FDI Activity Research Articles

Unraveling The Dynamics Of Foreign Direct Investment And Economic Activity In Brazil: A Copula-Based Analysis

This study analyzes the relationship between FDI and the IBC-Br from 2003 to 2022. Our objective is to examine the effect of FDI on Brazil´s economic activities. Thus, we look also for a connection between the Brazilian Central Bank’s leadership in each period and the FDI effect on IBC-Br. To explore this, we employ an approach based on the Granger Causality Test and copula models that encompass Gaussian, t-Student, Gumbel, Frank, and Clayton functions. Our findings indicate that in the short term, FDI exerts some influence on IBC-Br, while the reverse relationship is not observed. Furthermore, using the Clayton Copula function, we identify the dependency of causal relationships between the variables, particularly in extreme economic scenarios. These discoveries contribute to a more comprehensive understanding of the dynamics between FDI and economic activity in the different periods of the Brazilian Central Bank’s leadership.

Unraveling the environmental consequences of trade openness in South Africa: a novel approach using ARDL modeling

Abstract Free trade and environmental sustainability are currently top economic and environmental research priorities. While numerous theories connect trade openness with environmental quality, empirical evidence often fails to support these claims. Using data spanning from 1980 to 2020, our study examines the effect of trade openness on CO2 emissions in South Africa. By employing a novel ARDL modeling framework, our analysis confirms the presence of the Environmental Kuznets Curve (EKC) hypothesis in South Africa. Our findings reveal that while GDP square enhances environmental quality, trade openness and economic growth have a degrading effect over time. Additionally, the study identifies that energy consumption, FDI, and value-added activities all contribute to environmental degradation. Findings also highlights the influence of institutional quality on the environment, demonstrating that political stability and control of corruption lead to increased CO2 emissions, while the rule of law reduces CO2 emissions. The research suggested that the potential of green economies should be leveraged in developing renewable energy, sustainable development, the recycling industry, and green financing sectors. A shift in economic activity in this direction will thus foster long-term economic growth and sustainable development.

Is Foreign Direct Investment Resilient Post the COVID-19 Pandemic? The Case of a Subnational Economy

The disruption brought about by the COVID-19 pandemic has been unprecedented in its global reach and unique impacts. While the literature has addressed the disruption effect on FDI at the country level, we provide a unique dive into the presence and development of FDI at a subnational location. We use detailed data on spatial and industrial distributions of FDI in the U.S. state of New Hampshire and find support for all our hypotheses related to post-disruption recovery and resilience. Given the varied impact of the pandemic on FDI across locations, and the heterogeneity in local conditions, we contend that the subnational recovery depends on the impact of the disruption and happens at varying levels and timelines. While the literature documented that foreign businesses choose to embed in their local host environments, few studies have considered empirically how the level of local integration affects FDI recovery after disruption. We propose that subnational locations with a high level of integration maintain relative strength in FDI post-disruption. The COVID-19 pandemic disruption presents an opportunity to evaluate FDI resilience. We postulate that existing FDI and spatial agglomerations of FDI-related activities impact the post-disruption resilience of FDI at a subnational location. The analysis concludes on actionable insights for researchers and practitioners regarding how to navigate the FDI inflows and activities at their specific location.

Trade, Foreign Direct Investment and Economic Growth in Albania. Evidence from Time Series

Trade and Foreign Direct Investment has been treated as crucial factors underlying the relative growth rates experienced by the Albanian Economy, especially during the late years, thus, boosting economic growth in the country and improving the degree of integration of the Albanian economy into the World markets. The paper aims to provide an empirical assessment of the relationship between Trade, Foreign Direct Investment, and Economic Growth in Albania, by examining Trade and FDI nexus growth interactions using yearly time series data for a time span of 1993-2018. For this purpose, we employed cointegration analysis and Granger causality analysis. The co-integration tests, based on Vector Error Correction Mechanism (VECM), confirm the presence of a long-run relationship between the variables. VECM results support a negative relationship between trade and GDP in the long-run and a positive relationship between trade and FDI. Granger Causality tests support the causality evidence of one-directional reinforcement of GDP on trade in Albania and changes in GDP and trade are causing changes in FDI. The VAR analysis confirms that changes in GDP and FDI are encouraging changes in trade. The paper outlines policy implications with respect to promoting relevant institutional policies for the enhancement of trade and FDI activities in the country, which potentially could enhance economic growth in the country.

