FDI Entry Research Articles

Can rising urban house prices actually limit the outward FDI by firms in a home country? A story from China

We investigate the effects of rising urban house prices on manufacturing firms’ decisions on outward foreign direct investment (outward FDI) in a home country. By utilizing the panel data of Chinese industrial enterprises in 2005–2013, our estimates suggest that, for every 210 manufacturing firms or 13 listed companies in China, one firm will forgo outward FDI when house prices double. As a result, there could have been 95 percent more manufacturing firms or 70 percent more listed firms conducting outward FDI if house prices remained unchanged during the study period. To address potential endogeneity issues, we exploit a fixed-effects instrumental variable model, a difference-in-differences strategy, and housing discontinuities at provincial borders among neighboring city/county pairs. To elucidate potential mechanisms, we employ the “Olley and Pakes” covariance to assess resource allocation efficiency and observe its negative correlation with house prices. Furthermore, we delve into the impact of house prices and resource allocation efficiency on TFP, and find that house prices and TFP are negatively correlated, while resource allocation efficiency and TFP are positively correlated. Finally, heterogeneity analyses reveal that rising house prices exert a stronger negative influence on outward FDI entry for firms that are less productive, larger, domestically-owned, more closely linked to the real estate industry, labor-intensive, and in industries with higher levels of outward FDI participation. These results underscore the fact that rising house prices could exacerbate resource misallocation, leading to a decline in enterprise TFP and subsequently reducing their outward FDI.

Does the Long-Term Developmental Effect of Mergers and Acquisitions and Greenfield Investment Differ in Host African Economies?

The choice between greenfield investment (GFIELDI) and mergers and acquisitions (M&As) is rarely straightforward for host developing countries (DCs), as this subject has not been thoroughly researched. Thus, this study fills this gap in the literature. It compares the overall long-term dynamic effect of GFIELDI and M&As on host African countries (ACs) from 1990 to 2020. The study, in particular, adopted a rigorous analytical framework that optimizes the welfare-decreasing and welfare-increasing effects of these two main FDI entry modes in the countries under study. The study used panel data from 15 African countries and adopted the PMG/ARDL approach. Therefore, the empirical findings of this study surprisingly contradict not only the preferred GFIELDI entry option of governments and development partners but also nearly all of the existing empirical literature in other developing regions. The results specifically demonstrate that while M&As outperform the GFIELDI in terms of their size effects, they both have net positive long-term dynamic effects on real GDP per capita in the studied countries. In practical terms, a 1% increase in GFIELDI has, on average, a weaker positive long-term dynamic effect on real GDP per capita than an equivalent investment in M&As. Except for Malawi and Botswana, evidence shows that the speed of adjustment parameter is consistently negative and statistically significant. South Africa (SA) has the lowest adjustment speed rate (=-0.157), while Morocco has the highest (=-1.554). Our findings have important policy implications, which are outlined in the conclusion of this study.

Coping with uncertainty in FDI entry mode choices: differences between family and non-family businesses

Coping with uncertainty in FDI entry mode choices: differences between family and non-family businesses

International Trade on IPR, Economic Growth, and FDI in Indonesia’s Manufacturing Sector

Purpose – Indonesia has always experienced a deficit in the balance of payments in the Intellectual Property Rights (IPR) sector. However, it is hoped that the high value of Indonesian IPR imports will be beneficial in increasing the attractiveness of FDI, encouraging economic growth, and increasing IPR exports. The purpose of this research is to examine the causal relationship between IPR imports (MIPR), IPR exports (XIPR), incoming FDI in the manufacturing sector (FDI), and economic growth (GGDP) in the case of Indonesia. Design/Methodology/Approach – The data used in this research are time series data from the first quarter of 2004 to the fourth quarter of 2021. These data are analyzed using the VECM approach. Findings – The study results show that MIPR has dominated Indonesia’s total trade in this sector. The contribution of import value is 95 percent compared to exports, which are only 5 percent. The VECM estimation results show a one-way Granger causality relationship from the independent variables (FDI, GGDP, and XIPR) to MIPR as a dependent variable. In a short-term causality relationship, IPR imports encourage FDI inflows into Indonesia. Then, FDI in the manufacturing sector significantly impacts Indonesia’s IPR exports. Research Implications – Indonesia’s outflow of money to pay for the use of foreign IPR can encourage the entry of FDI in the manufacturing sector, resulting in a technology transfer that produces domestic IPR, which can be sold abroad.

