Effects Of Outward Foreign Direct Investment Research Articles

Outward foreign direct investment productivity along the belt and road

AbstractThe extant research provides inconsistent results regarding the effect of outward foreign direct investment (OFDI) on firm productivity. There is no research on the effect of OFDI in belt and road (B&R) countries on Chinese firm productivity. In this paper, the impact of B&R OFDI on Chinese firm productivity and its influencing mechanisms are investigated. The main findings of this research are as follows. First, B&R OFDI positively influences productivity by alleviating firms' financial constraints. Second, the presence of market‐driven and production‐driven subsidiaries in B&R countries exerts a favorable moderating impact on firm productivity. Finally, the productive influence of B&R OFDI is more pronounced for firms in eastern China and for those in the energy and transportation sectors, and it is particularly significant for nonstate‐owned enterprises. These findings have practical implications for governments engaged in the design of effective policies for the promotion of B&R OFDIs and for firms developing robust OFDI strategies along the Belt and Road to improve their levels of productivity.

Innovation and OFDI along the Belt and Road

Outward foreign direct investment (OFDI) has become an important strategy for enhancing firms' innovation capabilities through the reverse technology spillover effects from overseas innovation experience. The extant research on the effect of OFDI on innovation has focused primarily on developed economies, while the influence of OFDI in developing countries has remained relatively unexplored. The major Belt and Road Initiative (BRI) encourages Chinese firms to invest in Belt and Road (BR) countries—mainly developing nations. We investigate the impact of BR OFDI on Chinese firms' innovations and its influencing mechanisms. The main findings are as follows. First, BR OFDI has a positive effect on innovation by increasing R&D spending and returns on investments in overseas subsidiaries. Second, the number of research-driven subsidiaries has a positive moderating effect on innovation. Finally, the BR ODFI innovative effect is stronger after the launch of the BR initiative in 2013 and more significant for nonstate-owned enterprises. Our research has theoretical significance by uncovering the overseas return mechanism and the moderating effects of investment depth and motivation on the impact of BR OFDI on innovation—topics rarely explored in the OFDI literature. These research findings have practical implications for governments designing effective policies to promote BR OFDI activities and for firms developing robust OFDI investment strategies along the Belt and Road to improve their innovation performance.

Impact of Outward Foreign Direct Investment on Chinese Manufacturing Firms' Financialization and Servitization

AbstractThis study examines the impact of outward foreign direct investment (OFDI) on Chinese manufacturing firms' financialization and servitization. Using a difference‐in‐differences approach with propensity score matching, we found that OFDI encouraged firms' financial and service activities. The effects of OFDI on financialization were stronger for firms specializing in short‐term financial assets, operating in labor and technology‐intensive sectors, investing overseas to pursue production, resources and markets there, and investing in non‐OECD and Belt and Road Initiative (BRI) countries. Meanwhile, firms investing overseas were more likely to provide services at the sale or postsale stages. Outward foreign direct investment has also boosted the service activities of firms operating in the technology‐intensive sector by investing overseas to seek resources and markets, as well as investing in non‐OECD and BRI countries. Finally, OFDI partially influenced the extent of financialization and servitization of firms by affecting their profit‐making ability.

The Effect of Exports and Two-Way Foreign Direct Investment between China and Pan-East Asian Countries

Rising protectionism and globalization have led to new interest in new regionalism. The facilitation and liberalization of two-way direct investment between China and Pan-East Asian countries result in increasing exports between these countries. By studying the relationship between China’s investment and export trade in Northeast Asian and Southeast Asian countries, this paper explores the influence mechanism of China’s two-way foreign direct investment and export trade with Pan-East Asian countries. The study discovers that with the improvement of the bilateral economic development level, China’s Outward Foreign Direct Investment (OFDI) to Northeast Asia and Southeast Asian countries will significantly increase the scale of China’s export trade. Yet, the total value of the export creation effect decreases over time. China’s utilization of Inward Foreign Direct Investment (IFDI) has a significant inhibitory effect on export trade. The two-way interaction effect of China’s OFDI and IFDI is weak. As the level of IFDI in China increases, the effect of OFDI on exports increases—though this effect differs across regions and countries.

