Foreign Direct Investment Entry Research Articles

Agadir Agreement and Entry of Foreign Direct Investment to the Countries of the Zone

Agadir Agreement and Entry of Foreign Direct Investment to the Countries of the Zone

Does inward FDI improve the labour‐allocation efficiency of local firms? Evidence from China

AbstractThis article estimates labour‐allocation efficiency at the firm level in China and studies whether inward foreign direct investment (FDI) has contributed to its improvement. We construct a city‐level FDI intensity measure and identify the causal effect of FDI entry on labour‐allocation efficiency. The results indicate that when FDI increases by 10%, the average labour‐allocation efficiency increases by 7.2%. The mechanism analysis further implies that the alleviation effect of FDI entry on firm‐level labour‐allocation efficiency prefers the agglomeration learning rather than the agglomeration matching channel, that is, firm‐level labour‐allocation efficiency increases only when they are more exposed to the agglomeration of foreign capital and more related industries. The heterogeneity analysis further reveals that firms located in less segmented regions, facing higher training costs, of private‐ or foreign‐owned ownership types, having a higher ratio of high‐skilled labours increase labour‐allocation efficiency more upon FDI entry.

Violence, Predation, and FDI Entry

AbstractI present a theoretical framework that links different configurations of organized violence to global patterns in foreign direct investment (FDI). Insurgents, states, and rogue government agents all use violence for political purposes (i.e., incapacitating rivals), but they vary in how they use violence for economic purposes (i.e., generating income). Applying Olson’s (1993) concepts of “roving” and “stationary” banditry, I hypothesize that violence perpetrated by rebels and rogue agents indeed depresses a host country’s commercial appeal, but that violence perpetrated willfully by the state doesn’t. This claim is tested against data on FDI “entry” by several thousand multinational corporations between 1994 and 2018.

Foreign Direct Investment, Non-Renewable Energy and Economic Growth: An Empirical Analysis from South Africa

Purpose This study aims to examine the connection between foreign direct investment, non-renewable energy, and economic growth in South Africa. Methodology The data was collected from the World Bank’s website from 1990 to 2020. The VECM and Granger causality approaches were employed to evaluate the connection between Economic growth, FDI, and Non-renewable energy. Findings The findings show that a long-term equilibrium relationship exists among the variables. Further, the result of the Vector Error Correction Model (VECM), shows a coefficient value of 0.0038 indicating the short-term adjustment speed of the system towards its long-run equilibrium. The result of Granger causality shows no bidirectional Granger causality among any of the variables. There is a Unidirectional Causality between GDPC and NRENW. Conclusion The study concluded that non-renewable energy can enhance economic growth in these countries, but it can aggravate the degradation of the environment. Essentially, foreign direct investment (FDI) significantly and negatively affects growth, suggesting that FDI entry into African nations negatively affects the environment.

Information voids and cross‐border bandwagons of foreign direct investment into an emerging economy

AbstractResearch SummaryThis study examines cross‐border bandwagons of foreign direct investment (FDI), a mass FDI entry process, into an emerging economy by following global investors from multiple home countries. Complementing the frequency mechanism, we introduce a cohesion mechanism that can also drive cross‐border bandwagons of FDI. Drawing on the notion of information voids, we submit that the two mechanisms are based on different origins of information, and their relative effects vary depending on the extent of information voids in the host country. Analyzing a firm‐level data set of Japanese firms’ FDI entries into China between 1986 and 2000, we find a high level of information voids in the host country strengthens Japanese firms’ cohesion‐based cross‐border bandwagons of FDI, while suppressing their frequency‐based cross‐border bandwagons of FDI.Managerial SummaryCross‐border bandwagons of FDI into emerging economies have been a prominent phenomenon driving globalization in the past three decades. It is noteworthy that global investors from different countries contributed unequally to this process. This is because the information voids in an emerging economy create challenges for global investors to effectively source FDI bandwagon information from other countries, restricting the frequency mechanism in driving cross‐border bandwagons of FDI. In this article, we introduce a new cohesion mechanism in driving cross‐border bandwagons of FDI: an investor's international networks of FDIs. We then compare the relative effectiveness of the two mechanisms and find that the frequency mechanism weakens while the cohesion mechanism strengthens, when the level of information voids in a host country increases.