방위산업 수출에 있어 네트워크 효과에 관한 연구

The main purpose of this study is to contribute to the investigation of explanatory variables and networks effect on exports in the defense industry. In particular, it attempts to examine the role of two channels of economic and non-economic networks in the gravity equation of exports; economic networks are trade, FDI and FTA, non-economic networks are military expenditure and military alliance. The basic and the augmented gravity models are estimated with an annual cross-section data set of year 2020 for 44 countries.
 The estimation results demonstrate that military expenditures explain the bilateral export in the defense industry better than GDP does as an economic scale variable in the equation. Also the evidence of the effect of FDI is statistically significant in the estimation, whereas no evidence for effects of trade and FTA have been found. In addition, there is no further evidence for the role of military alliance between trade partners for exports in defense industry.
 The results imply that military expenditure of import country and FDI relation has a strong relationship with export in the defense industry. Thus, it also emphasizes the policy implication for taking into account of the linkage between export and FDI activity in promoting export of defense industry.

How History Matters: A Comparison of Indian and Chinese Business Groups’ FDI in Africa

We compare the patterns of Indian and Chinese companies’ FDI in Africa to explain how colonial history matters in international business. FDI activities of the historically colonizing countries are well documented. However, a less understood area is how the prior history of being colonized impacts these countries’ FDI activities. This gap in the literature is receiving greater attention as new emerging economies (i.e., India and China) are playing a more profound role in globalization. Specifically, colonial history and a series of historical incidents reshaped the institutional environment and organizational field where a unique set of isomorphic organizational actions emerged. We find that the patterns and focus of Indian and Chinese FDI in Africa reflect their colonial history as being colonized for their resource or consumer market, respectively. More importantly, this paper shows that given differences in history and institutional context, Indian and Chinese business groups exhibit distinct characteristics in their FDI motivations and strategies. Our study has important implications for MNE managers to overcome market imperfections in emerging markets.

Highlighting the Role of AI on FDI: An Evidence Drawing Upon the Emerging Institution Perspective

Although artificial intelligence (AI), the leading technology in this digital era, has become an important driver for business investments, little is known about its underlying theoretical mechanisms and functioning boundaries. Drawing on the institution-based view, we argue that AI development creates an emerging institution, serving as a centripetal force to attract foreign firm investment (FDI). Accordingly, we predict that host-country AI development attracts a firm’s FDI in the form of subsidiary establishment. We highlight home-subnational AI development and a firm’s state ownership as important boundary conditions under which the relationship is stronger and weaker, respectively. We construct a novel dataset reflecting rich AI development information, drawing upon a sample of 1,524 Chinese public firms engaged in outward FDI activities in 26 host countries from 2015 to 2017. We find evidence for our predictions. Our results provide valuable implications for the literature on international digital economy and AI research.

