Export-oriented Foreign Direct Investment Research Articles

Domestic total factor productivity with trade and heterogenous foreign direct investment in developing countries: a case of Vietnamese manufacturing

PurposeThis paper aims to examine spillover effects of heterogenous foreign direct investment (FDI) enterprises (domestic vs. export-oriented) through horizontal and vertical linkages and absorptive capacity effect on domestic firms' total factor productivity (TFP). It clarifies the spillover effect on domestic firms in accordance with industrial zones, business size, technology sector and geographical agglomeration, respectively.Design/methodology/approachThe dataset used is based on Vietnamese manufacturing firms during 2011–2014, input–output (I–O) Table 2012. This paper is conducted in two steps: (1) TFP is estimated by using a semi-parametric approach developed by Levinsohn and Petrin (2003); (2) Regression with panel data for domestic firms, applying the fixed effect method.FindingsIn terms of domestic-oriented FDI (DFDI) enterprise group: TFP spillover through horizontal linkages is found negative for domestic firms but positive for those participating in export. Additionally, backward linkages have a negative impact on TFP for most domestic enterprises, except for those operating in the high-tech sector. In terms of export-oriented FDI (EFDI) enterprise group, horizontal linkages have a negative impact on domestic firms' TFP including domestic ones participating in export whereas backward linkage is an important channel with positive effects. Absorptive capacity enables firms to improve productivity through linkages with EFDI and DFDI enterprises. Exporters located in industrial zones or regions with numerous exporters can receive better impacts through backward linkages EFDI.Originality/valueComprehensively, this is the first paper to detect FDI heterogeneity in their behavior when entering a developing country like Vietnam. The added value in this study comes from the export ability of local firms which is in line with Melitz (2003) theory that they can excel in absorping the TFP spillover from competing with DFDI competitors or from supplying to EFDI enterprises. Moreover, the role of small and medium-sized enterprises (SMEs), low technology, high technology and learning by regions affecting the impact through both horizontal and vertical linkages are included for analysis.

The Defeminizing Reversal: Globalization, Industrial Upgrading, and Female Labor Force Participation

Abstract As countries integrate ever further into globalized production processes, scholars have found significant country-level variation in the extent to which women are able to increase their participation in the formal economy. In this paper, I improve on existing work by disaggregating globalization into its different processes, each of which has different expected effects on female labor force participation (FLFP). I examine how trade, foreign direct investment (FDI), and natural resource exports affect FLFP in a cross-national time-series analysis of 129 low- to middle-income economy countries over a twenty-eight-year period. A major contribution of this paper is to show an interaction effect between trade and FDI: I find that generally trade and inward FDI have a negative effect on FLFP that diminishes as they increase together, suggesting that export-oriented FDI creates more opportunities for women than domestic-oriented FDI and trade openness unaccompanied by significant foreign investment. I also find that the more positive effect of export-oriented FDI depends on the extent to which a country has experienced industrial upgrading, suggesting that gender segregation by industry also affects the extent to which global economic integration creates employment opportunities for women in developing countries.

Determinants of Foreign Direct Investment Inflows in Seven ASEAN Countries During the Period of 2010-2017: Dunning Model Approach

Before the monetary crisis in 1998, ASEAN was one of the main objectives of Foreign Direct Investment (FDI) and after the crisis, FDI inflows in ASEAN were still fluctuating, but tended to slowly increase. However, in 2009, there was a drastic decline in the FDI. The study aims to establish the determinants of FDI Inflows in 7 ASEAN countries in the period of 2010-2017. This study employs quantitative analysis through the Dunning Model Approach. As the technique of analysis, the Panel Data Regression analysis with Fixed Effect Model is used. The results of this study indicate that the Real GDP and Corruption Perception Index have positive and significant effects on FDI Inflows; while Exchange Rate, ICT Development Index and Road Length have negative and significant effects on FDI Inflows. Trade Openness has no effect on FDI Inflows. The reslts also show that FDI Inflows to the seven ASEAN countries are labour-intensive FDI, low technology FDI, driven by market seeking investment motives and fulfil the needs of the local market, not export-oriented FDI and seeking profit from resources with the availability of resources overflow with better quality.

