Foreign Direct Investment Investment Research Articles

Strategic Regionalism of the Pacific Alliance: An Outlook throughout the Investment

The Pacific Alliance (PA) is considered a strategic regionalism in Latin America due to the pragmatic policy trade of the members. One of these pragmatic elements is investment. This article analyzes intra-regional investment flows in the PA in the period 2010–2021 as evidence of strategic regionalism. This article examines the characteristics of the strategic regionalism and the theoretical approaches to foreign direct investment (FDI) from the perspective of capital localization and the internationalization processes of companies. Based on official statistics from the countries, annual FDI and intra-regional investment flows are studied, along with a qualitative analysis of the Pacific Alliance Investment Facilitation Initiative. It concludes that the PA's intra-regional investment is explained by the internationalization and economic importance of multilatina companies, and that it should consider alliances with Chinese enterprises.

Impact of Foreign Direct Investment on the Economic Growth of Nepal

The study investigates the factors influencing foreign direct investment (FDI) and its sectoral distribution in the Nepalese economy, specifically examining the relationship and impact of FDI on sectors such as minerals, manufacturing, construction, energy, and services over a ten-year period from 2011/12 to 2020/21. Descriptive and correlational research design was employed in the annual time series data. The major findings reveal a positive correlation (correlation co-efficient of 0.668) between FDI and Gross Domestic Product (GDP), signifying a significant relationship. The study concludes that FDI has a substantial impact on Nepal's GDP. Additionally, sectoral FDI investments, including minerals, construction, energy, manufacturing, and services, also positively influence the country's GDP. The study suggests that despite Nepal's untapped FDI potential, implementation challenges, lengthy approval processes, and a service sector bias among investors hinder optimal exploitation of investment opportunities in other sectors with higher productivity.

Unveiling the Interplay of Institutional Quality, Foreign Direct Investment, Inflation and Domestic Investment on Economic Growth: Empirical Evidence for Latin America

Uplifting economic growth is crucial for the sustained development and prosperity of an economy. The main objective of this study is to investigate the impact of institutional quality, foreign direct investment (FDI), inflation, and domestic investment on the economic growth of Latin America from 1996 to 2021. The study utilizes a combination of panel unit root testing, cross-sectional dependency testing, panel cointegration testing, and the Panel Autoregressive Distributive Lag (PARDL) technique to shed light on the dynamics of the region's economic development. The panel cointegration techniques confirm the existence of a long-run relationship among the selected variables over the chosen time frame. The PARDL technique is employed to determine the short- and long-run impact of institutional quality, FDI, inflation, and local investment on the economic growth of Latin America. The results show that institutional quality, FDI, and local investment have a significant positive impact on the economic growth of Latin America, while inflation has a negative impact. These findings suggest that policymakers in Latin America should prioritize improving institutional quality, encouraging FDI, and promoting local investment while controlling inflation. A comprehensive economic strategy that considers both short- and long-term dynamics is necessary, highlighting the importance of an integrated approach that recognizes their interaction. The study recommends improving the quality of institutions, especially political stability, to attract FDI and encourage domestic investment by promoting a business-friendly environment, guaranteeing financial accessibility, encouraging innovations, promoting regional and global integration, controlling inflation, reducing income inequality, and raising the standard of living.

Analysing the impact of FDI and Institutional Quality on Economic growth in South Asian: Panel ARDL APPROACH

This study investigates the impact of institutional quality and foreign direct investment (FDI) on the economic growth of South Asia from 1996 to 2021. The analysis employs various statistical techniques, including panel unit root testing, panel cointegration testing, and Panel Autoregressive Distributive Lag (PARDL) models, to gain insights into the region's economic development. For finding the association between institutional quality, FDI, domestic investment and economic growth in South Asia, first tried to check the unit root problem in the selected series by employing the panel unit testing and results of these tests conclude that some variables are integrated at level while some other variables are integrated at the first difference, so for testing the cointegration or long-run relations among these variable the panel cointegration tests are employed and these tests conclude the long-run association among the variables. For checking the long and short-run impact of institutional quality, FDI, domestic investment and economic growth the panel ARDL test is employed. The results demonstrate the significant positive long and short-run impact of institutional quality, FDI, domestic investment on economic growth in the region of South Asia. These relationships demonstrate the persistent nature of interactions among these variables, emphasizing the importance of policies that promote strong institutions, attract foreign investments, and stimulate domestic capital formation to sustain regional economic growth. The study offers critical recommendations for South Asian countries to enhance their economic growth by focusing on the strengthening institutional quality, encouraging FDI, developing the special economic zones, promoting domestic investment, investing in the infrastructure and promoting regional economic integration. These recommendations offer a clear path for South Asian countries to achieve sustained economic growth by addressing the interplay between institutional quality, FDI and domestic investment dynamics. By implementing these measures, South Asia can secure lasting prosperity and enhance the well-being of its people in a rapidly evolving global economic landscape.

