Foreign Direct Investment Activity Research Articles

Unveiling the green horizon: A bibliometric analysis of global foreign direct investment research and its emphasis on climate change

Foreign direct investment (FDI) promotes economic growth of a country in multiple ways by setting up industries, infrastructure, and power plants, and such activities usually accelerate climate change by raising greenhouse gases (GHG) emissions. While the research on the role of FDI in promoting economic growth has gained widespread attention, it remains largely unclear how much global FDI research focuses on climate change activities. To fill this gap, a global scale bibliometric analysis was conducted to quantify published research on FDI, including the share dedicated to climate change. Global FDI research was heavily focused on non-climate change issues contributing 85% share in publications (13,835 publications) and 78% in citations (3,70,000 citations) and minimal attention was paid to FDI research relevant to climate change (2438 publications, 1,07,478 citations). Even with less publications, the research impact (RI; citations pre document) of FDI-climate change studies was 62% higher than non-climate change studies. Global FDI research was mainly concentrated in a few countries, with only 15 countries publishing approximately 75% of FDI research. China, USA, and UK combined produced approximately half (47%) of the global FDI research. The institutions and funding agencies from China, USA, and UK contributed greatest number of FDI publications and collaborated widely with rest of the world. However, China, Pakistan and Turkey produced 57% of global publications on FDI-climate change. Though developing countries are the major recipients of FDI and are most vulnerable to climate change, but their contributions towards climate change research were minimal. The most recent (2019–2023) topic trends for FDI research were green finance, renewable energy, economic growth, trade, and FDI. However, the recent topic trends for FDI-climate change research were green finance, clean energy, FDI, carbon emission, and carbon dioxide emission. FDI and climate change activities are generally positively correlated. Therefore, global research should upsurge its focus on FDI related climate change activities in order to find ways to improve economies sustainably without damaging environment.

Diversity in foreign direct investment and environmental innovation of emerging market firms: The effect of ownership-conveyed institutional logics

Although foreign direct investment (FDI) allows emerging market firms (EMFs) to experience various institutions and learn to innovate, we know little about the] effects of exposure to diverse institutions on EMFs’ environmental innovation—a sustainable approach to pursuing economic growth. Incorporating the institutional logics perspective with the learning-from-diversity view, we investigate how an EMF’s environmental innovation benefits from diverse environmental regimes embedded in both its inward and outward FDI. We posit that EMFs become environmentally innovative by learning from diverse environmental regimes embedded in FDI activities. Also, this learning effect depends on the institutional logics dominant in these firms, demarcated by their ownership structure. Whereas the market capitalism logic strengthens EMFs’ learning-from-diversity effect, the state socialism logic does not. Analyses of a sample of 275 publicly listed Chinese firms between 2009 and 2018 support these theoretical arguments. Our findings contribute to the learning-from-diversity and institutional logics literature.

Foreign direct investment and urban growth in Vietnam: spatial, economic, and demographic perspectives

ABSTRACT This research reviews the volume and the spatial pattern of Foreign Direct Investment (FDI) over three decades in Vietnam. Since Vietnam embraced the market mechanism, Doi Moi, in 1986, foreign investments have become a crucial part of Vietnam, integrating with the world economy beyond former communist countries. Analysing the profiles of 24,624 FDI projects reported in the period 1988–2017, this research has observed the following three interlocked features. (1) Spatial development. Along with growing volume, inward FDI has been highly concentrated in the two top-tier city-regions: the Ho Chi Minh City Region (HCMCR) and the Hanoi Capital Region (HCR). These two city-regions have attracted almost 60% of inward FDI. (2) Economic development. The economic dominance of FDI activities has been observed in these two FDI city-regions. While the HCMCR has attracted a wider range of industries from diverse investors, the HCR has been more specialised in high-tech manufacturing with investments from a smaller mix of origin countries. (3) Globalised demographic development. Inward FDI has been tied up with the influx of foreign nationals. The case of Vietnam illustrates how FDI flows have facilitated territorial changes and urban growth.

