Effects Of Inward Foreign Direct Investment Research Articles

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.

FDI and inequality in Vietnam: An approach with census data

We investigate the effects of inward FDI on income distribution and absolute living standards in Vietnam using census data from 1989 to 2009. We compute the number of employees of foreign establishments in each of Vietnam's provinces for each year, and use that as a measure of local FDI. We estimate the effects of FDI on local households’ living standards as reported in the data, broken down by educational background to allow us to analyze effects on inequality. Estimates based on the repeated cross section indicate that rising FDI in a province is associated with a slight decline in living standards for households there if they do not have a member employed by the foreign enterprises, with only modest gains for households who do have a member employed by the foreign enterprises. These estimates may reflect composition effects, however, since we find large movements of people toward the provinces receiving the FDI. The findings show that measuring the effect of FDI on household welfare is more difficult than measuring the effect of trade policy, and may pose a difficulty for the view of FDI as a general anti-poverty strategy.

The effect of foreign direct investment on human capital development in East Asia

ABSTRACTEast Asia has experienced fast economic growth along with large inflows of foreign direct investment (FDI) and accumulated human capital since the 1960s. Economic literature suggests a link between FDI and human capital development via technology transfer. This study employs a panel of sample data from 16 East Asian countries from 1985 to 2010 to examine the effect of inward FDI on human capital accumulation. The results show that an increase in foreign presence is associated with an increase in secondary schooling, yet has a negative impact on tertiary schooling. FDI from OECD countries presents positive effects on both secondary and tertiary schooling in East Asian countries. The findings are robust to different measures of educational attainment and different specifications.

"Inward Foreign Direct Investment, Firm Capabilities, and Innovation"

Extant research on the impact of inward foreign direct investment (FDI) on local firms has continued to generate mixed results, with evidence supporting a positive spillover effect of inward FDI in...

An Empirical Investigation of the Effects of Foreign Direct Investment on the Skill Intensity of Host Country Employment

It has been argued that the effects of inward FDI on skill upgrading and wage inequality depend on the outcome of specialisation according to comparative advantages. However, predicting the overall impact of FDI on wage inequality is complex depending on country specific effects, namely how large are differences in skilled and unskilled wages and the skill intensity of employment in foreign-owned firms compared to domestic ones, as well as the relative size of employment in domestic and foreign-owned firms (Zulfiu-Alili, 2014). Hence, the effect of foreign ownership on relative wages and skill intensity will vary between sectors, across countries and over time. The effect of FDI on the skill intensity of employment in transition economies is analysed using the Business Environment and Enterprise Performance Survey (BEEPS) undertaken in three waves 2002, 2005 and 2009. The question to be addressed is whether foreign-owned firms employ a more educated and skilled workforce in comparison to domestic-owned firms. Results suggest that foreign-owned firms have a better educated labour force but have a lower share of skilled and unskilled employees compared to domestic firms.

Does foreign direct investment affect economic growth? The case of Turkey

Purpose– The purpose of this paper is to analyze the impact of inward foreign direct investment (FDI) and international trade on economic growth in Turkey for the post-liberalization period (1980-2010).Design/methodology/approach– The paper employs the vector auto-regression model with four variables: real GDP growth, real inward FDI, the real import volume index and the real export volume index.Findings– Empirical results suggest a relationship between economic growth, inward FDI and exports.Practical implications– The results derived in this paper shed light on the relationship between FDI and international trade on economic growth for Turkey, which has been applying an export-led growth strategy since 1980, and has been implementing many regulations to attract foreign capital. It is evident that although Turkey's efforts and the importance of this issue, new policies and stabilization regulations must be established for the Turkish economy.Originality/value– This study contributes to the literature in at least two aspects. First, a comparative analysis of Turkey's inward and outward FDI with respect to different country groups was analyzed. Second, apart from other studies, the effect of inward FDI and international trade on Turkey's economic growth was tested utilizing an econometric method from 1980 to 2010, which is a relatively long time period for Turkey.

Inward Foreign Direct Investment and Domestic Entrepreneurship in Host Countries

Built on the recent development of localization theory of knowledge spillovers and the social space, this study investigates whether and to what extent inward FDI stimulates the creation of new firms in a host country region when both are co-located in the proximate sectoral and/or geographic spaces. Using a full population of 1,278 inward FDI projects and 44,434 newly created small and young firms across 234 sub-national regions of Korea in 2000 – 2004, this study finds that intra-sectoral effects of inward FDI on prospective entrepreneurs’ founding activities are stronger than inter-sectoral effects in the host country region, and that both intra- and inter-sectoral effects become strengthened by intra-spatial effects, i.e., when both inward FDI and newly created firms are co-located in the same region. In addition, it shows that the effects of inward FDI on indigenous entrepreneurship are maximized through double-intra effects where both are co-located in the proximate high-tech sectors and within the same geographic region.