Institutional difference and foreign direct investment location choice: Evidence from China

AbstractResting upon an extensive data set on foreign invested enterprises (FIEs) in China, we investigate the role of institutional difference in determining the locational choice of foreign direct investment (FDI). Estimation results using firm‐level discrete choice model suggest that FIEs from source countries that are more remote institutionally from the Chinese mainland exhibit a higher degree of sensitivity to regional economic institutions in their choice of FDI location. Furthermore, we find that FIEs coming from countries with better institutions than China are more sensitive to the institutional difference. Interestingly, we find that the deterrent effect of institutional distance on FDI entry is mitigated for FIEs coming from countries with more ethnic Chinese individuals in their overall populations.

Foreign direct investment by multinational corporations in emerging economies: a comprehensive bibliometric analysis

PurposeThis study introduces a comprehensive bibliometric analysis of the foreign direct investment (FDI) literature by multinational corporations (MNCs) focusing on emerging economies to identify the most influential authors, journals and articles in FDI research and reveals the fields' conceptual and intellectual structures. The purpose of this paper is to address these issues.Design/methodology/approachThe study analyzed 533 articles published between 1974 and 2020 in 226 academic journals indexed in the Web of Science (WoS) and Scopus databases. We used the R language for statistical computing to map author collaboration, co-word and develop a conceptual and intellectual map of the field.FindingsThe results show that, although the FDI literature has many authors, few dominate the field. The International Business Review (IBR) and International Journal of Emerging Markets (IJoEM) are the main sources of the publications. Moreover, bibliometric laws show that our dataset follows the Lotka law of scientific productivity and Bradford law of scattering, identifying the core journals. Finally, FDI by MNCs in emerging economies research is divided into four sub-research themes related to (1) FDI determinants, (2) entry mode, (3) MNCs and FDI performance and (4) the internationalization process.Originality/valueThe current article provides several starting points for practitioners and researchers investigating FDI. It contributes to broadening the vision of the field and offers recommendations for future studies.

Do Environmental Regulation and Foreign Direct Investment Drive Regional Air Pollution in China?

With economic development, air pollution is becoming increasingly serious, which affects the sustainable development of the global economy. In order to explore policy measures to curb air pollution, this paper selects data from 30 regions in China and explores their impact studies on air pollution from the perspectives of environmental regulation and foreign direct investment using a systematic GMM model. Then, the threshold effect model is selected to verify their nonlinear relationship. The conclusions are as follows: (1) Environmental regulation does not pass the significance test. There is no significant “U-shaped” or “inverted U-shaped” relationship between environmental regulation and air pollution. In the eastern region, there is an inverted U-shaped relationship, which is consistent with the environmental Kuznets curve (EKC) hypothesis, and the effect in the central and western regions is higher than in the eastern region of China. (2) The entry of foreign direct investment (FDI) aggravates the environmental pollution problem in China, and the overall status quo is consistent with the pollution haven hypothesis, which shows an inverted U-shaped curve between FDI and air pollution. The eastern region does not have any U-shaped relationships. The other two regions show an inverted U-shaped curve between foreign direct investment and air pollution; these two regions are still in the left half of the curve, and the increase in foreign capital will lead to aggravation of the pollution status quo. (3) The industrial structure will aggravate air pollution in the whole country and the central and western regions; the eastern region shows a suppression effect, but this is not significant. Urbanization exacerbates air pollution in the central and western regions but has an insignificant effect in the eastern region. The level of economic development increases air pollution in all regions. The expansion of the population size brings a large amount of production and living pollution, which aggravates environmental pollution. The research in this paper can provide theoretical references for regional policies to control air pollution.

Level of development, foreign direct investment and domestic investment in food manufacturing.