Influence of Stock Market Dynamics, Renewable Energy Utilization, and Urban Development on Environmental Decline: Novel Insights from G20 Nations

This study's main goal is to objectively investigate how stock market expansion, Urbanization FDI, and foreign direct investment (FDI) inflows affect CO2 emissions. This study also explores how the use of renewable energy affects CO2 emissions and economic output in a panel of G20 nations. The whole sample as well as sub-samples of rich and developing economies of the G20 member countries were used in the empirical analysis. The study tells that due to rise in urbanization the carbon dioxide emission reduced. Similarly, THE GDP growth and CO2 emission are positively related and our results shows that FDI and CO2 emission are also directly related. Meanwhile for the trade openness the results are mixed, in start it rises CO2 emission but after sometimes it reduces. Moreover, due to shift of renewable energy consumption from fossil fuel helps to emit less CO2 and MSCI shows directly relation with CO2 emission for these countries. The findings support a notable long-run equilibrium link between the variables in all of the panels. Also, according to the long-run elasticities, FDI considerably lowers CO2 emissions in both the complete sample and emerging economies, while stock market growth declines in developed economies. Similar to how using renewable energy significantly lowers CO2 emissions and boosts economic output globally panels. Our conclusions have significant policy ramifications. In order to meet the rising demand for energy by displacing the usage of conventional energy sources like coal, gas, and oil, policymakers must first implement effective policies to promote renewable energy sources. As a result, both the CO2 emissions and the promotion of sustainable economic growth in the G20 nations will be aided. Also, according to the long-run elasticities, FDI considerably lowers CO2 emissions in both the complete sample and emerging economies, while stock market growth declines in developed economies.

Impact of Foreign Direct Investment (FDI) on Unemployment in Somalia

This study evaluates the impact of foreign direct investment (FDI) on unemployment in Somalia. To achieve this goal, a co-integration analysis of the Johansen and VAR models was conducted using annual data from 1991 to 2021. The results indicate that there is no significant long-term relationship between foreign direct investment net inflows and unemployment. Furthermore, the long-term and short-term effects of FDI on unemployment are not significant. Based on the findings, it can be concluded that FDI does not contribute to a reduction in the unemployment rate in Somalia. Therefore, governments in the region should aim to attract labor-absorbing FDI and channel foreign investment inflows towards labor-intensive sectors with high labor-absorptive capacity, such as horticulture and floriculture.

FDI and Economic Growth – Perspective of Southeast European Countries

Abstract Emergence of new economic entities, through either integration or disintegration, always creates system inefficiencies resulting in temporary economic setbacks. At the macroeconomic level, this brings about slowdown in economic growth and delayed catching up with more advanced economies. In Europe, the turn of the century brought along political and economic disintegration, on one hand, and economic integration, on the other. Demise of planned economies across Eastern Europe caused serious economic turmoil due to market fragmentation. Meanwhile, creation of new economic architecture in the European Union (EU) has created additional challenges of economic restructuring. Therefore, achieving sustainable economic growth and high income has become the ultimate economic policy objective. Equity investment in form of foreign direct investment (FDI) has proven to be the right choice, because influx of fresh capital and know-how enabled strong economic growth and restructuring through increasing labor productivity and economic efficiency. Stronger competitive pressure through FDI contributed to dynamic restructuring, resembling in increasing exports and stronger integration into global economy. Yet, growth rates across countries were not always proportional to the volume of inward FDI, which indicates a certain level of underperformance for some countries. The aim of the paper is to closer investigate the FDI-growth nexus by differentiating between two types of FDI – mergers and acquisition (M&A) and greenfield investment. Thus, the analysis will take account of the characteristics of the FDI host economy, and those of the investing company, because we find it reasonable to assume that different forms of FDI incorporate different business dynamics and the time horizon of the investor’s expectations. In order to find out the effects of different forms of FDI on economic growth we apply panel data analysis with fixed effects and Prais-Winsten estimator on the sample of European reform countries whereby FDI, M&A and greenfield investment are considered the key variables. Analysis also includes a set of control variables, which combine standard neoclassical growth variables. Results indicate that, with reference to the level of innovativeness, different types of FDI indeed produce different effects on host countries’ economic growth.

