Effects Of Inward Foreign Direct Investment Research Articles

Modernization Theory Revised: Testing the Relationship between Inward Foreign Direct Investment and Homicide

Purpose: Modernization theory suggests that economic development is temporarily disruptive to social life and can lead to crimes of violence such as homicide. However, few studies have considered how the modernization process works. Specifically, they neglected the role of globalization. Previous research has suggested that certain measures of globalization may be theoretically linked to homicide. This study examines how inward Foreign Direct Investment (FDI), a key component of globalization and economic development, is associated with cross-national homicide rates.
 Methods: Data from 101 countries were collected and analyzed to examine the relationship between inward FDI and homicide. Indirect effects of inward FDI on homicide through urbanization and economic growth were also examined.
 Results: The results show that inward foreign direct investment increases cross-national homicide rates, both directly and indirectly through increased urbanization.
 Conclusion: While economic development benefits society, the concomitant, deleterious effects should be considered by policymakers, especially those seeking inward foreign direct investment in their countries. Future researchers will want to consider examining other measures of globalization.

Institutional fragility and internationalization of Indian firms: Moderating effects of inward FDI and linkages

In this paper, using institutional and organizational learning theories, we argue that institutional fragility within India impacts the internationalization of Indian firms such that firms from more fragile regions are likely to have lower internationalization levels. We also suggest that this effect is moderated by inward (industry-level) foreign direct investment (FDI) and inward (firm-level) linkages with foreign firms. We test our hypotheses based on the analysis of 707 Indian firms over the period 2008–2018. Our study contributes to the literature examining the complexity, and the speed and consistency of institutional progress in emerging economies, and its impact on firms’ internationalization.

How Industrial Diversity Shapes the Effects of Foreign Direct Investment Spillovers on Regional Innovation

Inward Foreign Direct Investment (FDI) can generate important knowledge spillovers on local economies, fostering regional innovation, especially in developing countries. In this paper, we analyze how regional industrial structure shapes the effects of inward FDI spillovers on the innovative performance of Brazilian regions. Prior literature has analyzed the effects of FDI spillovers on the productivity of host countries’ firms, while less attention has been given to the corresponding effects on regional innovation. Thus, we use data on the investments of Multinational Companies in Brazilian regions for 2003-2014 and relate these data to the innovative performance measured by patents. Our results show that inward FDI positively influences innovation at the regional level since Brazilian regions that receive inward FDI present stronger innovative performance. In addition, the positive effects of inward FDI on local innovation are reinforced by the diversity of the regional industrial structure. Diversified regions that receive inward FDI are therefore better able to leverage the benefits of inward FDI spillovers.

FOREIGN DIRECT INVESTMENT AND INNOVATION: EVIDENCE FROM CHINESE FIRMS’ PATENT FILINGS

One main motivation of attracting inward foreign direct investment (FDI) for emerging economies is to obtain knowledge spillovers from developed countries and promote domestic innovation. The effects of FDI on innovation include both the direct effects from FDI on targeted domestic firms and indirect effects from foreign ownership on other foreign and domestic firms’ innovation. Applying a design with a two-stage randomization procedure that allows for both direct and indirect effects of FDI on innovation and allows these two effects to vary with the share of foreign firms in a well-specified cluster, we empirically investigate the effects of inward FDI on Chinese firms’ innovation using patent filings as a proxy for innovation. Our findings indicate that the potential innovation of firm varies with the share of foreign firms in the cluster. The approach used in this paper can help researchers and policymakers to better understand the benefits of inward FDI promotion programs, agglomeration and regional policy.

Does Inward Foreign Direct Investment Affect Productivity across Industries in Korea?

This paper empirically examines whether and how inward foreign direct investment (FDI) affected industrial productivity in Korea during the 2000-2016 period, based on dynamic panel data of inflow FDI on an arrival basis from 427 manufacturing industries. The paper adds to the literature by analyzing whether both technology spillovers and industrial restructuring from inward FDI can differ according to industrial characteristics such as capital intensity, imported intermediate inputs, and tariffs. The empirical results show that the overall effects of inward FDI on total factor productivity (TFP) were statistically insignificant in general. However, the positive effects of inward FDI on productivity became statistically significant for industries with lower tariffs. Capital intensity were not involved in the relationship between inward FDI and productivity. Thus, the paper highlights that the results in previous studies with inward FDI on a notification basis were overestimated and inward FDI policies in Korea should focus on channels such as trade liberalization and the redistribution of production factors rather than capital accumulation.