Determinante SDI u Evropi i uticaj Kine

Despite recent concerns about the increasing influence of outside investors on the European Union (EU) and Western Balkans, the developed European countries are still a dominant source of foreign direct investment (FDI) in the region, confirming the benefits of EU membership. At the same time, fast-growing connectivity and lower trade costs in accession and neighboring countries determine the FDI growth from China, particularly via the Belt and Road Initiative (BRI). By applying panel data over 2000-2019 for 34 countries, which form 89% of all European FDI, we first examine FDI patterns around Europe, compare the EU, NMS, and Western Balkans; verify the importance of EU membership for FDI, caused reducing trade costs and improving connectivity. Thus, the new EU member states (NMS) and Western Balkans appear both as a home country and as a pre- entry destination to the EU. Then, we calculate trade costs indices for each selected country and partners over time and find that Europe and China are closely interconnected through trade and FDI. It means that stronger ties with China can be realized for the sample countries at the cost of easing relations with the EU. Finally, incorporating trade costs indices into the FDI model; we evaluate the impact of connectivity on FDI and estimate how BRI affected FDI in Europe. Additionally, we validate that the old framework of horizontal and vertical FDI not representative well and even new complex vertical or export-oriented FDI strategies are shifting today.

Regime Change in 1950s Ireland

The new Irish export-oriented foreign direct investment (FDI) regime of the 1950s was an inter-party government initiative that facilitated the later Whitaker and Lemass–led dismantling of protectionist trade barriers. The potential opposition of protectionist-era industry to the new FDI regime was defused by confining the new tax relief to profits derived solely from exports, by allocating new industrial grants only to firms that ‘would not compete in the home market with existing firms’, and by retaining the Control of Manufactures Acts of the 1930s that imposed restrictions on foreign ownership. The fact that the United States had overtaken the United Kingdom as the major global source of FDI made it easier to secure Fianna Fáil support. US firms were particularly interested in access to European Economic Community (EEC) markets, however, which was not within Ireland’s gift. The export processing zone at Shannon, which might be seen as Lemass’s response to the inter-party initiatives, proved to be of immediate appeal to them. US firms would come to predominate in the non-Shannon region only after Ireland’s entry to the EEC.

The impact of foreign direct investment on urban-rural income inequality

Purpose The purpose of this paper is to analyse the impact of foreign direct investment (FDI) on urban-rural income inequality in China. Design/methodology/approach This study uses the provincial-level panel data and employs the fixed-effects instrumental variable regression technique to investigate empirically the impact of FDI on urban-rural income inequality in China. Findings The study finds that while FDI has directly contributed to reducing urban-rural income inequality through employment creation, knowledge spillovers and contribution to economic growth, FDI has also contributed to increasing urban-rural income inequality through international trade. Practical implications The study has some policy implications. First, as the study finds that FDI not only contributes to reducing urban-rural income inequality through employment creation, knowledge spillovers and contribution to economic growth, but also contributes to increasing urban-rural income inequality through international trade, therefore, apart from improving local economic and technological conditions to attract more FDI inflows, China should re-design FDI policies by shifting away from encouraging export-oriented FDI to encouraging FDI flows into the industries and sectors in line with China’s overall economic structural adjustments and industrial upgrading. Second, policies should focus on increasing investment in infrastructure development and in public education, which not only can reduce urban-rural income inequality but also can attract more FDI inflows. And finally policies should be designed to accelerate urbanisation development by focusing on urban-rural integrated development, household registration system reform and proper settlement of rural migrants in urban areas, thus reducing urban-rural income inequality. Originality/value The paper makes two major contributions to the literature. First, the paper adopts the fixed-effects instrumental variable regression technique to deal with the endogeneity issues in estimating the impact of FDI on urban-rural income inequality, producing more consistent estimates. Second, the paper investigates not only the direct impact of FDI on urban-rural income inequality through the effects of employment creation, knowledge spillovers and contribution to economic growth, but also the indirect impact of FDI on urban-rural income inequality through its activities in international trade, adding new empirical evidence to the sparse literature on the impact of FDI on income inequality in China.