COVID-19 and China’s Foreign Direct Investment Inflow- Stress Tests Based on Extreme Gradient Boosting Model and Policy Implications

Foreign direct investment (FDI) is essential to world economic growth, global industrial chain optimization, technology diffusion, and product innovation. This study identifies several macro-level factors affecting FDI inflow to China after discussing possible mechanisms through which COVID-19 influences FDI. Then, it tests three different stressful scenarios simulating the COVID-19 influence on China’s FDI inflow with a regression model estimated by extreme gradient boosting (XGBoost) in Python. Results show that the rampant COVID-19 pandemic and increasing global investment risks would have a substantial and negative impact not only on global FDI size, investment rules, and investment structure, but also on FDI inflow to China. Without effective measures being taken, from January 2020 to March 2022, losses in China’s annual FDI inflow could reach 5.71 percent to 11.28 percent, but the country’s actual annual FDI inflow is much higher. The extraordinary measures adopted by the Chinese government include preventing pandemic measures that are prompt and effective as well as targeted macroeconomic regulation policies. They make a rapid recovery or even improvement in China’s economic fundamentals, which in turn enhance China’s attractiveness to FDI and the FDI size, more than offsetting the negative effect of COVID-19 on FDI inflow to China. Finally, this paper proposes several countermeasures in macro-economic regulation and industrial policy adjustment to prevent and mitigate the negative influence of COVID-19 on FDI.

CHINESE INVESTMENT IN TO VIETNAM

The establishment of the China-ASEAN Free Zone A trade area has brought unprecedented opportunities and space as well as greater mutual benefits for China and ASEAN in developing countries and regions. The desire to find a common development based on economic cooperation has become increasingly strong. Since 2011, China's foreign direct investment (FDI) into Vietnam has increased in the ranking of countries investing in Vietnam, and expanded in geographic scope and investment sectors. From 2015 up to now, especially since Vietnam signed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), China is often in the top 10 countries investing the most in Vietnam, because they seek to gain a foothold in the vast CPTPP market through Vietnam. Within the scope of this article, the overview of China's FDI investment in Vietnam is presented and analyzed. At the same time, the article also evaluates the advantages and disadvantages of Chinese FDI inflows into Vietnam. Since then, a number of suitable solutions have been proposed.

Sectoral distribution of FDI and employment: Evidence from post- transitional European countries

This paper examines, from the perspective of Post-Keynesian economics, the effects of Foreign Direct Investment (FDI) on the employment rate in 18 post-transitional European countries from 1995 to 2021. Using a two-step system Generalised Method of Moments (GMM) panel data estimator, we test the hypothesis that the employment impact of investment depends on the interaction of FDI and domestic investment in terms of crowding-in and crowding-out relationships, assuming that this relationship is sensitive to the sectoral distribution of FDI stock. Our findings suggest that the reallocation of FDI inflows from the manufacturing sector to the less labour intensive financial and information and communication technology (ICT) sectors tends to reduce the employment effect of FDI both directly and indirectly by reducing the magnitude of the crowding- in effect of FDI on domestic investment. The outcome of our study is of great interest to economic policy makers. If foreign investment displaces domestic investment and reduces employment in high value-added sectors, policies intended to attract foreign capital could be challenged and undermined. Otherwise, if foreign and domestic investment in sectors with high added value are complementary, it justifies policies aimed at attracting foreign investment.