State Control’s Effects on Firms’ FDI Entry Decisions: A Study of Chinese Firm’s Outward Investments

State Control’s Effects on Firms’ FDI Entry Decisions: A Study of Chinese Firm’s Outward Investments

ANALISIS PENGARUH MODAL MANUSIA, UMK DAN PDRB TERHADAP INVESTASI ASING LANGSUNG DI KABUPATEN/KOTA PROVINSI BALI

This study aims to analyze the effect of human capital, regency/city minimum wage and GRDP simultaneously and partially on FDI in regency/city of Bali Province. This research was conducted in the regency/city area of Bali Province with 9 years of observation in the period 2011 to 2019. The data used is secondary data, which is then analyzed descriptively and inferentially using multiple linear regression analysis. In this study, the panel data model that was chosen is Common Effect Model (CEM). The results showed that human capital, regency/city minimum wage and GRDP simultaneously had a significant effect on FDI in regency/city of Bali Province. In addition, it was also found that human capital and regency/city minimum wage partially have a negative and significant effect, while GRDP has a positive and significant effect on FDI in regency/city of Bali Province. The implication of this research that there is a need for commitment from various parties to be able to increase the entry of FDI in the regency/city of Bali Province through improving the quality of human capital, increasing the regency/city minimum wage followed by an increase in labor productivity, and through the availability of infrastructure that can support economic activities so that can increase regional output which is reflected in GRDP.

Home Country Institutions and Legitimacy on Chinese High-Tech MNEs’ Entry Mode Choices: A Conceptual Framework

The institutional factors of the home country play an increasingly important role in the process of the rise of MNEs in developing countries. A Through studies in literature, this paper finds that domestic institutional support and institutional restrictions can effect the entry mode of Chinese high-tech enterprises into the target country's market, and the legitimacy of enterprises in the target country plays an intermediary role between the two. The hypothesized effect of variables and entry mode choice of Chinese high-tech MNEs needs to be tested in future research based on survey data drawn from official sources and questionnaires. This study expanded the theoretical tools that determine the decisions of the FDI entry mode.

Dampak Penerapan Kebijakan Free Trade Zone di Indonesia Terhadap Penanaman Modal Asing

Economic zones are always considered to be a strategy for a country to attract FDI, including Indonesia that has designated several regions as FTZ, namely Sabang and Batam (2000) also Bintan and Karimun (2007). Therefore, this study tries to see the impact of FTZ policies on the entry of FDI in Indonesia. Using fixed effect panel data method for the period 1999-2018 and focusing on policies, characteristics, and socioeconomic conditions of FTZ in Indonesia. It shows that the FTZ has positive impact on increasing FDI in Indonesia only if the region has socioeconomic characteristics and conditions that are stable and supportive toward investment climate

An Empirical Study on FDI Entry Mode Choice in Myanmar: Evidence from Korean Multinational Companies

Myanmar, one of the poorest countries in Asia, had not actively promoted foreign investment until the recent decade due to political issues. While it is meaningful and necessary to study FDI in terms of the promotion of FDI and economic growth in Myanmar, research on FDI in Myanmar is limited to date. This study aims to analyze how foreign multinational companies make FDI entry mode choices between the wholly-owned subsidiary and joint venture in Myanmar. Drawing upon the OLI framework and industrial organization theory, we investigate the firm’s decision of entry mode choice based on its internal and external factors, i.e., firm size, resource, international experience, host country experience, set-up costs, and industry competition. Using survey data collected from 91 Korean multinational companies that made foreign investments in Myanmar during the period from 1988 to 2014, this study shows that Korean multinational companies tend to adopt a wholly-owned subsidiary mode to enter Myanmar’s local market when the firm is larger in size and has more intangible resources and international experiences. However, Korean multinationals are more likely to adopt a joint venture mode when the set-up costs and industry competition are higher in Myanmar. No empirical support is found for the relationship between the firm's experiences in the host country and FDI entry mode choice. The findings provide valuable implications for MNEs that consider entering into Myanmar.

Coping with uncertainty in FDI entry mode choices: differences between family and non-family businesses

Coping with uncertainty in FDI entry mode choices: differences between family and non-family businesses

The Impact of RMB Exchange Rate Expectation on China's Foreign Direct Investment

In 2005, after the change of exchange rate, the expectation of upward expectation was deepened because of the fluctuation of RMB exchange rate. For international companies, on a country's currency exchange rate volatility trend is expected to change its subjective leading on the investment strategy of the country, is expected to exchange rate in the adjustment of China's FDI entry with a total layout of the industry leading role is allow all doubt. China is in a special phase of economic growth and transformation, and the policy of improving the allocation ratio of manufacturing industries and service industries needs the help of a large number of foreign capital. Therefore, it is a significant time to explore the adjustment principle of the exchange rate expectation change to the domestic FDI entry quantity at this time.