Different Effect of Inward Foreign Direct Investment, Outward Foreign Direct Investment, Imports, and Exports on Greenhouse Gas Emission across 24 European Union Countries

The European Union (EU) has achieved remarkable progress in reducing greenhouse gas emission with the help of the emission trade system (ETS) and other environmental policies for the past decades. The main purpose of current study is to empirically investigate different effects of inward foreign direct investment, outward foreign direct investment (FDI), imports and exports on greenhouse gas (GHG) emissions for different level of GDP per capita. Panel data set of 24 European Union countries was selected from 2013 to 2017. And these 24 countries would be further divided into two groups based on their GDP per capita. The result indicates that inward FDI would decrease GHG emission for high GDP per capita group, whereas it increases the GHG emission for low GDP per capita group, suggesting the existence of “pollution haven” in countries with lower GDP per capita. On the contrary, the effect of outward FDI on GHG emission would be positive for high GDP per capita group but negative for low GDP per capita group. Meanwhile, exports would increase GHG emission for low GDP per capita group but decrease GHG emission for high GDP per capita group. Besides, imports would also be a contributor of GHG emission for high GDP per capita group.  The conclusion drawn from this study implicates that, to reduce the domestic GHG emissions, countries with different level of GDP per capita should have different strategies. For countries with high level of GDP per capita, it would be more effective to attract inward FDI while for countries with low level of GDP per capita, promoting environmental policies with subsidies to encourage domestic producer to adopt newer and cleaner technology would be primary.

Outward foreign direct investment and economic growth in Romania: Evidence from non‐linear ARDL approach

AbstractGlobally, the outward foreign direct investment (OFDI) has significantly increased during recent years. In the light of OFDI's role in determining the GDP growth rate, it is necessary to assess how economic growth rate responds to such outflows. Based on the non‐linear autoregressive distributive lag (NARDL) model, the present study investigates the long‐run and short‐run asymmetric impacts of OFDI on the economic growth in Romania covering the period 1990–2019. The results indicate that both an increase and a decrease in OFDI have a positive and significant impact on Romania's economic growth, with a greater effect arising from the increase in OFDI. Our research adds to the preceding literature by providing new insights into the OFDI‐led growth hypothesis. The results of the present study portray the growth‐enhancing effects of OFDI, which are consistent with the notion that firms conduct OFDI in order to combine domestic output with overseas output to decrease expenditures and to enhance their competitiveness both at global and domestic levels. Thus, an increase in OFDI is both a cause and a consequence of the home country's economic growth.

The effects of outward FDI and export on firm productivity in emerging markets: Evidence from matching approach

This study disentangles the effects of outward foreign direct investment (OFDI) and export on the productivity of Chinese manufacturing firms by using the propensity score matching approach with multiple treatments. Results show that just OFDI has a significant positive impact on firm productivity, but that the productivity effect of just export is insignificant. A complementarity exists between OFDI and export in improving firm productivity. Further, the effects of OFDI and export on firm productivity are different in high-tech and low-tech firms.

Outward FDI and Entrepreneurship: The Case of China

Outward foreign direct investment (OFDI) from developing countries, like China, has been growing significantly so far. However, there is surprisingly little research on the effects of OFDI on the home county’s entrepreneurship. In this paper, we initially examine the characteristics of China’s OFDI during the country’s economic reform and opening up. We subsequently test for the hypothesis that Chinese OFDI, along with the Chinese entrepreneurial institutional environment and inward FDI, impacted entrepreneurial activities from the year of 2004 to 2015. We find that OFDI has an inverted “U” effect on entrepreneurial activities, and that the impacts of inward FDI as well as the foreign trade are different in the coastal and non-coastal cities. We conclude by discussing the implications of our findings for researchers and policymakers as well as the limitations of our data.