Asymmetric effects of foreign capital on income inequality: The case of the Post-China 16 countries

This study empirically tests for the heterogeneous effects of foreign capital inflow on income distribution, measured by the Gini index, in the Post-China 16 (PC16) countries between 1995 and 2017. In the benchmark model, we apply fixed- and random-effects models. As an alternative model, we use a dynamic panel model based on the Arellano–Bond estimator and autoregressive distributed lag model. We investigate the effects of total foreign capital inflow and individual types of foreign capital (foreign direct investment (FDI), portfolio investment, and other investments), including their equity and debt subcategories. Our results show that the foreign capital inflow to the PC16 countries offers economic benefits only to specific income groups. FDI does not have statistically significant effects on income inequality, but portfolio investment makes income distribution more heterogeneous, and other investments reduce income differences. In addition, we find that income differences are increased by debt-type FDI and portfolio debt investment. In the short run, the effects of debt-type FDI, portfolio debt investment, and other investment inflows are significantly reduced. Finally, debt-type FDI increases income inequality more in countries with higher gross domestic product and human development index values, whereas the poorest and least developed countries use the debt portfolio capital such that it increases income inequality.

Factors hinder the foreign entities business operation in Visegrad countries

AbstractWhy do foreign firms and domestic firms face different hindering factors in a group of the same structural economies and business environment created by the same macroeconomic variables? This study addresses the essential question of the impact of a sound business environment in attracting or deterring foreign direct investment (FDI). This research utilizes the firm‐level World Enterprises Survey (WES) data and employed the parametric and non‐parametric methodology. The binary logistic regression and decision tree have been used to analyze the business environment. The author examines how macroeconomic factors influence the FDI investment decision. It was found that the two models perform very similarly in terms of predicting the business obstacle. Results of this study show that the trade regulation is the area of concern for a sound business environment that is identified by both methods in this study. Countries with stronger contract enforcement and more efficient international trade regulations create a pleasant business environment to attract more FDI.

Impact of corruption on Chinese investment in African countries

PurposeThis paper aims to examine the impact of host country corruption on foreign direct investment (FDI) from China to developing countries in Africa. With the opposing arguments that corruption is detrimental to or instrumental in FDI and mixed empirical evidence, this paper contributes to the literature by providing new evidence on the issue. Additionally, little research has been done on the impact of corruption on FDI made by developing country multinationals to developing countries. This paper fills a void in this area.Design/methodology/approachBased on the published literature, as well as China and Africa contexts, the authors develop hypotheses that host countries with low corruption receive more FDI and resource-seeking investments weaken the relationship. The annual stock of Chinese FDI in 35 African countries, host country corruption data and other control variables from 2007 to 2015 are collected. Feasible generalized least squares models are used to test the hypotheses. Additional robustness tests are also conducted.FindingsThe findings support the hypotheses. Specifically, Chinese investors make more investments in host countries with low corruption except for resource-seeking investments in resource-rich host counties. The results are statistically significant accounting for various control variables. The results of the robustness tests show that the main findings are robust.Originality/valueFirst, this study provides new evidence on the impact of corruption on FDI. Second, this study also fills a void by examining FDI from a developing country, China to other developing countries in Africa. Finally, this study also has a practical implication for Chinese multinationals investing in Africa.

Foreign Direct Investment and Trade—Between Complementarity and Substitution. Evidence from European Union Countries

This aim of this work is to study the relationship between foreign direct investment (FDI) and trade. FDI is a driving force for economic growth for host countries. The positive effects of FDI are seen in many aspects of the economy. However, the implications of FDI on foreign trade are questionable. Therefore, this study uses a Granger causality technique to test whether the relationship between FDI and foreign trade is complementary or substitutive. The findings of this study indicate that this relationship appears to be complementary, and FDI investment does cause an increase in trade flow in the countries that are taken into consideration. This research aims to make a comparison between the relations of FDI flows of three groups of countries from the European Union (EU)—Romania and Bulgaria, the Visegrád Group and the Euro area—for the period of 2005 to 2019. However, the results indicate that this link between the variables is not yet found for the three group of countries, and further research is required in this aspect. This leads to the conclusion that the FDI impact on foreign trade of the host country depends on the type of investment and absorptive capacity of the receiver, the economic development of host and home countries, and not every type of FDI leads to more trade.

Investment attraction for digital economy, digital technology sector in digital transformation era from ODA investment - and comparison to FDI investment in Vietnam

Our study will make an examination of the relationship between official development assistance (ODA), Foreign Direct Investment (FDI) and economic growth (GDP) in an emerging economy such as Vietnam. Regarding to methods, authors use statistics, quantitative combined with qualitative analysis. However, in the long run, although GDP has a vague effect on ODA, on the contrary, ODA put a big (significantly) effect on GDP, at the beginning of the fifth year, the relationship is not clear between ODA and GDP to promote itself increase or decrease. Foreign aid also affects the growth of nations (negatively) and, over periods, positively contributes to economic growth. Last but not least, it must be confirmed that ODA is an extra capital source for investment in development of socio-economic infrastructure and a catalyst for other investment sources such as FDI and investment capital private sector.