Foreign Direct Investment (FDI), Trade, Corporate Governance, Economic Growth in Albania and Some OECD Countries

Foreign Direct Investment statistics are compiled in compliance with the international standards, IMF and Eurostat requirements for the compilation of the Balance of Payments and International Investment Position. Foreign Direct statistics specify direct investment abroad by resident investors and investments in the domestic economy by non-residents. The balance of payments statistics present transactions related to direct investment for a certain period of time. Meanwhile, the International Investment Position shows the direct investment situation at the end of a reference period. Theoretical studies strongly support the positive effects of Foreign Direct Investment (FDI) in the Gross Domestic Product (GDP) of the host country through technology transfer, human capital formation, etc. 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 Albanian economy into the World markets. The paper outlines policy implications with respect to promoting relevant institutional policies for the enhancement of trade and FDI activities, which potentially could enhance economic growth . Corporate governance is the system of rules, practices, and processes by which a firm is directed and controlled. Corporate governance essentially involves balancing the interests of a company's many stakeholders, such as shareholders, senior management executives, customers, suppliers, financiers, the government, and the community. Keywords: Albania, OECD countries, FDI, Trade, Growth, etc. DOI: 10.7176/RJFA/14-10-02 Publication date: May 31 st 2023

Internationalization under attack: the external threat of short sellers

PurposeThe purpose of this paper is to examine the role of short sellers in foreign direct investment (FDI) decisions. Drawing on threat rigidity theory, the authors argue that short sellers pose a threat to chief executive officers (CEOs) by exerting downward pressure to target firms’ stock prices. That threat will evoke rigid managerial responses that hinder new FDI activities. The authors also posit that CEOs will be less reactive to short sellers’ threats when they are generalist CEOs who have extensive general work experience or when they serve as the board chair.Design/methodology/approachThe authors collect data from S&P 1,500 firms, and the final sample consists of 717 firms and 6,930 firm-year observations from 1998 to 2016. The authors use an Arellano and Bond generalized method of moments static linear probability panel data model and an instrumental panel count data model to test the hypotheses.FindingsThe findings support the hypotheses and suggest that CEOs who are under more pressure from short sellers engage in fewer new FDI activities. The negative impact of short sellers on FDI decisions is less salient when CEOs have general work experience or are the chairperson of the board.Originality/valueThis study contributes to the international business research by stressing the need to consider the role of short sellers in firm internationalization decisions.

A matter of life and death? Knowledge intensity of FDI activities and domestic enterprise

AbstractThere is no overall agreement on the relationship between foreign direct investment (FDI) and domestic enterprise, this may reflect different effects from various types of FDI. A panel data regression approach is adopted to examine the impact of knowledge intensive FDI on both new firm formation and the deaths of enterprises. Jobs created by FDI are found to not influence firm births, but influence domestic enterprise through deaths. Renewal knowledge intensive activities reduce firm deaths, but routine or compliance knowledge intensive activities increase the death rate. This means policy seeking to attract FDI must distinguish even within different types of knowledge intensive activities.

The impact of foreign direct investment on executive compensation: evidence from the Great Recession

ABSTRACT This study examines the causal effect of outward foreign direct investment (FDI) on executive compensation using compensation data of 2,391 Japanese multinational enterprises (MNEs). A negative demand shock caused by the Great Recession in 2008 is applied to identify the impact of FDI on annual payments to corporate executives. We find that firms engaged in FDI tended to decrease executive compensation in response to the crisis to a greater degree than firms with no foreign investment. The result is consistent with the view that FDI activities may explain the recent increase in executive compensation.

Foreign direct investment, efficiency, and total factor productivity: Does technology intensity classification matter?