Heterogeneous spillover effects of outward FDI on global value chain participation

This study delves into the effects of outward foreign direct investment (FDI) on global value chain (GVC) participation from 2000 to 2014. The utilization of traditional panel models, the spatial Durbin model (SDM), and the threshold model provides a comprehensive understanding of the heterogeneous spillover effects of outward FDI. The results show that increased outward FDI not only facilitates the GVC participation of parent countries but also has a profound impact on that of other countries. The spillover effects of outward FDI play a vital role in the GVC participation of low total factor productivity (TFP) countries. However, for developed countries with high TFP levels, outward FDI has positive impacts on deep GVC participation while not influencing shallow participation. These findings serve as an extension to the relevant theories and suggest a way for developing countries to capture gains from outward FDI and participate further in GVCs.

Some twins are not alike: FDI premia in the former Soviet states

PurposeThe purpose of this paper is to estimate foreign direct investment (FDI) premia in the former Soviet states.Design/methodology/approachThe authors follow an empirical approach. Using Orbis data for a sample of more than 3,000 companies, the authors characterize FDI involvement and FDI premia of firms from three distinctive groups of former Soviet states, designated “upper-middle”-income, “lower-middle”-income and “high”-income countries. This yields interesting within-group and between-group results on the effects of outward FDI (OFDI) and inward FDI (IFDI) on firm-level innovation.FindingsThe authors unveil new facts about innovation and FDI in the former Soviet states. FDI firms innovate more than non-FDI firms and OFDI firms innovate more than IFDI firms. The innovation effect of OFDI is the largest for firms from the “lower-middle” countries, followed by the “high” and “upper-middle” countries. The innovation effect of IFDI is the largest for firms from the “lower-middle” countries, followed by the “upper-middle” and “high” countries. FDI to and from Europe has the largest impact on innovation; this holds across country groups.Research limitations/implicationsThe estimates of this paper document robust FDI premia, i.e., a positive and significant correlation between firm-level innovation and FDI. However, the cross-sectional nature of the data does not permit a proper causality analysis.Originality/valueThe paper contributes to the literature on FDI premia by: considering IFDI and OFDI in a unified empirical framework; dissecting IFDI and OFDI by location; measuring firm-level productivity in terms of innovation; and providing cross-country comparable evidence on both emerging and advanced economies. At the same time, the paper contributes to the literature on FDI from emerging economies by: taking a firm-level quantitative approach; focusing on a relatively unexplored set of countries; and providing comparable cross-country evidence on both emerging and advanced economies.

Foreign direct investment flows and domestic investment in China: A multivariate time series analysis

ABSTRACTThis paper explores the effects of inward and outward foreign direct investment (FDI) on domestic investment in China using annual time series data over the period of 1982–2016. The empirical analysis is performed using ARDL bound testing procedure and fully modified OLS technique to get robust estimations. The causality analysis is also conducted by estimating a VECM based Granger causality test to reveal the direction of the relationship among the concerned variables. Overall results reveal that inward FDI substitutes domestic investment while outward FDI complements it. Moreover, the complementary effects of outward FDI on domestic investment are greater than those of inward FDI, implying that the former has the potential to offset the substitutional effects of the latter on domestic investment. The results remain robust across alternative specifications and estimators. Our study contributes to the worldwide debate on development finance by providing new econometric evidence on the linkages between capital flows and domestic investment. The findings suggest that FDI flows can contribute to the sustainable economic growth in China if pragmatic policies are framed to encourage local firms to engage in cross-border investment.

Outward FDI Type and Ownership Mode: The Effect on Home Country Exports

The influence of outward foreign direct investment (OFDI) by emerging economy multinational enterprises (EMNEs) on the parent company and home economy are relatively under-researched areas. The OFDI-heterogeneity dimensions such as the ownership mode as wholly-owned subsidiary (WOS) or international joint venture (JV) - have received little attention in the empirical analysis. This study examines the firm-level determinants of exports by auto component companies in India. Considering the prior recent OFDI flows by the firm, we distinguish among the effects of having manufacturing-JV, manufacturing-WOS and non-manufacturing OFDI. Thus exploring the differential impact of JV versus WOS ownership mode of manufacturing abroad, adds to the limited literature on the effects of OFDI by OFDI-type. Consistent with the expectation of greater capability building, the JV mode of overseas production is found to lead to relatively more exports by the investing firm. We also estimate the separate effects of magnitude of manufacturing and non-manufacturing OFDI flows.