China's outward foreign direct investment in the Belt and Road Initiative: What are the motives for Chinese firms to invest?

Because of the potentially large and important effects of the extremely ambitious Belt and Road Initiative (BRI) launched by China in late 2013, considerable attention has been given to the motives for, and repercussions of, the BRI-driven infrastructural projects. Yet, the non-infrastructural outward foreign direct investment (FDI) from China to BRI countries, which varies quite substantially across different sectors and different countries, has not yet received much attention. In contrast to some recent studies showing that the massive initiative has increased China's total FDI outflows to fellow BRI countries, in this paper, based on our sector-level difference-in-differences models, we find that effect to be statistically insignificant. Yet, at the same time, we provide empirical evidence on the sectoral pattern of China's outward FDI before and after 2014 indicating that China's FDI outflows to BRI countries have significantly increased in sectors characterized by overcapacity and contributing to pollution in China, thereby demonstrating that China's BRI-driven outward FDI has been very selective in terms of sectors. We confirm these findings with a variety of robustness checks and show that it is BRI countries with relatively low institutional quality that have been more likely to receive these types of FDI from China. We thus speculate that Chinese firms have been motivated to place FDI investments in BRI countries for the sake of alleviating China's own overcapacity and pollution problems. Our findings lead us to suggest that, although these sectoral patterns are consistent with the different stages of economic development in which China and its fellow BRI-identified countries find themselves, Chinese investors and host country governments should be more concerned with the potential for unwanted side-effects of the FDI investments so that the mutually beneficial effects of the BRI can be sustained into the indefinite future among all countries involved.

The Effect on Foreign Direct Investment of Membership in the European Union

AbstractThis article explores the impact of EU membership on foreign direct investment (FDI). It analyses empirically how the effects of such deep integration differ from other forms and investigates what drives these effects. Using a structural gravity framework on annual bilateral FDI data for almost every country in the world from 1985 to 2018, we find EU membership leads to about 60 per cent higher FDI investment into the host economy from outside the EU, and around 50 per cent higher intra‐EU FDI. Moreover, we find that the effect of EU membership on FDI is larger than from membership of the North American Free Trade Agreement, the European Free Trade Association and the Southern Common Market, and that the single market is the cornerstone of this differential impact.

Attraction of foreign direct investment in agriculture

Agriculture is an industry with potential and advantages for development, but it is increasingly difficult to attract foreign direct investment (FDI) flows. Up to now, the results of attracting FDI inflows into the agricultural sector have many limitations, not really reaching the industry’s potential. This study will assess the current situation of attracting foreign direct investments into the agricultural sector in Vietnam in terms of FDI capital scale, FDI capital structure based on agriculture standard, investment method, investment partners and by investment recipients. The Red River Delta is one of the two Vietnamese economic regions with highly agricultural production. With the tradition of agricultural production and many favorable natural, economic and social conditions, the Red River Delta can further develop into a major agricultural production area of the country, contributing to economic development of the region and the whole country. However, FDI investment in agriculture in the region is modest compared to the potential of the industry as well as compared to other sectors in the region. While FDI inflow into Vietnam and other sectors in the region tends to increase strongly, FDI into agriculture is very low and has not grown for a long time, which is contrary to the trend of FDI to other sectors of the Red River Delta as well as the whole country and also contrary to the FDI flows to global agriculture.

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.

The effect of mining foreign direct investment inflow on the economic growth of Zimbabwe

The study employs the autoregressive distributed lag (ARDL) approach to examine the relationship between foreign direct investment (FDI) in the mining sector on the Zimbabwe economy, while controlling for both non-mining FDI and domestic investment. Using data over the period 1988–2018, this research results show that foreign direct investment in the mining sector has a significant positive relationship with the country’s GDP in the long run. Mining FDI is revealed to have relatively higher effects as compared to FDI in non-mining sector and domestic investment. The short-run analysis observed that mining FDI as well as non-mining and domestic investment still has positive and significant impacts on growth but at a relatively lower extent. This implies that it takes some time for such investments to have their full effect on the economy.