Background: Whilst the literature on the complementarity and substitutability of foreign direct investment (FDI) on domestic investment (DI) is not uncommon, the facet of food manufacturing is non-existent. This paper fills this void by investigating the effect of FDI on DI in the food manufacturing sector for developing, economies in transition and developed countries. Methods: Using an unbalanced panel data of 49 countries from 1993 to 2016, from FAOSTAT, estimated by the system generalised method of moments (GMM), the Wald statistics for the short and long-run effects of FDI on DI were computed for the development groups. Results: Developed economies experienced a crowd-out effect of FDI on DI in the short run, whilst the others experienced no significant effect. In the case of the long run, the food manufacturing sectors of all three development groups exhibited a crowd-out effect. The effect in the long run for all development groups together is a crowd-in. Analysing all country groups together could mask the results of the various country groups. Conclusions: A review of investment policies to prioritise FDI entry mode that favour domestic investment is needed. Improvement of the investment regulatory and administrative efficiency among others are recommended.

Daya Saing dan Foreign Direct Investment

abroad and domestically. Incoming investment is affected by a country's daytime strength. Widespread investment encourages more competition and corrupt practices as many investors want to reduce the bureaucracy they face. However, in the investment market a high level of corruption also makes a country's economy unattractive. This study aims to analyze the effect of a country's competitiveness on the entry of Foreign Direct Investment in ASEAN. The variables used in this study are foreign investment, competitiveness, Corruption Perception Index, and political stability. The analytical method used is the Random Effect Model. This shows that state power is able to encourage direct foreign investment in a positive direction, as well as the Corruption Perception Index where the handling of the level of corruption will encourage the entry of Foreign Direct Investment. Political stability in this study does not have a significant effect, meaning that political shocks do not interfere with the entry of Foreign Direct Investment in ASEAN in the period 2010 to 2020.

Foreign direct investment, innovation, and domestic value‐added in exports: Firm‐level evidence from China

AbstractThis paper analyzes the effect of foreign direct investment (FDI) entry on the domestic value‐added ratio (DVAR) in exports using data on Chinese firms between 2000 and 2007. We adopt the difference‐in‐difference method to estimate instrumental variables regressions, treating the adoption of the Revisions to the Catalogue for the Guidance of Foreign Investment Industries in 2002 as a policy shock. Our analysis yields a few findings. First, FDI entry suppresses firm DVAR, a result that continues to hold after taking into consideration the randomness of the policy treatment group, other policy shocks, firm entry and exit, and the use of alternative measures. Second, FDI entry exerts a greater impact on the DVAR of foreign rather than domestic firms, non‐state‐owned enterprises (SOEs) rather than SOEs, and firms located in the eastern rather than central and western regions. Third, FDI entry negatively affects DVAR mainly through its horizontal spillovers after taking into account FDI entry in upstream and downstream industries. Fourth, compared to FDI from Hong Kong, Macao, and Taiwan (HMT), foreign investments from non‐HMT regions are less likely to inhibit firm DVAR. Lastly, we find that value capture capacity, as measured by firm innovation, plays an important role in mediating the impact of FDI entry on DVAR. Taken together, these findings suggest that sustainable domestic economic development cannot rely solely on the introduction of foreign investment and should instead emphasize the importance for firms to improve value capture capacity so as to better capitalize on the positive spillovers generated by foreign investment.

Exports, trade costs and FDI entry: evidence from Japanese firms

Why does aggregate foreign direct investment (FDI) fall with distance? We conjecture that high trade costs adversely affect FDI entry decisions in a dynamic setting, even when controlling for previous export experience in foreign markets. We test this hypothesis using Japanese firm-level data for the period of 1995–2018, and find that the probability of FDI entry decreases with distance. We conclude that trade costs limit a firm’s ability to assess foreign market uncertainty. As a result, a firm may exit a foreign market before realizing the potential profitability and never establish an affiliate there. This result is highly relevant for policymakers, as it proves that trade liberalization and FDI facilitation policies may reinforce each other, resulting in a compound effect for both exports and FDI.