The role of endogenous and exogenous risk in FDI entry choices

FDI research has presented consistent evidence that firm experience moderates the effect of risk on entry in a new foreign market. This conclusion is contested by recent research. By revisiting the conceptualisation of risk by economists and behaviourists, we show that the proposed learning mechanism only applies to endogenous risk, not exogenous risk. As assessing endogenous risk involves self-evaluation of risk-reducing capability, it is posited that firms have differential tendencies to take such risks even when experience and ownership are accounted for. We find both observed and unobserved variations in firms’ responses to endogenous risk, as opposed to exogenous risk.

Do international flights promote FDI? The role of face‐to‐face communication

AbstractInternational passenger flights facilitate business travel for in‐person meetings abroad. However, the significance of face‐to‐face communication (FFC) is not clear. To identify the FFC channel, this paper examines whether flights promote FDI more strongly for multinational firms that face relatively intensive FFC in foreign production. Expatriate employees are used as a proxy for the FFC intensity. Using firm‐level data on Japanese multinational firms for the period 1989 to 2006, I show that more frequent flights increase new FDI entry, with the larger positive effects for multinationals in high FFC sectors. The results support the FFC channel to connect flights and FDI.

LIBERALISASI JASA DISTRIBUSI, MASUKNYA MODAL ASING DAN HUBUNGANNYA DENGAN MODAL DOMESTIK INDONESIA

The aims of this study are to determine the level of liberalization of the services sector and to analyze a causal relationship between Foreign Direct Investment/FDI (as a result of the liberalization of the distribution service) and Domestic Investment/DI in the sector. The method used in this research are descriptive analysis and Panel-VECM-Granger. The results showed that the degree of liberalization of distribution services, especially related to FEP has not met the target of liberalization of MEA 2015. Hypothesis testing results show that there is a unidirectional Granger-Causality relationship in short-term and long-term between FDI and DI. That relationship is FDI strongly influencing DI in the Indonesian distribution services sector. ECT value of the independent variable of FDI is -1.0, which means that the speed of change in the value of DI that caused by the changes of FDI to achieve a equilibrium is 100 percent per year. Thus it is known that the entry of FDI encourage domestic investment activity in the Indonesian distribution services sector. The results of this study need to be considered in terms of improvement FEP in the distribution services sector. FEP improvement policy will encourage the entry of FDI and indirectly encourages DI.

The Impact of Different FDI Entry Modes on Economic Growth in Asia

The Impact of Different FDI Entry Modes on Economic Growth in Asia

Foreign Investment Access and the Services Industry - Quantitative Policy Analysis for the Philippines

The report investigates the impact of regulatory barriers to FDI entry in services, with emphasis on ASEAN countries and the Philippines in particular. A structural gravity model quantifies how large the impact is of different types of regulatory barriers and other business costs on the volume of bilateral FDI entry. This analysis is data-intensive, using information on bilateral FDI patterns between 230 countries, based on a unique database that covers the period 2001 to 2016.The analysis has made it possible to distil a quantitative indicator for the relative costs of doing foreign direct investment in each country, an indicator that also varies over time. The indicator (inward multilateral resistance terms) compares the relative cost of doing FDI in a particular country, compared to all other countries. The world market for FDI funds is thus regarded as a closed system of communicating vessels: FDI policies in one place of the world affect the relative FDI attractiveness of all other countries. The size of the `ripples' that policy changes in any country send through the system depends on the size of its economy. For a particular country this provides exceptionally policy-relevant insights, because it allows to quantitatively evaluate how a particular policy affects inward FDI. And this can be done for any sub-sample of countries. In the case of the Philippines we have used the sample of ASEAN countries as the main reference group. Special attention is given to the role of statutory restrictions on foreign equity participation. The study investigates how current Philippine policies affect the magnitude and pattern of inward FDI stocks, and particular attention has been given to test the impact of the OECD FDI Restrictiveness. FDI in the Philippine services industry is underdeveloped, and the government considers to lift or alleviate existing restrictions on foreign equity participation in services industries. Some 60% of the incoming FDI flows now go to manufacturing, utilities, real estate and financial services industries, while hardly any FDI is attracted in the area of knowledge-intensive business services, transport, telecom, and primary industries. To attract more FDI in the future-important services industries, and move away from the current low-quality and vulnerable FDI jobs in global manufacturing value chains, a structural reform will be necessary, according to the Philippine Development Plan 2017-2022. We have used our quantitative results to design and quantify four reform scenarios and compare the results with the current Development Plan. Four potential reform packages were composed that differed along two dimensions: feasible versus ambitious, and short-term versus medium-term. The feasible policy targets were derived from the average performance of the nine other ASEAN countries. The ambitious policy targets were derived from the 'best practice' performer among the ASEAN countries, which differs by policy variable. The report concludes that the four FDI policy reform packages will not be enough to accomplish a structural change in the Philippine economy. Despite differentiated FDI growth rates per industry, it remains growth from very small initial FDI magnitudes in some industries. So, the overall changes will at best be modest in terms of shifts between industries. The bulk of new FDI jobs after the reform will most probably again be found in the traditional industries, with a particular strong role for GVC-oriented, low-wage manufacturing, while most new services jobs will probably be found mostly in business-support services like call centers. Overall, this study shows that the Philippines is in a good position to attract much more FDI than it is receiving nowadays, by feasible policies that require relatively small policy changes. Structural changes with a strong role for business and connectivity services will require a selective FDI acquisition policy.