Purpose ― We examine whether the foreign direct investment (FDI) in promoting technical efficiency is controlled by the sector classifications based on the technology intensity (High Technology, Medium-High Technology, Medium-Low Technology, and Low Technology). Methods ― We use the Indonesian firm-level dataset of the large and medium manufacturing survey from 2007 to 2015 and employ the time-varying stochastic production frontier. Findings ― We reveal that FDI, technology intensity and absorptive Capacity significantly affect firms' production and efficiency. We also found that the Indonesian manufacturing industry from 2007 to 2015 experienced positive Total Factor Productivity growth, where High-Technology sectors experienced the largest magnitude among others. Meanwhile, technological progress stemming from FDI is enjoyed more by Low Technology sectors. Meaning to say, technology intensity classification does not matter to technological progress. Implication ― The host country's government should focus on industries with high technical capabilities to accelerate FDI gains for the firms. Simultaneously, human capital improvement also needs to be intensified, for instance, through training or human development, so that firms with lower technical capability can catch up and, consequently, receive similar benefits from FDI activities. Originality ― Our study accommodates the research gap by including the FDI effect in both productivity and efficiency in a single equation. Many studies merely categorize technology intensity following the stochastic production frontier estimation to obtain technical efficiency or TFP growth. In this sense, those studies did not control the impact of the technology-specific effect.

Brexit and Japanese foreign direct investment in the UK: a sectoral analysis

AbstractPolitical and economic stability significantly affect the economic performance of a country and its ability to attract inward investment. This article investigates Brexit-associated uncertainty and Japanese foreign direct investment (FDI) inflows into the UK. In contrast to most previous studies that use pre-vote behaviour to model post-vote outcomes, we include both pre- and post-announcement and post-vote data on Japanese firm-level FDI activity into Europe. In a Knowledge-Capital framework, we examine the annual count of newly established Japanese foreign affiliates into 80 countries between the years 1995 and 2019. Results from a negative binomial model reveal a statistically significant relationship between the Brexit announcement and decreased FDI in the UK. Our results identify significant sectoral heterogeneity, indicating the difficulty in making broad claims as to Brexit’s effect on the British economy’s future.

Impact of COVID-19 Pandemic on Foreign Direct Investment – The World Perspective

Purpose – Foreign Direct Investment (FDI) has been considered a robust element of globalization that was chiefly immune to financial and economic threats. However, late 2019 introduced international direct investors to COVID-19, a yet unknown risk factor. The aim of this study is to take a holistic perspective and test a research hypothesis of a negative impact of COVID-19 on relative inward FDI activity on the global scale.Research method – FDI is modelled with a series of literature-based determinants including aggregate independent variables that allowed to overcome the issue of too many FDI determinants and model underspecification simultaneously. A series of tests is run on two models (n = 152 and n = 141) to assure their econometric validity.Results – Results show that number of COVID-19 related cases and number of deaths have not had an impact on relative inward FDI on the world scale. Originality / value / implications / recommendations – Unlike most studies, this one exa-mines relative FDI host attractiveness from a global/holistic perspective, which provides additional analytical context. Such determinants as market size, access to qualified labour force and quality of governance are shown to trump risks associated with COVID-19 in determining FDI activity. Policymakers should focus on economic growth, access to qualified labour force and political stability. Hence, lockdown policies were not the optimum solution.

Reverse FDI and knowledge-and-physical-capital model: empirical evidence from emerging economies