Foreign Direct Investment and Environmental Quality: Revisiting the EKC in Latin American Countries

In this study we aim to test the effects of foreign direct investment (FDI) on carbon emissions (CO2) in 20 Latin American countries during the period of 1990–2018. Based on the atlas method of the World Bank, we divided the countries into three groups according to their real gross national income per capita: high-income, upper-middle-income and lower-middle-income countries. We used cointegration techniques and causality tests to evaluate the relationship between the variables. To assess the strength of the cointegration vector, we applied the dynamic ordinary least squares (DOLSs) model for individual countries and the dynamic panel ordinary least squares (PDOLSs) model for groups of countries. The results suggest that the entry of FDI into Latin American (LA) countries increases CO2 emissions, affecting the environmental quality. These findings disagree with the environmental Kuznets curve (EKC) hypothesis but, in contrast, they are in line with the pollution haven hypothesis (PHH). Moreover, we show evidence in long-term equilibrium relationship between FDI input and CO2 emissions, which is not the case for the short-term equilibrium. Some additional results suggest that FDI flows do not cause the CO2 emissions in LA countries. The empirical findings suggest policymakers to design policies to “the second-best theory”, targeting FDI flows to their economies to solve economic problems in the short term, but thereafter they may guarantee the reduction in environmental pollution, based on environmentally responsible FDI and stronger regulations. In other words, the transition from a pollution haven to the applicability of the environmental Kuznets curve (EKC). This study contributes with scarce empirical evidence for LA countries in this issue.

Impact of Foreign Direct Investment on Regional Innovation Capability: A Case of China

Foreign direct investment (FDI) has been traditionally considered an important channel in the diffusion of advanced technology. Whether it can promote technology progress for the host country is a focused problem. This paper analyzes the relationship between FDI and regional innovation capability (RIC). We find that the spillover effects of FDI are not as signif icant as it is usually thought. It is found that the impact of FDI on RIC is weak; the entry of FDI has no use for enhancing indigenous innovation capability. Moreover inward FDI might have the crowding-out effect on in novation and domestic R&D activity. The research manifests that increasing domestic R&D inputs, strengthening the innovation capabilities and absorp tive capacity in domestic enterprises are determinants to improve RIC.

Foreign direct investment and institutional environment: the impact of bilateral investment treaties

ABSTRACT Institutional factors are a critical driving force for the rapid growth of outward foreign direct investment (FDI) in developing countries. This article attempts to explain how developing countries can take advantage of bilateral investment treaties (BITs) to reduce investment uncertainties caused by informal institutional distance and help domestic companies invest abroad. The results confirm that the cultural difference between China and a host country is negatively associated with the likelihood of FDI entry into the host country. BITs function as a substitute for the host country’s institutional environment by reducing investment uncertainties caused by cultural distance. Moreover, state-owned enterprises are less responsive to BITs in host countries than private enterprises, suggesting that private firms rely more on BITs to reduce their investment risks abroad.

Digital media, control of corruption, and emerging multinational enterprise’s FDI entry mode choice

The impact of freedom of digital media in host countries has been under-researched in the literature of the internationalization decisions of emerging multinational enterprises (EMNEs). Through integrating the stakeholder perspective with transaction cost economics, we examine the role of host-country digital media in influencing the foreign direct investment (FDI) entry mode choice of EMNEs and its boundary conditions associated with internal and external corruption-controlling efforts. Using a panel dataset of Chinese listed manufacturing firms’ outward FDI between 2010 and 2016, our empirical analyses indicate that freedom of digital media in a host country has positive impact on an EMNE’s wholly owned subsidiary choice as FDI entry mode. This main relationship is strengthened by EMNE transparent information disclosure and external control of corruption in the host country.

Level of development, foreign direct investment and domestic investment in food manufacturing.