A Critical study of FDI in Indian Retail Sector: An Analysis of Impact on Stakeholders

Retail sector contributes for around 10% of country's GDP and is expected to reach to US$ 1.3 trillion by year 2020 as per India Brand Equity Foundation (IBEF) Report. The changing preferences, more importance to comfort with increased knowledge of updated technologies of customers has changed the outlook of retail sector in India. The initiatives taken up by the Government to uplift the sector has lead to the entry of FDI in this sector like never before. The retail sector in India is highly fragmented with cultural diversity which acts as a complexity and challenge of the sector. The sector possesses numerous opportunities for growth which will help in development of Indian economy. Indian retail sector is expected to nearly double to US$ 1.3 trillion by 2020 from US$ 600 billion in 2015. The present paper examines the impact of FDI in Indian retail sector on its stakeholders. It tries to suggest the innovative way outs to adopt for liberal FDI policy by the Government taking into consideration the interests of Indian retailers.

Measurement and Analysis of China’s Industrial Technical Efficiency

This paper uses the stochastic frontier analysis to analyze the China’s technical efficiency on the basis of 280 cities from 1998 to 2015. The empirical results indicated that: the average technical efficiency of China’s industrial was increasing steadily in the past 18 years. The technical efficiency of east, middle and west regions are quite different: the east regions mean technical efficiency was higher than middle area about 27.3%, or higher than west area about 35.9%. In addition, the marketization process, R&D expenditure, education investment have a positive effect on the technical efficiency, but the FDI has a negative effect on eastern technical efficiency, which may due to the entry of FDI in eastern areas do not play a comparative advantage at the present stage.

Influence of foreign direct investments on economic development of the Republic of Serbia

The paper analyzes the importance of foreign direct investment and their impact on the new economy as well as the motivation factors for foreign direct investments. Process of integration of the world economy influences the changes in the attitude of the countries of the recipients of capital in relation to foreign direct investments. Today, there is a favorable climate on the investment in developing and transition countries, because these countries no longer watching with suspicion. FDI entry controls are customized adapting to selective state policies in order to boost their investment volume. The effects of foreign direct investment in developing and transition countries are not equal, as all countries do not have the same performance. The success of securing FDI inflows depends on the chosen strategy of each country and on the overall level of social and economic development of the country. The ability to government and domestic companies is to optimally take advantage of foreign direct investment. The paper analyzes the positive and negative effects of direct foreign investments for certain macroeconomic indicators of the Republic of Serbia.

Greenfield or Acquisition Entry? An Impact of Foreign Direct Investment on the Competitiveness of Polish Investors

Objective : The purpose of this article is to determine the impact of Polish FDI companies on their competitiveness, depending on their establishment mode choice in the host country (greenfield investment vs. acquisition). Research Design & Methods : The study used a direct interview method. The results were analysed using impact indicators (w) calculated as the arithmetic mean of numerical values assigned to each response as well as Fisher’s exact test. Statistical calculations were performed using the IBM SPSS Statistics software version 21.0.0.1. Findings: The impact of FDI on investor competitiveness in relation to the main competitors operating on the home market and on foreign markets depends on FDI entry mode (greenfield investment vs. acquisition), among other things. Implications & Recommendations: The results of this study may be the starting point for further research on the impact of FDI on competitiveness, particularly through foreign acquisitions. It should be assumed that as Polish companies gain experience on the international stage, this mode of entry will be chosen by investors more frequently. Contribution & Value Added: The uniqueness of the following study is in the presentation of the results of original empirical research, which demonstrate the relationship between the foreign establishment mode choice (greenfield investment vs. acquisition) and the competitiveness of investing companies. Ex post evaluations were taken into account while forming the conclusions.