PurposeThe main aim of this paper is to verify whether the modern mainstream economic theory of multinational enterprise that explains foreign direct investment (FDI) from developed countries is also able to account for investment decisions of multinational enterprises (MNEs) from emerging economies.Design/methodology/approachUsing Knowledge-And-Physical-Capital (KAPC) model as an analytical framework and Poisson-pseudo maximum likelihood estimation technique, the authors identify determinants of FDI flows from emerging economies. The data set consists of 38 home and 134 host countries during the period 2000–2012. Empirical evidence supports high explanatory power of KAPC model. Further, compared with the earlier Knowledge-Capital (KC) model, results confirm the importance of physical capital.FindingsThe estimation results confirm the hypothesis that mainstream economic theory can explain FDI flows from the emerging economies by highlighting the roles of total market size, skilled-labor abundance, investment and trade costs and geographical distance between two countries.Research limitations/implicationsThis study casts doubt on the alternative way that the KAPC model suggests to distinguish between horizontal and vertical FDI. The argument that horizontal MNE headquarters would be relatively more abundant than vertical MNE headquarters in countries that are abundant in physical capital relative to skilled labor seems reasonable but the idea of variable specification in the estimated equation should be revised.Practical implicationsFirms should be allowed to move their resources freely into and out of specific activities, both internally and internationally across border. To reach that goal, governments of potential host countries can adopt several measures, most importantly remove restrictions on payments, transfers and capital transactions and open previously closed industries to welcome foreign investment. In addition, to improve investment climate in general, governments need to pay attention to enhancing security of property rights, regulating internal taxation (i.e. corporate income tax), guaranteeing adequacy of infrastructure, efficient functioning of finance and labor markets and fighting against corruption.Social implicationsThe location choice of emerging investors set priority on similarity in economic size, geographical and cultural proximity. It is because shared borders or common official languages would reduce information costs and enhance information flows. Also, investors consider horizontal FDI (with motivation to expand market demand) as one of main modes of entry into a foreign market and a substitute for export. Likewise, distance is often understood as an important investment friction.Originality/valueThe outstanding contribution is that the research has uncovered the positive and statistically significant effect of physical capital on FDI activity, which has not been discussed in the earlier KC model. However, at the same time, the study casts doubt on the KAPC model's argument that relative abundance in physical capital to skilled labor between two countries determines FDI types and suggests that this argument and its empirical model specification should be carefully reviewed.

Capital Round-Tripping: Determinants of Emerging Market Firm Investments into Offshore Financial Centers and Their Ethical Implications

Foreign direct investment (FDI) in offshore financial centers (OFCs) is gaining increased attention in business ethics research. Much of this research tends to focus on OFCs as locations where firms can avoid taxes, considering such behavior as unethical. Yet, there is dearth of studies on capital round-tripping by emerging market firms, which is an integral part of this phenomenon. Such round-tripping involves firms sending capital into OFCs only to invest it back in the home country under the guise of “foreign” investment. Presently there is little discussion of the ethical implications of such round-trip FDI activities. In this paper, we conceptualize round-tripping as institutional arbitrage and look at the determinants and ethical implications of such investments into OFCs. Exploring Russian round-tripping we note that firms tend to invest more funds in OFCs that offer a combination of tax and secrecy, or secrecy and property rights protection arbitrage opportunities. In either case firms exploit the opportunities provided by institutional differences between the OFC and Russia while investing back into Russia. Our results tend to indicate that equating OFC investment to tax avoidance and thus deeming it as unethical behavior is too narrow an explanation in the case of emerging economy round-tripping. This is because such investments are often motivated by the unethical behavior of home country stakeholders and may in fact provide benefits to society.

Cross-Border Acquisition Activities and Greenfield FDI: Substitutes or Complements?

Foreign direct investment (FDI) typically occurs through two dominant modes: cross-border mergers and acquisitions (M&As) and Greenfield investment. This study examines the relationship between cross-border M&As and Greenfield FDI by using antitrust enforcement to capture the “price” paid by foreign investors. Based upon the cross-elasticity approach, if M&A activity and Greenfield FDI are complements, then as the price of engaging in cross-border M&A activity is increased, both M&As and Greenfield FDI activities will decrease. However, if M&A activity and Greenfield FDI are substitutes, then as the price of engaging in cross-border M&A activity is increased, M&A activity will decrease, but Greenfield FDI activities will increase. We consider the impact of U.S. merger-policy enforcement on foreign firm participation in the U.S. sectoral markets for investment via two different modes. We empirically test our theoretical priors on firm-level data covering 1,763 firms and 58 industries over the 2003-2017 period. Our panel-data empirical results indicate that merger-policy investigations deter cross-border horizontal M&As and attract Greenfield FDI. These results indicate that foreign firms actually substitute Greenfield FDI for cross-border acquisitions in the U.S. host-country context.

