FDI Decisions Research Articles

Technological Capability and FDI in Asia: Firm‐level Relationships among Japanese Manufacturers*

The present paper reexamines the relationship between technological capabilities and FDI decisions at the firm level. The data cover 118 300 Japanese firms in all manufacturing industries. The R&D of Japanese firms has a noticeably weaker relationship with FDI in Asia than with FDI in industrial countries. This finding is confirmed to be robust even when alternative estimation techniques are used and when R&D expenditure data are replaced by patent data. The estimation results also reveal non‐negligible fixed entry costs for FDI, a finding consistent with the observation that only approximately 2 percent of the firms invest abroad.

Does Post‐ante Investment Experience Matter? Lessons from FDI in China

Ample efforts of FDI literature have researched on the motives and determinants of FDI flows based on ex‐ante conditions. Little has been studied with regard to the effects of post‐ante behaviour in determining future investment decisions. Post‐ante experience of FDI decisions with regard to foreign investors’ satisfaction or dissatisfaction and future profit expectations on recurrent decisions are critical. This paper, thus, attempts to investigate FDI in the context of an emerging market environment with emphasis on how environmental and institutional factors and the micro‐firm effects of how investors’ post‐ante views on profits expectations and investment experience would affect MNCs’ decisions on recurrent investment and firm relocation. Empirical results show that decisions in the short and long run were affected differently by the factors under study. Specifically, the short‐run decisions were more affected by profit expectations while the long run by post‐ante experience on investment satisfaction/dissatisfaction and environmental and institutional determinants.

Where Enterprises Lead, People Follow? Links Between Migration and German FDI

Globalization has affected the integration of markets through many different channels, including movements of factors and trade in goods. From a theoretical point of view, the interaction between the different channels of integration can take different forms. The aim of this paper is to analyze the interaction between different channels of integration empirically. More specifically, we use state-level German data to answer the question whether and how migration and FDI decisions and thus integration of labor and capital markets are linked. Our findings suggest that FDI and migration have similar determinants. Moreover, there is substantial evidence that factors cluster.

Option Value, Policy Uncertainty, and the Foreign Direct Investment Decision

In this paper we analyse the impact of policy uncertainty on foreign direct investment strategies. The paper follows the real options approach, which allows to investigate the value to a firm of waiting to invest and/or disinvest, when payoffs are stochastic due to political uncertainty and investments are partially reversible. Across the board we find that political uncertainty can be very detrimental to FDI decisions.

Timing of Investment and International Expansion Performance in China

This study examines the multivariate and univariate performance effects of timing of FDI in an emerging economy at the business unit level. A longitudinal analysis of industry-wide, firm-specific data on FDI timing and foreign venture performance in China reveals that timing has a significant influence on overall, as well as on individual, aspects of venture performance. It is observed that early entrants outperform late movers in terms of local market expansion and asset turnover, whereas late movers are superior to early entrants with regard to risk reduction and accounting return during the initial period of international expansion. Factor analysis confirms that the importance of timing in affecting FDI decisions is as significant as that of internalization, ownership, or location factors.

Transnational corporations, the neo-liberal agenda and regional integration: Establishing a policy framework

Transnational corporations (TNCs) are currently viewed in Latin America and the Caribbean (Latin America) as important channels for the transfer of technology and finance, as well as mechanisms to facilitate access to foreign markets. This new attitude towards foreign capital can be considered a component of the neo-liberal policy agenda-based on privatization, deregulation and trade liberalizationthat has been adopted by most countries in the region. In a parallel development, there has been a renewed interest for regional arrangements in the Western Hemisphere. In this paper, we discuss the impact of the neo-liberal agenda, as well as of the “new regionalism,” on the locational decisions of TNCs. While privatization and deregulation may foster additional Foreign Direct Investment-FDI (e.g., by eliminating barriers to entry in service industries), the impact of trade liberalization on FDI decisions is not as clear-cut. In theory, if the liberalization movement is credible, it may promote FDI in export-oriented industries, but it may also reduce the incentives for import-substituting investment in manufacturing. Membership in regional arrangements provides another policy dimension that may affect FDI decisions, particularly if one of the participants is an important source country of foreign capital. We argue that the neo-liberal agenda has promoted a revival of FDI flows into Latin America. Moreover, TNCs are currently making their locational decisions in ways that are broadly consistent with the economic environment fostered by the neo-liberal agenda. The impact of regional arrangements on FDI flows, however, remains an open question. The potential for investment diversion and the danger of “managed” trade initiatives in the context of regional arrangements cannot be dismissed. Nevertheless, we believe that the “new regionalism” can play a positive role in the ongoing economic reorganization of Latin America.