THE ROLE OF SOCIAL NETWORKS IN FOREIGN DIRECT INVESTMENTS: THE CASE OF TURKISH BUSINESS GROUPS

Bu çalışmanın amacı, Türk işletme gruplarının sahip oldukları ağ yapılarının doğrudan yabancı yatırım kararları üzerindeki etkisini incelemektir. Bu doğrultuda işletme grubu düzeyinde ele alınan sosyal ağ yapıları (merkezilik ve arasındalık boyutlarında) örtüşen yönetim kurulları bağlamında değerlendirilmektedir. Çalışmanın kapsamı, kasıtlı örneklem yöntemine göre belirlenen 13 işletme grubundan, bu işletme gruplarına bağlı şirketler olarak faaliyet gösteren 83 bağlı işletmeden oluşmaktadır. Çalışmada öncelikle toplamda 96 işletmenin (13 holding ve 83 bağlı şirket) 1997-2019 yılları arasında elde edilen verileri ile ağ yapıları (merkezilik ve arasındalık dereceleri) ortaya konulmaktadır. Sonrasında da çalışma kapsamında geliştirilen hipotezler, panel regresyon modelleri aracılığıyla test edilmektedir. Çalışmanın bulguları, işletme grubu düzeyinde derece merkeziliğinin işletme gruplarının DYY karar ve faaliyetlerini olumlu yönde etkilediğini ortaya koymaktadır. Çalışma kapsamında elde edilen diğer önemli bulgu ise işletme grubu düzeyinde arasındalığın işletme gruplarının DYY faaliyetleri üzerinde herhangi bir etkisinin olmadığını göstermektedir.

Mitigating poor environmental quality with technology, renewable and entrepreneur policies: A symmetric and asymmetric approaches

This is dual analysis of Turkish sustainable development amidst some high industrial and economic activities. Turkey is currently prioritizing the economic growth to the environmental sustainability and trying to achieve its 2023 goals and place in top 10 economies by date. This action might spark increase in emission level and decrease the environmental quality for both term. For effective and clear analysis, we apply the empirical analyses with both symmetric (dynamic ordinary least square-DOLS) and asymmetric (nonlinear autoregressive distributed lag-NARDL) approaches in short run and the long run periods for policy inferences through forecast. We apply the economic features (entrepreneurs, FDI, technological innovation proxy by R&D, renewable energy and economic growth) of Turkey that are important in determining both economic and environment development of the country to investigate its ability to achieve its climate goals. Turkey's data of 1985–2018 were adopted. Findings from both approaches (symmetric and asymmetric) show that carbon emission can be reduced and good environmental quality obtained through the instruments of renewable energy, technological innovation, FDI and entrepreneurial activities. A nexus is established among the instruments (renewable energy, technological innovation, entrepreneur activities and FDI) pointing towards carbon mitigation for Turkey, and this gives support to the findings from both symmetric and asymmetric approaches. Also, from symmetric analysis with dynamic ordinary least square, EKC is found for the case of Turkey which shows the ability of Turkey achieving its climate goal if right policies are implemented.

Political Risk, Volume of FDI, and Ownership Strategy: Contextual Analysis of African Markets

This research examines the relationship between political risk and the volume of FDI activity and ownership strategy of foreign firms in Africa. Our study employs panel regression models to examine 2,360 FDIs into four low political risk and five high political risk African countries during the period 2010-2017. This data represents FDIs from the top 10 countries with the most investments in Africa (UNCTAD, 2018). We find that there is a progressive increase in the volume of FDI activity by multinationals in high political risk countries, even though low political risk countries remain the preferred FDI destinations. We also find that joint venture (JV) is the preferred ownership strategy by foreign multinationals in high political risk African countries. The preferred ownership strategy in this research helps firms mitigate potential hostile government policies such as expropriations. This research contributes both theoretically and empirically to enrich the political economy and international business literature.

The impact of FDI on human capital development in SACU countries

PurposeThis paper aims to examine how FDI trickle down to human capital development in SACU member states.Design/methodology/approachA longitudinal research design and feasible general least squares was used over the periods 1990 and 2018.FindingsThere is supporting evidence that FDI enhances human capital when primary school enrolment rate is used. However, the reverse holds for the secondary level of education. It can be argued that although FDI exhibits a positive effect on primary education, optimal spillovers to human capital development has not been realized. An indication that certain level of human capital may be required to ensure the optimal benefit of FDI or the types of current FDI does not enhance FDI-led-human capital hypothesis.Practical implicationsThe negative effect of FDI toward secondary level of education could be an indication of a weak absorptive capacity. SACU's current dominance of FDI activities toward extractive industries could limit potential benefit of FDI due to capacity constraints. Practical policy implications indicate that SACU member states need to ensure that it attracts FDI toward smart investment that enhances human capital development.Social implicationsThere is need to a gear FDI firms toward corporate social responsibilities that will stimulate secondary education.Originality/valueThe novelty of this paper is twofold. First, it focuses on SACU countries where majority of the people are trapped with poverty and inequality issues. Second, SACU member states have used greenfield FDI as a policy instrument to enhance human capital. However, human capital link remains weak. This creates a need to search for smart FDIs that are committed toward community transformation through human capital development.