Background: Whilst the literature on the complementarity and substitutability of foreign direct investment (FDI) on domestic investment (DI) is not uncommon, the facet of food manufacturing is non-existent. This paper fills this void by investigating the effect of FDI on DI in the food manufacturing sector for developing, economies in transition and developed countries. Methods: Using an unbalanced panel data of 49 countries from 1993 to 2016, from FAOSTAT, estimated by the system generalised method of moments (GMM), the Wald statistics for the short and long-run effects of FDI on DI were computed for the development groups. Results: Developed economies experienced a crowd-out effect of FDI on DI in the short run, whilst the others experienced no significant effect. In the case of the long run, food manufacturing sectors of all three development groups exhibited a crowd-out effect. The effect in the long run for all development groups together is a crowd-in. Analysing all country groups together could mask the results of the various country groups. Conclusions: A review of investment policies to priorities FDI entry mode that favour domestic investment is needed. Improvement of the investment regulatory and administrative efficiency among others are recommended.

Level of development, foreign direct investment and domestic investment in food manufacturing

Background: Whilst the literature on the complementarity and substitutability of foreign direct investment (FDI) on domestic investment (DI) is not uncommon, the facet of food manufacturing is non-existent. This paper fills this void by investigating the effect of FDI on DI in the food manufacturing sector for developing, economies in transition and developed countries. Methods: Using an unbalanced panel data of 49 countries from 1993 to 2016, from FAOSTAT, estimated by the system generalised method of moments (GMM), the Wald statistics for the short and long-run effects of FDI on DI were computed for the development groups. Results: Developed economies experienced a crowd-out effect of FDI on DI in the short run, whilst the others experienced no significant effect. In the case of the long run, food manufacturing sectors of all three development groups exhibited a crowd-out effect. The effect in the long run for all development groups together is a crowd-in. Analysing all country groups together could mask the results of the various country groups. Conclusions: A review of investment policies to priorities FDI entry mode that favour domestic investment is needed. Improvement of the investment regulatory and administrative efficiency among others are recommended.

SOVEREIGNTY, NATIONAL INTEREST AND SECURITY IN BILATERAL INVESTMENT TREATIES OF MALAYSIA

At present, the BITs are playing a significant part in regulating foreign direct investment (FDI) in the host countries and like other members of the World Trade Organisation (WTO) Malaysia have also signed BITs to facilitate trade. Malaysia’s FDI laws and BITs mainly protect foreign investors, however, neither of them has any specific provision on the protection of sovereignty, national interest and security. This paper addresses the question, to what extent are sovereignty, national interest and security protected through BITs during entry of FDI into Malaysia? Using non-doctrinal socio-legal research method, the authors critically analyzed 15 BITs to explore whether they protect the sovereignty, national interest and security of Malaysia. The findings show that the existing Malaysian BITs contain provisions to promote and protect foreign investments but lack specific references to protect sovereignty, national interest and security, therefore, the government should consider these important factors when signing future BITs.

The Impacts of Freight Trade on Carbon Emission Efficiency: Evidence from the Countries along the “Belt and Road”

Extensive research has been carried out on the “Belt and Road” initiative, most of it focusing on geographical economy and international trade. However, there is a lack of research on the carbon emissions efficiency of the countries along the “Belt and Road,” especially regarding the impact of freight trade. To address this research gap, this paper first employs a metafrontier nonradial directional distance function to measure the carbon emission efficiency of 32 countries along the “Belt and Road” from 1990 to 2014. It then examines the role of freight trade. Our main research findings are as follows. Firstly, the carbon emission efficiency of the countries along the “Belt and Road” is generally low. Among them, Russia and Central Asia are mainly due to the large between-group gap in carbon emission efficiency, while Southeast Asia, Western Asia and North Africa, East Asia, South Asia, and Central and Eastern Europe are mainly due to the large within-group gap. Secondly, freight trade promotes carbon emission efficiency, but it will aggravate the gap between the contemporaneous technology and the group technology. Freight trade mainly promotes the contemporaneous carbon emission efficiency (CTCEI) and group-frontier carbon emission efficiency (ITCEI) of low fossil energy dependent countries, and the metafrontier carbon emission efficiency (GTCEI) of high fossil energy dependent countries. Thirdly, foreign direct investment (FDI) has a significant negative effect on a host country’s ITCEI and GTCEI, and it will decrease the gap between the group technology and the metafrontier technology. However, freight trade can effectively prevent the entry of FDI, thereby indirectly improving carbon emission efficiency and reducing carbon emission gap.