Foreign Direct Investment Literature Research Articles

Examining the Impact of Country Risks on Chinese FDI in Nigeria

This study investigates the relationship between economic risk, political risk, and Chinese foreign direct investment (FDI) in Nigeria. Using correlation analysis, the study initially identifies a weak positive correlation between economic risk and Chinese FDI, and a weak negative correlation between political risk and Chinese FDI. However, due to the weak nature of these correlations, they are deemed insufficient for decision-making purposes. To determine potential causality, a causality test and regression analysis with optimal lag variables were conducted. The results indicate a positive but statistically insignificant relationship between economic risk and Chinese FDI, and a negative but statistically insignificant relationship between political risk and Chinese FDI. These findings suggest that Chinese FDI in Nigeria is not significantly influenced by economic or political risks, aligning with theories that Chinese investments are driven by strategic objectives such as resource acquisition and geopolitical influence. The study did not find any causal relationship between the political risks and economic risk in Nigeria either. The study contributes to FDI literature by challenging conventional determinants of FDI and provides practical implications for policymakers and businesses in aligning strategies with Chinese investment motivations. Future research should explore additional factors influencing Chinese FDI to offer a more comprehensive understanding of these dynamics.

Individual preferences toward inward foreign direct investment: A survey experiment

In democratic societies, public attitudes toward foreign direct investment (FDI) can influence FDI policy as in other policy areas but have been largely ignored in FDI literature. To bridge this gap, we investigate individual preferences toward inward FDI. We employ a conjoint (vignette) survey experiment and analyze the determinants of preferences toward acquisitions by foreign firms. Conjoint survey experiments allow us to simultaneously estimate the effects of various attributes of foreign acquisitions, enabling us to analyze the complex causal relationships between various attributes of an acquisition project and people’s antipathy toward it. The results of the experiment show that the nationality of the foreign firm, reciprocity, and the economic conditions of the location of the firm being acquired are important factors. The subgroup analysis shows that older respondents and women are more negative about inward FDI. We also employ the gravity equation and confirm that our survey results are in line with the actual pattern of inward FDI stock.

Seventy Years of FDI Literature: Review, Comparison and Critique

Abstract International capital movement in the form of Foreign Direct Investment (FDI) by multinational enterprises (MNEs) signifies a widely researched phenomenon in comprehensive review of the FDI literature. Its vastness makes it impossible to fathom its depth, as such the paper highlights what the author considers to be mainstream theories in the domain of empirical studies on FDI. This study critically reviews (FDI) literature over a period of 70 years from 1950 to 2020 to provide a theoretical lens for future research beyond the established models. The discussion covers the mode of FDI inflows, statistical methods applied, theoretical models, contributions to paradigms and empirical papers investigating FDI. Furthermore, the papers selected cover heterogenous geographical regions, while in certain papers FDI has been studied as a dependent variable in others as an independent one. The focus lies on the FDI and its resultant activities of MNEs in the form of subsidiaries to carry out market seeking, strategic asset-seeking and efficiency seeking activities. Though, most researchers have narrowed down to four determinants of FDI i.e., motives of MNEs for undertaking FDI, size of MNEs, entry modes into host country and investments sector recently, many works have applied formal theories to provide a framework for market failure such as holdup problems, non-fulfillment of contracts and related agency costs. It is concluded that FDI has evolved into a significant area of empirical investigation. Overall, the gaps and opportunities in existing literature are identified thereby directions for further research emerge.

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.

Greenfield FDI attractiveness index: a machine learning approach

Purpose This study aims to propose a comprehensive greenfield foreign direct investment (FDI) attractiveness index using exploratory factor analysis and automated machine learning (AML). We offer offer a robust empirical measurement of location-choice factors identified in the FDI literature through a novel method and provide a tool for assessing the countries' investment potential. Design/methodology/approach Based on five conceptual key sub-domains of FDI, We collected quantitative indicators in several databases with annual data ranging from 2006 to 2019. This study first run a factor analysis to identify the most important features. It then uses AML to assess the relative importance of each resultant factor and generate a calibrated index. AML computational algorithms minimize predictive errors, explore patterns in the data and make predictions in an empirically robust way. Findings Openness conditions and economic growth are the most relevant factors to attract FDI identified in the study. Luxembourg, Hong Kong, Singapore, Malta and Ireland are the top five countries with the highest overall greenfield attractiveness index. This study also presents specific indices for the three sectors: energy, financial services, information and communication technology (ICT) and electronics. Originality/value Existent indexes present deficiencies in conceptualization and measurement, lacking theoretical foundation, arbitrary selection of factors and use of limited linear models. This study’s index is developed in a robust three-stage process. The use of AML configures an advantage compared to traditional linear and additive models, as it selects the best model considering the predictive capacity of many models simultaneously.