Productivity Gap and Inward FDI Spillovers: Theory and Evidence from China

AbstractThis paper constructs a two‐stage sequential game model to shed light on the spillover effect of inward FDI on the efficiency of domestic firms in host countries. Our model shows that, given an optimal joint‐venture policy made by foreign firms, the impact of the spillover effect of inward FDI is contingent upon the productivity gap between the domestic firms and foreign ones. In particular, we demonstrate that the spillover effect of inward FDI varies negatively with the productivity gap between domestic low‐productivity firms and foreign firms but works in the opposite way for high‐productivity firms. This suggests that once the productivity gap widens, the entry of foreign firms will increase the efficiency of high‐productivity firms but reduce the efficiency of low‐productivity firms. In support of our theoretical model, we provide robust empirical results by using the dataset of annual survey of Chinese industrial enterprises.

Follow the people and the money: Effects of inward FDI on migrant remittances and the contingent role of new firm creation and institutional infrastructure in emerging economies

We explore how inward Foreign Direct Investment (FDI) influences migrant remittances in forty-six emerging economies. We develop and test new theory that not only explains the mechanisms underlying the above relationship, but also helps us understand how entrepreneurial migrants and investments made by multinational enterprises serve as foundations and determinants of remittances in recipient countries. The empirical evidence supports our hypotheses that inward FDI increases remittances, and that the relationship is positively mediated by new firm creation and negatively moderated by institutional infrastructure in recipient countries (namely, governance and corruption). Policy implications and avenues for new research are discussed.

The effect of inward FDI on outward FDI over time in China: A contingent and dynamic perspective

Drawing on the investment development path (IDP) framework and foreign direct investment (FDI) spillover literature, this study attempts to identify the contingent and dynamic effect of inward FDI (IFDI) on outward FDI (OFDI) at a provincial level. Using panel data from China, our findings reveal that the positive effect of IFDI on OFDI is stronger in provinces with high economic development, albeit at a diminishing rate over time. However, the level of corruption weakens the effect of IFDI on OFDI over time. Despite that, we find that the effect of IFDI on OFDI is not contingent on trade openness overall. By decomposing trade openness into two dimensions, that is, import intensity and export intensity, our findings indicate that the effect of IFDI on OFDI depends on export intensity, rather than import intensity. Our study provides insights into the complex effect of IFDI on OFDI from a contingent and dynamic perspective.

The Employment Effect of Inward FDI in China: What Do We Learn from the History?

This study investigates the long-term influence of colonial legacy on the nexus between inward foreign direct investment (FDI) and labor market. We construct a panel dataset containing 285 Chinese cities 2011 to 2017 along with detailed information about Chinese modern history during 1842-1955). Our results show that the inward FDI has a positive effect on employment and such an effect is more pronounced in the regions with colonial influence than their counterparts. Further, we find that the experience of Western colonization strengthens the positive effect of inward FDI on employment whereas the experience of Japanese colonization weakens or even overturns this positive effect. These findings are robust to controlling for the endogeneity between inward FDI and employment as well as employing alternative measures for the colonization.

A Spatial Analysis of Inward FDI and Rural-Urban Wage Inequality: Evidence from China

When investigating the relationship between inward FDI and rural-urban inequality, previous studies overlook the inter-regional interactions. Building on the literature that highlights the significant role of rural-urban migration in inequality, this article investigates spatial spillover effect of inward FDI on the rural-urban wage inequality by utilizing the Spatial Durbin Model (SDM) both in the short run and long run. In particular, we carefully consider the heterogeneity of inward FDI and categorize it with respect to entry modes and sectoral distribution. On the basis of a panel dataset covering 30 provinces in China from 2000 to 2016, our results show that overall the inward FDI should not be blamed for the exacerbation of rural-urban wage inequality. We do not find significant relationship between inward FDI in secondary and tertiary sector while the FDI in primary sector has a slight negative effect. When we separate the FDI according to entry modes, we find that WFE is shown to have a negative effect on the rural-urban wage inequality and this effect is more pronounced in the long run when we conduct a period average estimation. This change also similarly applies to the equity joint ventures.