Regional Characteristics and Effects of Inward Fdi: the Case of Ukraine

This paper contributes to the analysis of the impact of FDI on host countries by taking into account the regional dimension of spillover effects. Focusing on the case of Ukraine, we explore the effects of inward FDI on changes in productivity, technology, and efficiency in local firms. For the country as a whole, the results suggest that the presence of foreign-owned firms had a negative impact on productivity change in local firms during the period 1999-2003. However, there were notable differences between the effects in the western and eastern parts of the country: the overall findings were mainly driven by the development in western Ukraine, whereas inward FDI in eastern Ukraine did not seem to have any impact on local productivity growth and technical change. These results arguably reflect deep economic and institutional differences between the two parts of Ukraine, which have led to differences in the character of incoming FDI and differences in the ability of local firms to benefit from FDI. The conclusion is that the impact of FDI on the host economy may vary even at the sub-national level, depending on the specific local environment.

Knowledge Seeking and Outward FDI of Chinese MNEs: The Moderating Effect of Inward FDI

An important motivation for emerging market multinational enterprises (EM MNEs) to invest overseas is to access and acquire advanced technological knowledge in the host countries. Viewing outward F...

Knowledge Seeking and Outward FDI of Emerging Market Firms: The Moderating Effect of Inward FDI

This study examines whether a host country’s industry-specific technology advantage increases the propensity of emerging market multinational enterprises (EMNEs) to invest in the host country. The study further explores whether inward FDI in EMNEs’ home markets, by generating knowledge spillovers in the relevant industries, decreases EMNEs’ propensity to invest overseas for knowledge seeking. We test our arguments using a longitudinal dataset of the overseas investment activities of Chinese manufacturing firms. We find strong support for our hypotheses after controlling for other important outward FDI motives. We discuss the implications of our results for research and practice.

Does foreign direct investment promote regional development in developed countries? A Markov chain approach for US states

This paper investigates the effects of inward FDI on per capita income and growth of the US states since the mid-1970s. Using a Markov chain approach, it shows that both quantitative and qualitative characteristics of FDI affect per capita income and growth. The empirical findings suggest that employment-intensive FDI, concentrated in richer states, has been conducive to income growth, while capital-intensive FDI, concentrated in poorer states, has not. Consequently, FDI has tended to be associated with weaker rather than stronger income convergence among US states. It appears to be less important whether FDI has been undertaken in the manufacturing sector of US states or in other sectors.

Is Inward FDI Enhancing or Crowding-out Domestic Innovation Capability in Emerging Markets? Evidence from BRICT Countries

Foreign Direct Investment (FDI) has been considered by many development economists as an important channel for the transfer of technology to emerging markets. However, whether it can promote technological progress for the host country depends on the sector specific and country specific characteristics, especially technological infrastructure and human capital. This study investigates the impact of inward FDI on absorptive capacity and domestic innovation capability in BRICT countries. Two competing hypotheses of the effect of inward FDI are tested by employing panel data approach for BRICT countries for the period of 2000-2007. Empirical results reveal that Random Effects Model outperforms Ordinary Least Square and Fixed Effects Models. The hypothesis that domestic innovation capability stems from knowledge generation process with well equipped human resources like scientists, engineers, technicians, research equipment and cumulative R&D expenditure is supported for the given sample. Therefore, inward FDI promote domestic firms’ innovation capability and the spillover effects may arise through channels such as reverse engineering, skilled labor turnovers, demonstration effects, and backward linkages. In addition, the impact of the effect of local R&D expenditure on innovation capability is very significant determinant of innovation capability. On the contrary, the hypotheses of crowding-out effect of inward FDI on domestic innovation capability and high welfare and development level in a country stimulates innovation capability is rejected for the BRICT countries.

30 Years of foreign direct investment to China: An interdisciplinary literature review

The purpose of this paper is to examine how scholarly research on foreign direct investment (FDI) to the People's Republic of China has evolved and been shaped using bibliometrics analysis of 422 journal articles published in 151 journals between 1979 and 2008 on that topic. The literature is dominated by the fields of Economics, followed by Business and Management, Planning and Development and International Relations, which together account for 95% of all publications. Ten percent of the most productive journals are responsible for 40% of all publications and 63% of all citations received. By means of citation mapping, four main research streams have been identified: (1) the motives and determinants of FDI to China; (2) ‘inside’ the multinational enterprise (MNE); (3) the impact of MNE activities; and (4) policy implications for the host country. Emerging research streams have been identified as the effects of inward FDI on (i) corporate social responsibility attitudes of domestic and foreign firms, (ii) environmental and climate issues, (iii) the institutional and societal transformation of China, and (iv) the emergence of Chinese MNEs and its impact on the operations of foreign MNEs in China.