REORGANIZING OF HUNGARIAN MANUFACTURING SECTOR: IMPACTS OF EU ACCESSION AND GLOBAL CRISIS

ABSTRACT In the last two and a half decades, mainly following the accession to the European Union in 2004, the Hungarian economy became integrated into the global economy. The integration took place spectacularly in the case of manufacturing among others, foreign direct investment appeared and exports became increasingly significant. This process was interrupted by the crisis of 2008, which slowed down manufacturing production in Hungary as well. Our study examines how the crisis of 2008 affected manufacturing and its particular sub-sections in Hungary. We analyze the period after the 2004 accession to the European Union based on the data of the Gross Value Added (GVA), the number of employed persons and sales (export, domestic). The data indicates that export-oriented foreign direct investment has a significant role in the Hungarian manufacturing; outsourcing is observed mainly in mechanical engineering. Keywords Hungarian Manufacturing, Global Crisis, Foreign Direct Investment

Testing the Pollution Haven Effect: Does the Type of FDI Matter?

Many studies have tested the pollution haven effect (PHE) which predicts that the tightening of local environmental regulations would shift foreign direct investment (FDI) to less regulated jurisdictions. However, most of them ignored the heterogeneity of FDI. This paper studies the PHE on local-market-oriented and export-oriented FDI and tests whether the two types have different responsiveness to environmental regulations in a host country. A simple model is developed to describe how different types of multinational companies respond in distinct ways to stricter environmental policies in host countries. Using US outward FDI data for 50 host countries and a survey measure of both the stringency and the enforcement of local environmental regulations, I find a significant deterrent effect of local environmental regulations on inward FDI. Furthermore, FDI in a host country is not only affected by local environmental regulations but also by environmental regulations in proximate countries. More importantly, accounting for the relative stringency of environmental regulations between a host country and the United States is critical for identifying a PHE. I find a significantly stronger effect of environmental policies on both types of FDI in host countries with environmental regulations that are stricter than those in the United States. In these countries, export-oriented FDI also exhibits a greater sensitivity to local environmental regulations than local market-oriented FDI.

Rethinking ASGISA and the rand exchange rate

Abstract: The ASGISA policy document identifies the exchange rate as one of the factors constraining accelerated growth in South Africa. This note argues that currency developments do not translate into business cycle movements in the aggregate economy, and that a weaker exchange rate is less likely to boost either foreign investment or export performance in the face of regulatory uncertainty. The South African government has recently launched the Accelerated and Shared Growth Initiative (ASGISA) aimed at raising the long-term growth path of the economy. The plan identifies several so-called “binding constraints” that are considered to be inhibiting the economy from rising to more elevated levels of economic growth. One such “constraint”, according to the ASGISA policy document, is the “volatility and level of the currency” (Republic of South Africa, 2006). By including this issue, policymakers have signalled that fluctuations in the Rand are considered significant to broader economic fluctuations in South Africa. This research note questions such a conviction by offering evidence that currency fluctuations are not mirrored in the South African business cycle. Nonetheless, proponents may argue that a weaker Rand will stimulate particular sectors, mostly those that are export-oriented, while it will boost Foreign Direct Investment (FDI). However, this note argues further that a weaker Rand is less likely to generate sustainable improvement in either export-oriented industries or FDI in the absence of other reforms. The following sections consider these two issues in sequence.

