured as total trade as a percentage of GDP; structural and location variables focus on education, infrastructure, telecommunication, civil liberty, perception of corruption, business environment; the labor quality variable incorporates labor productivity, unemployment rate, and the labor cost. The other factors integrate; inflation, tax on capital, Research and Development and corporate business tax. In order to test the implications of our models, we collected a panel of aggregate data on the outward US FDI to all 28 member countries of the European Union for which FDI and all other relevant variables are reported over the 2000–2013 period. In this study we employ recently developed panel data techniques and closely follow empirical literature to identify the factors that determine US FDI outflows.