Outward Foreign Direct Investment and Economic Development – A Developing Countries’ Study

Abstract

Outward FDI is considered as a developed countries phenomenon. However FDI outflows from developing countries particularly Asian countries such as China and India have been growing over the past few decades. The paper focuses on outward FDI from developing countries in terms of outflows and outward stock. The paper studies the impact of socio-economic variables such as infrastructure, human capital, labour, market, trade openness, resources etc. on FDI outflows from developing countries. With the help of Principal Component Analysis, we construct a set of six composite indices, namely, human resource, infrastructure, labour, market, trade openness and resource, as determinants of OFDI. We use a Panel Regression approach both in terms of OFDI stock and flow, for the period 1990-2009. Outward FDI flows from developing countries do not show a significant pattern. FDI outward stock from developing countries represents stable patterns. It shows that steadily this is growing at 4.4 percent per annum, although the initial level is low. Top ten countries show a significant growth rate of 8 percent per annum, in the case of outward stock. Infrastructure is the only single variable whose elasticity is slightly over one in the case of top ten countries and is highly significant. Therefore, the FDI outflow is going from those countries amongst developing countries that have a significant infrastructure base.