Foreign direct investment, enclaves and liveability: a case study of Korean activities in Hanoi, Vietnam

Foreign Direct Investment (FDI) is a core element for global capital flows and a key driver for urban transformation. However, the ways in which FDI flows have been associated with the production of new urban spaces have attracted little academic attention. This research investigates how FDI activities have led to the migration of expatriate workers and their family members who have established ethnic enclaves in search of liveable environments. The paper focuses on the case of Korean activities in the Hanoi Capital Region (HCR) where the growing volume of FDI has facilitated two bipartite activities in geographically separate locations: one in production space for industrial activities in regional areas and the other in the social space for residential and commercial activities in new urban cores. The case study of Korean FDI, the largest investors in Vietnam, and in particular the HCR, depicts wider perspectives beyond a single industrial sector. This research sheds light on new aspects of recent changes in Hanoi, borne of cross-border capital and human mobilities. The ethnic residential enclaves are largely self-contained for intense social interactions, used as a tool to enhance liveability and bounded within commuting distance from the industrial sites.

A Literature Review on the Location Determinants of FDI

Foreign direct investment (FDI) is an important force to promote economic growth and social development in both developed and developing countries, while the distribution of FDI in the world and within countries is extremely uneven. This paper systematically summarizes the main determinants that affect the location choice of FDI in recent theoretical and empirical studies, including institution and investment environment, trade cost and industrial agglomeration, market size and natural resource, cultural distance and social network. Based on the work of this paper, it is helpful to better understand the location preference of multinational enterprises (MNEs) in FDI activities, and provide a reference basis for the host country to attract investment and promote economic growth.

Impact of Macroeconomic, Governance and Risk Factors on FDI Intensity—An Empirical Analysis

The study analyzes the impact of macroeconomic, governance and risk factors on foreign direct investment (FDI) intensity with respect to the US market during the period 1960–2019. The study adopted regression methodology. The FDI, macroeconomic and risk data were sourced from the Federal Reserve Economic Data (FRED) database. The governance data were collected from the World Bank Governance Database. The study suggests that infrastructural investments lead to higher FDI. A stronger Euro leads to higher FDI activity in the United States. Research & Development investments is a significant factor which contributes towards enhanced FDI activity. The higher the corporate profitability, the greater the FDI inflows. Exports and imports are significant factors which determine FDI in markets like USA. Inflation has a negative impact on FDI flow regulations, which are aimed to promote private sector development is negatively related to FDI intensity. FDI activity by firms tend to be lower when corruption levels are higher in the country. The higher the governance perception in terms of voice and accountability of citizens, the greater the propensity to attract FDI. The perception of the effectiveness of a government’s commitment towards the quality of public and civil services is directly related to FDI investment.

Export, FDI and the welfare gains from trade liberalization

This paper extends Melitz and Redding (2015) to analyze the welfare gains from trade liberalization by adding foreign direct investment(FDI). Our model predicts that with FDI activities, welfare gains from trade liberalization will be strictly lower than those in a model without FDI, but only takes exports into account. In addition, the calibrated model indicates that with FDI activities, aggregate welfare reaches its maximum when the fixed export costs are positive rather than 0. Furthermore, we decompose the welfare gains induced by trade liberalization from continuing exporters, and switchers. The results show that in any case, with or without FDI, continuing exporters contribute a larger share to welfare gains than status switching firms.

A Tentative Exploration of the Effects of Brexit on Foreign Direct Investment Vis-À-Vis the United Kingdom