Do domestic firms benefit from FDI?: evidence from Korean manufacturing industries

FDI is considered to be a meaningful component for the economic growth of a country. But, it has not been proven clear that the effect of FDI is really beneficial in a host country regardless of the state of the countries. This paper tries to provide an evidence of the effect of FDI in developing country. To do this, we relate industry level value-added to inward and outward FDI stocks in Korea in a production function framework. Especially we divide inward FDI into FDI on the Greenfield projects and FDI for M&A. The results show that the effect of inward FDI as a whole on productivity is not statistically significant, though we can presume that the direction is positive, whereas the effect of outward FDI is strongly negative, and is statistically significant. But the effects of inward FDI by the characteristics of FDI are not differentiated.

Do domestic firms benefit from FDI?: evidence from Korean manufacturing industries

FDI is considered to be a meaningful component for the economic growth of a country. But, it has not been proven clear that the effect of FDI is really beneficial in a host country regardless of the state of the countries. This paper tries to provide an evidence of the effect of FDI in developing country. To do this, we relate industry level value-added to inward and outward FDI stocks in Korea in a production function framework. Especially we divide inward FDI into FDI on the Greenfield projects and FDI for M&A. The results show that the effect of inward FDI as a whole on productivity is not statistically significant, though we can presume that the direction is positive, whereas the effect of outward FDI is strongly negative, and is statistically significant. But the effects of inward FDI by the characteristics of FDI are not differentiated.

Foreign Direct Investment, Access to Finance, and Innovation Activity in Chinese Enterprises

A recent, comprehensive database is used to investigate the link between inward foreign direct investment (FDI) and innovation activity in China. The results of the analysis suggest that private and collectively owned firms with foreign capital participation and those with good access to domestic bank loans innovate more than other firms do. Among enterprises not owned by the state, inward FDI at the sectoral level is positively associated with domestic innovative activity only among firms that engage in their own research and development or that have good access to domestic finance. At the sector level the effect of inward FDI into technology transfer is distinguished from the effect on domestic credit opportunities. FDI affecting credit is of little significance for state-owned enterprises and is independent of their access to finance. In contrast, better access to credit is an important channel through which FDI affects the innovation of domestic private and collectively owned enterprises.

The Effect of Foreign Direct Investment on Domestic Capital Formation, Trade, and Economic Growth in a Transition Economy: Evidence from China

Studies of the effects of foreign direct investment (FDI) in the developing countries have reported many conflicting results. In this study, we test the effects of inward FDI on China's domestic capital formation, exports, imports, and GDP growth. To that end, we estimated four econometric equations using a data set covering the 1980-1999 period. A key finding of our research is that it was in the 1990s that inward FDI began to exert a significant effect in the Chinese economy. Our regression results show that the inflow of FDI has stimulated domestic investment in China. The growing presence of FDI appears to have enhanced the investment efficiency in the Chinese economy. Inward FDI is also found to have significantly increased China's exports and imports. The policy implications of our main findings are discussed. Several methodological issues pertaining to FDI research in China are also discussed.

Killing Five Birds with One Stone: Inward Foreign Direct Investment in Post-Crisis Korea

the first 35 years of the Republic of Korea's2 economic development, the government showed a clear preference for foreign capital in the form of loans rather than inward foreign direct investment (IFDI) as a means of financing its development plans. This reluctance to allow a greater degree of foreign participation in the domestic economy stemmed from a desire to control the allocation of financial resources and also reflected public concerns that increased levels of IFDI might lead to foreign domination of the Korean economy. The 1997 crisis led to a fundamental change in Korean attitudes towards inward investment, as a desperate need for capital, advanced technology and know-how prompted a comprehensive reform of FDI policy and promotional systems. However, while many Koreans recognized the contribution made by inward investment to the country's economic recovery and its potential role in promoting sustainable growth, anti-foreign capital sentiment lingered in some areas of society. The past two decades have seen a remarkable increase in global flows of capital and credit, most notably in the form of foreign direct investment. Although FDI in developed countries has accounted for the lion's share of these transactions, flows to developing countries have also accelerated in recent years. The rising level of inward investment in developing countries reflects, to a significant extent, changes in their perceptions of and attitudes towards IFDI. Whereas, in the 1970s and early 1980s, many potential host countries expressed concerns that inward investment might create monopolies, exploit the local economy and restrict competition in the domestic market, this negative view had changed to a more upbeat assessment by the 1990s, as scholars and practitioners had identified a range of beneficial effects of inward FDI in terms of promoting economic development.3

International Technology Diffusion: Effects of Trade and FDI

There has been little analysis of the effect of inward FDI on international R&D diffusion, especially in LDCs, although FDI has become the core of international production and LDCs have been receiving an increasing share of world FDI over the past few decades. Using data from 57 countries from 1988 to 2001, we find that both FDI and trade serve as important channels of international technology diffusion. However, there exist heterogeneous effects of FDI in DCs and LDCs. For inward FDI to promote technology diffusion in LDCs, a certain threshold of human capital has to be reached.