Using Latin America as a research laboratory

PurposeThis paper aims to use Latin America as a laboratory to better understand the relationship between inward foreign direct investment (IFDI) and outward foreign direct investment (OFDI) (both in total as well as in regional flows) and also examine the moderating effect of trade openness on that relationship. Latin America is an ideal study context for this purpose because of the relative homogeneity of its countries, which reduces confounding effects and increases comparability.Design/methodology/approachThis paper uses longitudinal panel regression models with moderation effects. Secondary data were gathered on IFDI (per country and per country-sector), OFDI (total per country and region-targeted per country) and on trade openness from 11 Latin American countries.FindingsIFDI in natural resources is positively associated with OFDI in both overall total flows and regional flows. The effect of IFDI in manufacturing has a consistent negative effect on total OFDI. IFDI in services has positive effects on total OFDI. Additionally, trade openness moderates positively the relationship between total IFDI and both total OFDI and regional OFDI. As a consequence, the authors found evidence suggesting that the relation between IFDI and OFDI in Latin America is positively moderated by trade openness.Originality/valueThe authors explored the nature of the impact of IFDI on the capacity of the recipient country to compete abroad as expressed by its OFDI flows. Specifically, they elucidated whether trade openness can be considered a suitable mechanism for home country firms to leverage potential spillovers provided by foreign entrants.

Home Competition Escapism View of Emerging Market Multinationals

Literature on emerging market firms’ strategic asset seeking FDI emphasizes on home country government support. In this research, we argue that emerging market firm strategic asset seeking outward FDI could be an escapism response to the foreign competition at home. By integrating both the spillover and competition mechanisms of foreign entrants, we develop an inward FDI – performance – outward FDI framework to test the effect of inward FDI from different industries and entry modes. Employing data on 1423 Chinese outward FDI projects and inward FDI statistics from 29 Chinese provinces between 2000 and 2010, we find that inward FDI in the same industry of the emerging market firm is more likely to have a negative competition effect on the emerging market firm’s financial performance, pushing the emerging market firm to seek knowledge abroad; nevertheless, inward FDI in knowledge-intensive industry and using international joint venture entry mode tends to introduce a positive spillover effect on the local firms’ financial performance but demotivates subsequent strategic asset seeking outward FDI.

A spatial approach to the FDI-growth nexus in Spain: Dealing with the headquarters effect

This paper examines the effects of inward FDI on economic growth across the Spanish regions over the period 1996–2013, paying particular attention to the ‘headquarters effect’, namely that FDI is not always registered where it is effectively made but in the region in which the firm’s headquarters is located. By estimating a panel Spatial Durbin Model to allow for the detection of spatial spillovers, two main findings are reported. First, FDI does foster economic growth. Second, only when the headquarters effect is properly addressed do spatial spillovers arise. Hence, this effect is masking the impact of regional FDI spillovers on growth, which affects the reliability of the results and, consequently, FDI policies choice. Importantly, the results are: a) robust to the way of computing the headquarters effect; b) independent of the spatial weight matrix specification; and c) confirmed when splitting FDI into different industrial and service branches.

How colonial legacy shapes the impact of inward FDI on GDP? Evidence from China

ABSTRACTUsing panel data covering 30 provinces from 2000 to 2016, we study how colonization shapes the effect of inward FDI (foreign direct investment) on GDP in China. We find that western colonization influence strengthens the positive effect of inward FDI on GDP by approximately 4–5% whereas the Japanese colonization influence overturns such effect with a negative impact around minus 20%.

Inward FDI, Spillover Effect and Financial Constraints -Theory and Evidence from China

This paper constructs a two-stage sequential game model to investigate the spillover effect of inward FDI on the efficiency improvement of domestic firms across different ownership types in host countries. Our model shows that given the optimal spillover policy made by foreign firms, the impact of spillover effect of inward FDI is contingent upon the level of financial constraint between the domestic private and state-owned firms (SOEs). In particular, we argue that the spillover effect of FDI inward would be negatively varied with the level of financial distress level faced by both firms, but such effect differs across different ownership types of firms. We demonstrate that the negative spillover effect of inward FDI on SOEs, mainly measured by innovation, is smaller than that of domestic private firms because of the higher financing distress cost faced by the latter. Since domestic SOEs get easier access to the financing support from the state, thus allowing them to learn much more quickly from foreign firms in terms of technological advancement compared with private firms, which in turn the negative spillover effect with regard to the financial distress would be mitigated. We employ firm-level data of Chinese listed firms from 2007 to 2016 to test our hypothesis and find that our theories are broadly consistent with the empirical results.