Emerging Market Global Players: The Case of Brazil, China and South Africa

A remarkable proliferation in the number of non-financial emerging multinational enterprises (NFEMNEs) and their share in the aggregate outward foreign direct investment (OFDI), along with the complexity of their FDI activities, has been witnessed over the past decades. Consequently, considerable interest has been generated within and among countries regarding the implications of these relatively new significant emerging global players for a range of economic and policy issues. In order to understand the gaps in knowledge pertaining to their identities, activities and impacts, this article employs the results of our 2015 emerging markets global players (EMGP) reports to make logical and informed insinuations about the structure and profile of NFEMNEs originating from China, Brazil and South Africa, the largest emerging markets in Asia, Latin America and Africa. We also synthesise and compare the outcomes of the 2015 EMGP reports of these OFDI home countries. We find the existence of a pattern in the ranked top NFEMNEs, from each country, in terms of industry sectors, regionalism and national bias. Furthermore, we establish that the respective NFEMNEs participated in international markets to pursue larger markets, natural resources and strategic assets and were not crowded out of their domestic markets by inward FDI.

Modelling European regional FDI flows using a Bayesian spatial Poisson interaction model

This paper presents an empirical study of spatial origin and destination effects of European regional FDI dyads. Recent regional studies primarily focus on locational determinants, but ignore bilateral origin- and intervening factors, as well as associated spatial dependence. This paper fills this gap by using observations on interregional FDI flows within a spatially augmented Poisson interaction model. We explicitly distinguish FDI activities between three different stages of the value chain. Our results provide important insights on drivers of regional FDI activities, both from origin and destination perspectives. We moreover show that spatial dependence plays a key role in both dimensions.

Does FDI promote entrepreneurial activities? A meta-analysis

Researchers have long identified both FDI and entrepreneurship as potentially important determinants of economic development. Accordingly, a literature has grown to investigate whether FDI stimulates entrepreneurial activity in host countries. It is difficult to synthesize these empirical findings because many of the studies use different definitions of FDI and entrepreneurship, study different time periods and countries, and apply different estimation procedures to generate their results. In order to better understand this literature, we collect 675 estimates from 47 studies that estimate the relationship between FDI and entrepreneurial activity using country-level data. We use meta-analysis to address two questions: (1) What is the overall, mean effect of FDI on entrepreneurship?, and (2) What factors account for differences in estimated effects across studies? An innovation of our study is that it develops a nested testing framework to select among a number of competing meta-analytic models. It also extends the new Andrews-Kasy meta-analytic estimators to allow for explanatory variables. We find that the overall, mean effect of FDI on entrepreneurial activity is close to zero and statistically insignificant. While FDI and entrepreneurial activity may each play an important role in economic development, our results indicate that FDI does not generally stimulate entrepreneurship. This suggests that public policy efforts to encourage entrepreneurship through FDI are unlikely to be successful. All the files necessary to reproduce the results in this paper are available online at Harvard Dataverse.