Productivity Effects of United States Multinational Enterprises: The Roles of Market Orientation and Regional Integration

Smeets R. and Wei Y. Productivity effects of United States multinational enterprises: the roles of market orientation and regional integration, Regional Studies. This paper considers the role of market orientation and regional integration in foreign direct investment (FDI) productivity effects. Using data of United States multinational enterprises operating in eight industries and thirteen Organisation for Economic Co-operation and Development (OECD) countries during 1987–2003, the productivity effects of local market-oriented FDI versus export-oriented FDI are compared, with the latter being split into FDI oriented at the parent and that at parties in third countries. Their productivity effects are also considered within two regional agreements: the Canadian–United States Free Trade Agreement (CUSFTA) and the European Union. Robust positive horizontal effects of parent firm-oriented FDI and third-country-oriented FDI are found, with notable differences in the effects of these FDI types between CUSFTA and the European Union. Smeets R. et Wei Y. Les effets productivité des sociétés multinationales aux Ue: le role de l'orientation marché et de l'intégration régionale, Regional Studies. Cet article cherche à évaluer le rôle de l'orientation marché et de l'intégration régionale dans les effets productivité de l'IDE. A partir des données sur les sociétés multinationales aux E-U installées dans huit industries et treize pays-membres de l'OCDE entre 1987 et 2003, on compare les effets productivité de l'IDE orienté vers le marché local à l'IDE à vocation exportatrice, ce dernier étant divisé entre l'IDE orienté vers la maison-mère et celui qui est orienté vers des partenaires situées dans des pays tiers. On considère aussi leurs effets productivité dans deux zones régionales: à savoir, la CUSFTA (la zone du libre-échange entre le Canada et les Etats-Unis) et l'Ue. Il s'avère des effets horizontaux positifs soutenus quant à l'IDE orienté vers la maison-mère et les pays tiers, y compris d'importantes différences des effets de ces catégories d'IDE entre la CUSFTA et l'Ue. Retombées IDE Orientation marché Intégration régionale Smeets R. und Wei Y. Produktivitätseffekte multinationaler Unternehmen in den USA: die Rolle der Marktorientierung und regionalen Integration, Regional Studies. In diesem Beitrag untersuchen wir die Rolle der Marktorientierung und regionalen Integration auf die Produktivitätseffekte ausländischer Direktinvestitionen. Anhand der Daten US-amerikanischer multinationaler Unternehmen, die zwischen 1987 und 2003 in acht Branchen und 13 OECD-Staaten tätig waren, vergleichen wir die Produktivitätseffekte von am lokalen Markt orientierten Auslandsdirektinvestitionen mit denen von exportorientierten Auslandsdirektinvestitionen, wobei in der zweiten Kategorie zwischen Investitionen, die sich an der Muttergesellschaft orientieren, und Investitionen, die sich an Parteien in Drittländern orientieren, unterschieden wurde. Ebenso untersuchen wir die Auswirkungen auf die Produktivität innerhalb von zwei Regionalabkommen: dem CUSFTA und der EU. Wir finden robuste positive horizontale Auswirkungen auf die muttergesellschafts- und drittlandorientierten Auslandsdirektinvestitionen, wobei sich im Vergleich zwischen CUSFTA und EU deutliche Unterschiede hinsichtlich der Auswirkungen dieser Arten von Auslandsdirektinvestitionen zeigen. Übertragungen durch Auslandsdirektinvestitionen Marktorientierung Regionale Integration Smeets R. y Wei Y. Efectos de productividad de empresas multinacionales de los Estados Unidos: los roles de la orientación mercantil y la integración regional, Regional Studies. En este artículo analizamos el papel de la orientación mercantil y la integración regional en los efectos de productividad de la Inversión Directa Extranjera (IDE). Con ayuda de datos de empresas multinacionales estadounidenses que operaron en 8 industrias y 13 países de la OCDE durante 1987–2003, comparamos los efectos de la productividad de la IDE en mercados locales con la IDE en mercados de exportación, ésta última dividida entre la IDE para sociedades matrices y partidos en países terceros. Asimismo consideramos sus efectos de productividad en el marco de dos acuerdos regionales: el CUSFTA (Tratado de Libre Comercio entre Canadá y Estados Unidos) y la UE. Observamos sólidos efectos horizontales positivos de la IDE en sociedades matrices y la IDE en países terceros, con notables diferencias en los efectos de estos tipos de IDE entre el CUSFTA y la UE. Desbordamientos de la IDE Orientación mercantil Integración regional

Does pleasing export-oriented foreign investors help your balance of payments? A general equilibrium analysis

