Rise of BRICS and Global Investment from the GVCs' Perspective

Abstract

This paper studies the determinants of foreign direct investment (FDI) and the effect of BRICS on FDI flows to OECD countries. Specifically, we propose an FDI location-decision hypotheses based on Global Value Chains (GVCs) theory and test whether FDI flows to BRICS and OECD are competitive or complementary. The data used in this study is longitudinal (1998–2012) and covers 34 OECD countries. The Benchmark regression shows that the macroeconomic situation, infrastructure and FDI agglomeration all play important roles in FDI decision making. If the BRICS countries are considered as a group, our results suggest that the growing FDI in BRICS group is not at the expense of limiting FDI flows to OECD. Furthermore, FDI flows to Brazil, Russia and South Africa are complementary to OECD's; thus these countries together with OECD are in a global production network. However, FDI flows to China are as a substitute to OECD's, which means multinational corporations consider them as rival sites. FDI flows to India do not have a significant impact on OECD's, which might be the comprehensive outcome of competition effect and Global Value Chains (GVCs) effect.