Outward foreign direct investment and domestic innovation performance: Evidence from China

Recent years have witnessed substantial outward foreign direct investment (OFDI) from many emerging economies. Should the governments of these economies encourage OFDI in order to promote domestic innovation? Much OFDI by emerging economy multinational enterprises (EMNEs) has been undertaken to acquire strategic assets overseas, but do these acquisitions bring innovation benefits at home? The empirical analysis presented in this paper considers the effects of OFDI on regional innovation performance, using a panel of Chinese provinces, and finds that OFDI has a very significant impact on domestic innovation. Furthermore, we also identify three contingent factors – absorptive capacity, foreign presence, and the competition intensity of the local market – that moderate the impact of OFDI on innovation performance.

Outward FDI and Home Country Exports: Empirical Evidence from ASEAN Region

Purpose - The purpose of this paper is to examine the effects of outward foreign direct investment (OFDI) on the competitiveness of home-country exports in ASEAN region. Design/Methodology/Approach - The paper uses OLS regressions based on unit root, correlation techniques and a battery of specification tests applied to an annual time series data ranging from 1981 to 2013. Diagnostic test underscore the accuracy and reliability of estimations.Findings - The paper reveals that the coefficients of OFDI are positive and significant for four ASEAN countries, i.e. Malaysia, Philippines, Singapore and Thailand. It supports the argument that complementary outweighs the substitution effects of OFDI on exports of home country. Moreover, trade openness is significantly influential on exports, which indicates the positive impact of trade liberalization. In addition, currency fluctuations and inward FDI are also important factors for progressive home country exports. Originality/Value - The paper provides thorough analysis of links between OFDI and exports of home country on macro level with the data set of more than three decades for emerging ASEAN economies, rather than focusing on developed regions. This is the first attempt of its kind to analyze the relationship of these two variables on aggregate level for ASEAN region from 1981 to 2013 data set. In order to reinforce investment flows authorities should continue progressive reduction of barriers and market reforms to enhance the progressive role of inward and outward capital flows.

Comments by Vu Quoc Huy, on The Impact of Globalization on Establishment-Level Employment Dynamics in Japan

Vu Quoc Huy: The impact of outward foreign direct investment (OFDI) on a hostcountry’s employment has been an important and policy-relevant question for years. With rapidly expanding global production networks, this issue becomes even more important. At the same time, the causal impact of offshoring on domestic employment is rather complicated because of its nature, a firm’s organization, and any offshoring endogenous decision. For example, Liu and Lu (2011) provide a good summary of possible effects of OFDI on the home-country’s employment through substitution and complementary effects. There is also the win–win type of employment effect when outward investments can raise the demand and wages for skilled labor in both the parent and host-country. Other authors (Kovak, Oldenski, and Sly 2014) used a more sophiscated model and estimation procedure to show that offshoring has a positive aggregate impact on the home-country’s employment but this impact varies substantially across sectors and firms.

The Impact of Outward FDI on the South Korean Labor Market: Evidence on the Wages of Four Types of Workers