Many developing countries have adopted investor-friendly policies in order to attract export-oriented foreign direct investment (FDI). The effects of these policies on the external accounts have largely been ignored. We endogenize FDI inflows in a structuralist general equilibrium framework to contribute towards filling this gap. Our economy consists of: (i) a non-tradable goods sector and (ii) an export processing zone (EPZ) that hosts transnational corporations. We find that most of the commonly pursued policies considered are likely to have a negative impact on the balance of payments due to: (i) income re-distribution towards groups more likely to spend on imported goods, (ii) higher capacity utilization in the (more import-intensive) EPZ, and (iii) the excess supply of non-tradables created, which in turn has an adverse valuation effect via a real internal depreciation. Strong backward linkages, however, may under certain conditions help offset the adverse impact through a favorable valuation effect.

Regional differences in wage inequality across industries in China

Using a panel of 29 provinces over the years 1995–2001, we explore the large regional variation in industry wage differentials in China and examine the provincial characteristics that are consistent with greater inequality. We find that the effect of foreign direct investment (FDI) varies by province. One of the reasons that FDI can have differential effects is that the type of FDI (export vs. import-oriented) varies substantially across the provinces. Export-oriented FDI raises the wages of workers in industries that rely more on unskilled workers and lowers the wages of workers in industries that rely more on skilled workers, lowering the industry differential.

Exchange Rate Volatility and Export-Oriented FDI

No clear consensus exists in the existing literature on the effects of exchange rate volatility on Foreign Direct Investment (FDI). A survey of past studies on this topic yields negative, positive, and indeterminate effects. Furthermore, the impact of currency risk appears to vary across both time and location. One possible explanation for these conflicting results is that they ignore the importance of export oriented FDI. A multinational's foreign affiliate is likely to operate in both the host country and local export markets. This tendency is magnified when considering FDI within a customs union such as the EU. Ignoring local export markets creates an omitted variable bias, which could overestimate or underestimate the effects of exchange rate volatility on FDI. Using detailed data on the operations of foreign affiliates of US multinationals across seventeen European countries from 1983 - 2002, we approach this issue in two stages. In the first stage, we obtain a measure of exports from foreign affiliates that is filtered from bilateral exchange rate volatility between the host and local export markets. This export series is then included in a dynamic panel with US to host market exchange rate volatility and a host of other FDI determinants to explain inflows of FDI from the US to European countries. Potential endogeneity issues are addressed using a GMM procedure suggested by Arellano and Bond (1991). We find that the ability to export has a positive and significant effect on inflows of FDI, estimating that a 1% increase in exports as a share of total affiliate sales is associated with a $96 million increase in FDI inflows. Once foreign affiliate exports have been accounted for, we find that exchange rate volatility between the US and the host country has a significantly negative effect on the level of FDI, but an insignificant effect on inflows. Additionally, it appears that there are some unobserved features of membership in the European Monetary Union that have a significantly positive effect on inflows. Finally, we run a counterfactual experiment in which we assume that the UK had adopted the euro in 1999. Re-estimating the trade and FDI relations, we estimate that by not joining the EMU, the UK has lost approximately $12 billion worth of FDI from the US. While not a large loss (less that 0.1% of UK GDP), it does imply that with regard to FDI from the US, the formation of the EMU has benefited the euro-zone countries at the expense of those outside the EMU.

Why does so much FDI from Hong Kong and Taiwan go to Mainland China?

While the European Union, the US, and Japan (the Triad) supply 90% of global foreign direct investment (FDI) and China is the second largest FDI recipient in the world, most FDI into China did not come from the Triad but from Hong Kong and Taiwan (HKT). Evidence presented in the paper reveals that the unusually large amount of Hong Kong–Taiwan direct investment (HKTDI) cannot be fully appreciated without understanding China's location characteristics and differences between HKTDI and the Triad FDI. Four determinants of the dominant HKTDI in China are identified: China's export-promotion FDI strategy, its large pool of cheap labor, HKT's specific advantages in export-oriented FDI, and their unique links with China (the Chinese connections). Empirical results suggest that HKTDI was primarily motivated by low labor costs while FDI from the Triad was market-oriented. As China's domestic markets become more open to foreign investors, the share of HKTDI may shrink and the importance of FDI from the Triad may rise.