The Geographical Scope of Multinational Firms and Heterogeneity

This paper offers an empirical assessment of the geographical scope of multinational activity at the world level. With this objective, we estimate scope elasticities, which is the relationship between the productivity of the parent firm and the probability of operating abroad in different markets through subsidiaries with the same main activity. Elasticities are estimated for a baseline cross-section of 35 home countries that represent more than 70% of total outward FDI investment at the world level. At the aggregate level, the results indicate quite consistently, through various estimation methods, that a 10% increase in the productivity of the parent firm increases the probability in a range between 0.8–1.0%. Elasticities for manufacturing more than double the elasticities for the service sector. The paper also explores the heterogeneity of scope elasticities across home countries and sectors. This heterogeneity is related to differences across bilateral home-host country characteristics such as the size of the potential host market, bilateral distance and other factors such as institutional quality of host countries and cultural closeness. The signs attached to some of these factors are in general consistent with the predictions of models of firm heterogeneity and FDI activity.

State-owned enterprises as foreign direct investors: insights from EU countries

ABSTRACT The aim of this paper is to present and discuss the scale of foreign direct investment made by state-owned enterprises (SOEs) registered in EU countries in other EU countries in 2017. We created a comprehensive dataset of all intra-EU SOEs’ FDI, on the basis of micro-level data on foreign affiliates, which had hitherto been missing. The role of SOEs’ FDI in the EU economy is relatively low. However, in terms of the home country, we observe a significant asymmetry. Almost 92% of SOE’s foreign affiliates come from the old-EU members. French SOEs are most engaged in FDI activities within EU countries, followed by Germany and Italy. In post-socialist countries, SOEs still play an important role in the economy; however, their activities are concentrated in domestic markets. SOEs are substantial investors in foreign markets in the energy sector. The most attractive countries for investment by state-owned multinational companies are the United Kingdom, Germany and the Netherlands.

Do FDI and Patents Drive Sophistication of Exports? A Panel Data Approach

This paper investigates whether inflows of FDI and innovative activities act as a channel of knowledge spillovers in improving quality of countries' output. In measuring export quality, sophistication of a country's export basket is utilized. Utilizing panel data of countries for the period 2002-2015 and applying GMM methodology, the results indicate that the level of financial development, the quality of human capital and globalization of a country have a determinant role on the relation between knowledge spillover channels and the quality of exports. Patent applications generally positively affect sophistication of exports. FDI serves as a channel for knowledge spillovers to benefit the sophistication level of exports only for developed, more educated, financially developed and globalized countries.

Determinants of FDI for Spanish regions: evidence using stock data

After decades of academic debate on the factors that determine FDI, the discussion still remains open. This article empirically investigates the determinants of FDI activity using Spanish regional data (NUTS 2) for the period 2004–2013. We apply the Poisson pseudo-maximum-likelihood estimator with country-origin fixed effects in a gravity framework and implement an exploratory factor analysis to avoid collinearity problems. The empirical analysis revealed the following allocation patterns: FDI locational strategies in the Spanish regions are determined significantly by the economic potential, competitiveness and agglomeration effects of the regions, and to a lesser extent, by the productive capacity. We also confirm the adequacy of using the stock of FDI in the empirical analysis and obtain an improved specification of the model compared to previous literature based on FDI flows. The results allow us to draw some policy implications about the prospective promotion of incoming FDI at the subnational level.

Service trade restrictiveness and internationalisation of retail trade

Based on a review of recent economic theories dealing with the internationalisation of firms and a discussion of necessary adaptations of these theories to special features of the retail trade sector, this paper offers an empirical analysis of the determinants of the extensive and intensive margin of retail trade FDI activities of 42 countries in 23 EU countries. Special attention is paid within a gravity model framework to the impact of service trade restrictions on both margins of retail trade internationalisation. The use of hurdle models for count data to estimate the determinants of the extensive margin takes into account that there are a lot of zero counts for the number of retail trade firms controlled by a country j in an EU country i. The estimation results for the extensive margin of retail trade FDI activities show that service trade restrictiveness increases the hurdle that at least one firm from country j controls a retail trade firm in country i. Once one firm from country j has been able to jump over this hurdle, the existing service trade restrictions are neither a relevant factor for the number of following firms from country j in that market nor for the average employment and sales of these firms.

The Spatial Dependence of FDI and Innovative Activity in China

The Spatial Dependence of FDI and Innovative Activity in China