(ProQuest: ... denotes formulae omitted.)I. IntroductionRecently, globalization has been rapidly progressing with the help of such factors as reduction in transportation costs, development of IT technology, and lowered trade barriers, which consequently have accelerated the OFDI (Outward Foreign Direct Investment) of multinational corporations to optimize their productivity. The scale of OFDI around the world soared to 1.4 trillion U.S. dollars in 2012 from 21.4 billion U.S. dollars in the 1990s (UNCTAD, 2012). The dramatic increase in OFDI becomes a direct cause of as it accelerates relocation of production activities overseas (Kang and Lee, 2011).It has started to become more convincing that OFDI and the diminished domestic production activities caused by deindustrialization could create negative impacts on the labor market in terms of employment and wages. In particular, a concern was raised that relocation of production sites could reinforce wage inequality, victimizing specific laborers. For instance, Slaughter (2000) points out that affiliate activities of multinationals may substitute unskilled-labor- intensive production, giving rise to the relative demand-shift from skilled to unskilled workers.The purpose of this paper is to find empirical evidence that OFDI tends to accelerate wage inequality. However, this paper addresses the possibility that the effect of OFDI can be heterogeneous depending on the types of workers. Using individual panel data published by Korean Labor Institute (KLI), we classify the workers into four categories depending on skill-intensity and job-permanency. Moreover, we examine the effect of OFDI based on investment destination: OFDI to OECD and non-OECD countries. The empirical results indicate that permanent workers obtain more wage-benefit than temporary ones by OFDI regardless of skill-intensity. In addition, when OFDI is divided into OECD and non-OECD, it turns out that their impacts are quite different.In fact, the wage inequality triggered by reallocation of production is not a surprising issue, and there have been active discussions. According to Feenstra and Hanson (1996a), one of the most representative studies regarding the issue, 15-33 % of wage inequality observed in the manufacturing industry in the U.S. from 1979 to 1990 can be explained by global outsourcing. Other analogous studies conducted on the effects of global outsourcing or OFDI on increasing wage inequality also drew similar conclusions (Anderton and Breton, 1999; Head and Ries, 2002; Hijzen et al., 2005; Hsieh and Woo, 2005; Ahn et al., 2008; Becker et al., 2008; Driffield et al., 2009; Ebenstein et al., 2012). On the other hand, Slaughter (2000) concludes that relocation of multinational corporations' production activities does not necessarily increase relative demand for skilled labor. There are also a significant number of researches that estimate that OFDI has little effect on relative demand for skilled labor or at the least, has even positive influences. (Lipsey, 2000; Lipsey, Ramstetter, and Blomstrom, 2000b; Becker et al., 2008; Masso et al., 2008).Without considering the fact that the effect of OFDI on employment or wages can vary by individual level, however, those studies simply focus on the overall size of wage inequality. Facing the matter, Geishecker and Gorg (2008) analyzed the effect of outsourcing on individual wages through utilization of individual panel data and discovered that the effect of outsourcing on wages can be heterogeneous according to individual skill-intensity. Geishecker and Gorg (2008) categorized workers into three different groups according to skill-intensity and demonstrated an empirical analysis result that the wages of the group with the lowest skill-intensity increased by 1.8% whereas the highest skill-intensity group benefited with a 3.3% increase.Meanwhile, another perspective that the effect of outsourcing on wages can vary according to contract types (which also used individual panel data as Geishecker and Gorg (2008) did) started to gain attention. …

Two-dimensional analysis of the impact of outward FDI on performance at home: Evidence from Japanese manufacturing firms

This paper empirically investigates two dimensions of changes in firm behavior and performance before and after foreign direct investment (FDI). The first dimension is the difference between vertical and horizontal FDI. The second dimension is the effect of outward FDI on firms’ production and non-production activities in the home country. In our careful empirical analysis we use the propensity score matching method to show that the impact of outward FDI differs by dimension, that is, by FDI type and firms’ production and non-production activities. In particular, while horizontal FDI increases demand for non-production workers, vertical FDI increases demand for skilled production workers.

The long-run effect of outward FDI on domestic output in developing countries

This article examines the long-run effect of outward Foreign Direct Investment (FDI) on domestic output in developing countries. Using panel cointegration techniques, we find a significant positive long-run effect.

Outward FDI and economic growth

PurposeThe purpose of this paper is to examine the impact of outward foreign direct investment (FDI) on economic growth.Design/methodology/approachTwo econometric approaches are used: cross‐country regressions for a sample of 50 countries and time‐series estimators for the USA.FindingsBoth approaches tell the same story: outward FDI is positively associated with growth. This finding is robust to several model specifications, potential outliers, and different estimation techniques. In addition, Granger‐causality tests for the USA indicate that causality is bidirectional, suggesting that increased outward FDI is both a cause and a consequence of increased domestic output.Originality/valuePrevious studies have primarily examined the firm‐ and industry‐level effects of outward FDI – for example, on domestic investment, employment, and productivity. This paper, in contrast, deals with the effects of aggregate outward FDI on the economy as a whole.