European Union (EU) integration has boosted inward EU foreign direct investment (FDI) into the United Kingdom (UK). Within the EU, the UK has a relatively significant stock of inward FDI, having reached 61% of its Gross Domestic Product (GDP) in 2017 and risen strongly since 2005. The exit of the UK from the EU and the Single Market will probably result in reduced FDI amongst both investment destinations. The aim of this study is to look at the “real-time” effects of the Brexit June 2016 referendum outcome and its aftermath on UK-related FDI activity. Although FDI flows are notably volatile and biased by periodic non-systematic outliers, and despite some caveats on data sources and availability of time series data, we find tentative evidence of a post-referendum slowdown in gross FDI flows between the UK and the EU, notably involving the big EU economies and Ireland. Regarding a very favoured form of FDI, greenfield FDI, we document a post-referendum fall in announced projects and capital expenditures into the UK by both other EU countries as well as one of the most important non-EU partners, the United States. A different approach is also used to analyse the Brexit effect on FDI activity, based on estimating the effect of two successive stages in the European integration process – EU membership and the Euro area launch – and considering Brexit effects as the reversal of the UK integration into the EU. By using a fixed-effect gravity model to estimate the effects of these integration processes on bilateral FDI activity with the UK, the empirical results suggest that, on the one hand, this country played a role as a gateway for a set of international investor countries outside the Euro area to enter European markets and, on the other, it acted as a hub that reallocated these inflows and those coming from Euro countries across the Euro area itself. Thus the disconnection of the UK from the EU may have further implications for FAI than just reverting the effect of EU membership. Larger trade barriers and lower integration between the UK and the Euro area countries’ markets will likely have a negative impact on FDI activity in the UK and might have, in the short run, a negative effect in the Euro area.

Do bilateral investment treaties attract foreign direct investment? The role of international dispute settlement provisions

AbstractThis paper studies the effects of the strength of bilateral investment treaties (BITs) on foreign direct investment (FDI) activity. We develop an index for the strength of international dispute settlement provisions included in BITs in order to examine the role the content of BITs plays in attracting FDI. To this end, we make use of data from UNCTAD's International Investment Agreement Mapping Project and measure the provision strength of 2,571 BITs. Using panel data of bilateral and total FDI inflows and inward FDI stocks, we study the effect of BITs on FDI. Our main finding indicates that stronger international dispute settlement provisions in BITs are indeed associated with positive effects on FDI activity.

Nascent multinationals from West Africa

PurposeThe purpose of this paper is to explore the motivations underpinning the foreign direct investment (FDI) activities, including the location and entry mode decisions, of nascent multinational enterprises (MNEs) from West Africa.Design/methodology/approachThis research adopted a case study approach entailing the triangulation of interview data with documentary evidence on two leading West African financial service companies that have FDI footprints in over 50 country markets.FindingsEvidence suggests the primacy of market-seeking motivations in explaining the FDI activities of the explored nascent MNEs, with relationship, efficiency and mission-driven motivations emerging as strong sub-themes. Having neither the global resonance of their traditional counterparts nor the government-augmented resource profile of their Asian counterparts, the study firms appear to have shied away from costly strategic asset and prestige-seeking FDI, and preferred psychically and institutionally proximate sub-Saharan African markets and non-organic collaborative entry modes.Research limitations/implicationsThe above insights should be considered tentative given the study’s limited evidence base. This underscores the need for a larger scale empirical effort to assess the propositional inventory outlined at the end of this paper.Practical implicationsAfrica’s growing population of MNEs are urged to continue to strengthen their positions across African markets, view these regional markets as a platform to learn and upgrade their capabilities for future expansion into more challenging global markets, and to augment their limited resource profiles, including by tapping into their global diaspora networks. Policy makers should support their market-seeking initiatives given evidence that they could be a pathway to higher order FDI motivations. This evolutionary approach reflects enduring lessons from earlier generations of MNEs. Policy makers should also support continuing intra-African investment flows as a pathway to creating more sizeable, integrated African markets and generating positive spill-overs, including in typically blind-sided post-conflict or fragile African markets. This also entails pushing for cross-border regulation needed to minimise the transfer of systemic risks across countries.Originality/valueThe study provides rare empirical evidence on hitherto neglected MNEs from sub-Saharan Africa, thus extending the geographic compass of research on FDI motivations. It identifies some distinctive aspects of the explored MNEs’ FDI behaviour, including the previously unheralded mission-driven motivation, whilst also revealing shared characteristics with traditional MNEs and emerging market multinational enterprisess.