Productivity Gap and Inward FDI Spillovers: Theory and Evidence from China

This paper constructs a two-stage sequential game model to investigate the spillover effect of inward FDI on improving the efficiency of domestic firms in host countries. Our model shows that, given the optimal joint-venture policy made by foreign firms, the impact of spillover effect of inward FDI is contingent upon the productivity gap between the domestic firms and foreign ones. In particular, we demonstrate that the spillover effect of FDI inward varies negatively with the productivity gap between domestic low-productivity firms and foreign firms and works conversely for high-productivity firms. This result suggests that once the productivity gap widens, the entry of foreign firms will increase the efficiency of high-productivity firms and reduce the efficiency of low-productivity firms. The implication of our theoretical predictions is that once the productivity of domestic firms (high-productivity firms) is close enough to the world productivity frontier, they will incur the positive spillover effect from the entry of foreign firms. In contrast, the domestic firms with low productivity which are more distant from the world productivity frontier will perform worse owing to the entry of foreign firms, thus leading to the negative spillover effect. Using the data from over 570,000 firms in Chinese manufacturing industry in 2011, we advance the understanding of the theoretical model through empirical analysis.

Why has the United States continued to receive net investment income as a debtor country?

AbstractWhy has the United States been able to keep receiving net international investment income as a debtor country? Several authors have pointed out that it is because US direct investments abroad have been generating better returns than have foreign direct investments in the United States. However, there is no consensus on why this is the case. This paper investigates this issue by conducting panel regressions to identify the main determinants of return on US direct investment abroad (RUSDIA) and those of return on foreign direct investment in the United States (RFDIUS), using data from 49 countries over the 1994–2013 period. Our findings suggest that the largest contributor to the RUSDIA‐RFDIUS gap is USDIA's advantage in the internalisation effect, which more than offset any negative age effect. The second largest contributor is income‐shifting activities by US‐controlled MNCs aiming to lower their overall tax payments. The third contributor is the negative age effect of inward FDI in the United States, which more than offset its weak internalisation effect. Altogether, those effects account for about 50% of the average return gap from 1994 to 2013. The contribution of the risk‐compensation hypothesis to the return gap is negligible.

International migration, foreign direct investment, and development stage in developing economies

AbstractThe existing empirical results on the relationship between FDI and migration are rather mixed. This study reevaluates, both theoretically and empirically, how inward FDI relates to emigration in developing countries. Our model illustrates that the relationship between inward FDI and emigration flows depends on the development stage of a developing country, that is, there is a positive association between inward FDI and emigration flows for relatively less‐developed countries but a negative association between these two variables for relatively developed countries. We confirm the empirical validity of our model prediction using the panel data of 21 OECD and 51 non‐OECD countries during the period from 2003 to 2012. Our results argue that as economic development proceeds in a developing country, the home effect of inward FDI associated with intensified labor demand would dominate the linkage effect that induces the brain drain problem through enhancing the socioeconomic ties with migrant networks.

Industry FDI and the Distribution of Plant Productivity: Analysis Using Korean Plant‐Level Data

We examine the effects of inward FDI on the distribution of plant total factor productivity. Using Korean manufacturing plant‐level data covering 1990–2007, we find that industry FDI had heterogeneous effects on plant productivity and its distribution in terms of industry characteristics, such as industry concentration index and capital intensity. While sectoral FDI drove up productivity more for plants in industries with low concentration, it had negative effects on productivity especially for the least productive plants in industries with high concentration and high capital intensity. Our results also reveal that the positive effect of FDI was greater for exporters than for non‐exporters.

Is China a single united market for foreign investors? - Federalism, Chinese style and inward FDI in China

Whilst existing research on the locational determinants of inward foreign direct investment (FDI) in China and federalism, Chinese style makes important contributions to the literature in its own right, there has been a lack of formal econometric work in the literature to systematically quantify the relationship between location choice of foreign investors in China and federalism, Chinese style. This study develops a spatial dynamic model that explicitly addresses spatial externalities and path-dependent effects of inward FDI and host location attractiveness, in examining the spatial distribution of inward FDI in China under federalism, Chinese style. An empirical application of this model to a dataset of inward FDI across Chinese provinces over 1997 to 2012 shows that the location of FDI in China is determined by a combination of negative spatial externalities and positive path-dependent effects of FDI, and different host regional characteristics. This result implies that the Chinese market is highly fragmented for foreign investors.