Local content requirement on foreign direct investment under exchange rate volatility

This paper analyzes the effects of exchange rate volatility of both the host country and the parent country on host-government policy related to local content requirement (LCR) on export-oriented foreign direct investment (FDI) in the context of an oligopolistic market in a third country. We, inter alia, find that an increase in the volatility foreign exchange rate decreases optimal LCR both under free entry and exit of foreign firms and when the number of foreign firms is fixed. We also find that the government uses a less strict LCR policy when the number of foreign firms is endogenous than when it is exogenous.

US multinational affiliate exports from developing countries

Globalization of production is one of the dominant issues of the international economy. This paper explores how country characteristics influence the choice of developing country export bases by U.S. multinationals. It separately analyzes two types of exports, exports to the headquarters country and exports to the rest of the world. The main findings are that favorable host country geography has attracted both types of export-oriented foreign direct investment, and liberal policies toward multinationals have attracted affiliates that produce rest-of-world exports. Labor costs and taxes, traditional determinants, also prove important to investment for both types of exports. More fundamentally, this research shows that country characteristics relate to the location of multinational production differently depending on the purpose of the production.

Export–Oriented Foreign Direct Investment and Local Content Requirement

We develop a model in which foreign firms locate in a host country and export their produce to another (consuming) country. We consider both exogenous and endogenous numbers of foreign firms. These firms compete with domestic firms in the consuming country under oligopoly. Unemployment exists in both countries. We analyse the conflict of interest between the two countries on the level of local content for the foreign firms. Under free entry of foreign firms, the consuming country may want a less severe restriction on local contents than the host country, but not so when the number of foreign firms is exogenous.

Does foreign direct investment promote economic growth? Evidence from East Asia and Latin America

Although there is considerable evidence on the link between foreign direct investment (FDI) and economic growth in developing countries, causal patterns of the two variables has not been investigated yet with a reliable procedure. This article provides an empirical assessment of the issue by using data for 11 economies in East Asia and Latin America. Although FDI is expected to boost host economic growth, it is shown that the extent to which FDI is growth-enhancing appears to depend on country-specific characteristics. Particularly, FDI tends to be more likely to promote economic growth when host countries adopt liberalized trade regime, improve education and thereby human capital conditions, encourage export-oriented FDI, and maintain macroeconomic stability.

Foreign Investment and Industrialization in Malaysia: Exports, Employment and Spillovers*

Over the past two decades, there has been a decisive shift in trade and industry policy in developing countries (DCs) away from import substitution and towards export‐orientation. As part of this policy shift, an increasing number of DCs have become more receptive to foreign direct investment (FDI). Despite its policy relevance, the literature on the role of FDI in export expansion, employment generation and spillovers in DCs is sparse. This paper attempts to fill this gap through a case study of the role of export‐oriented FDI in Malaysia's rapid industrialization. The overall conclusion of the paper is that export‐oriented FDI has brought significant returns to Malaysia principally because the general economic climate has been favourable for the internationalization of production for a considerable period of time.

The Location of Export-Oriented Foreign Direct Investment in the Caribbean Basin

This paper analyzes the location of export-oriented manufacturing investment. The analysis focuses on direct investment in the Caribbean Basin, using micro data for all reported manufacturing plant openings from 1984–87. We test a broad range of influences on country selection and compare the results with the existing literature on foreign direct investment in less-developed countries. The probability of country selection was estimated with a conditional logit model. The estimates were then used to predict the location of Caribbean Basin investments made in 1988 and 1989. Twelve independent variables were tested. Six variables had a statistically significant, positive relationship with plant location: per capita GNP, exchange rate devaluation, the length of income tax holidays, the size of free trade zones, political stability, and manufacturing concentration. Negative relationships were found for the wage rate, inflation rate, transportation cost, and profit repatriation restrictions.