Motives for Inward Foreign Direct Investment into Thailand: A Quantitative Analysis

This study aimed to formulate a conceptual framework regarding the Foreign Direct Investment (FDI) location choice made by corporations and identified the motivational factors of the FDI location choices. The framework and associated hypotheses were empirically tested in Thailand. The framework was derived from existing FDI literature and consists of market, resource and efficiency seeking motives as well as institutional factors and general macroeconomic indicators towards the FDI location choice in Thailand. The objective of this research was to extend the understanding of FDI location decisions and hence provide more informed recommendations to Thai policy makers and business practitioners, as well as contribute significant knowledge to academic literature about the most influential determinants for FDI location choice in Thailand. The approach was a quantitative analysis as this provided an overview of the determining factors of FDI inflows into Thailand. Data from a number of companies was collected by using a questionnaire. In order to ensure the reliability of the proposed survey, quantitative techniques such as Cronbach's Alpha and Item-Objective Congruence were applied. Furthermore, descriptive statistics and a multiple linear regression analysis were used to determine the influence of the independent variables obtained from the conceptual framework of this research study. The research study identified that macroeconomic indicators, market-seeking motives and efficiency-seeking motives have a significant positive influence towards the FDI location choice of Thailand. Notably, resource-seeking motives and institutional factors did not have a significant influence. To the best of my knowledge this research study contains no material previously published or written by another person except where due reference is made in the text of the examinable outcome.

Five decades of research on foreign direct investment by MNEs: An overview and research agenda

Despite the significance attached to foreign direct investment (FDI) by Multinational enterprises (MNEs), there are is no comprehensive review of the FDI literature. Moreover, those that have been published, focus on subsets of FDI. This review systematically examines the empirical as well as theoretical research on FDI through an analysis of 500 articles published during the last five decades. Theoretical models, methods, context, and contributions to scholarship were reviewed. We strive to highlight the key theories, paradigms, and articles and provide directions for future research. We conclude that FDI has evolved as the most significant area of international business.

The Politics of Chinese Foreign Direct Investment in the USA

Although recently Chinese investment in the USA has grown exponentially, it has not flowed equally among the US states. Controlling for popular explanations in the foreign direct investment literature, we carry out subnational analysis to assess the determinants of Chinese investment in the USA. Using a panel dataset for all states from 2006 to 2016, we find that Chinese firms are more attracted to states where Republican governors hold office. Republican-governed states particularly attract greenfield investments from Chinese firms. However, we also find that US national security concerns and Chinese goals appear to affect investment flows in high-technology states, limiting the role of partisanship. Our results indicate that it is too soon to dismiss the importance of politics on foreign direct investment.

The innovation spillovers from outward and inward foreign direct investment: a firm-level spatial analysis

ABSTRACTThis paper estimates and compares the spatial spillovers from both inward and outward foreign direct investment (FDI) to the innovation activities of indigenous firms, in particular, the innovation input and output. This analytical study is based on a firm-level spatial dynamic regression, which is, for the first time, conducted on a large-scale firm-level panel in the FDI literature. Using data from Shandong province in China over the period 2002–07, we find that both inward FDI (IFDI) and outward FDI (OFDI) significantly stimulate innovation activities of domestic firms. More importantly, the spillover effect from OFDI is much larger than that from IFDI. The results tend to support the going-out strategy of the Chinese government.

Corporate Governance and International Investment: Evidence from Real Estate Holdings

The foreign direct investment (FDI) literature documents that higher quality governance, at both the national level and the firm level, is associated with a greater likelihood to invest abroad and to take larger stakes when investing abroad. We examine a unique set of international real estate holdings and corporate governance data to evaluate the comparability of real estate investment to FDI more broadly. Our results at both the national and firm levels indicate that real estate transactions differ fundamentally from other types of FDI. Specifically, property nation corporate governance, real estate firm headquarter nation corporate governance, and firm governance are negatively associated with the propensity to invest across borders. Further, firm governance is negatively related to the stake acquired in foreign property investment. The firm-level results appear to be driven largely by non-U.S. firms. Overall, these results are counter to the more general FDI literature.

The trend of foreign direct investment movement: Did unintended nation brand of legal-families play an instrumental role?

Combining the suggestion from Fan (2006) that a nation can have a brand image without deliberating efforts of nation branding and the work from Klerman et al. (2011) on Colonial History and effects on legal systems, we view that legal-systems could be an unintended nation brand that could instrumentally affect foreign direct investment (FDI) activities. We classify 193 countries according to their Colonial History or no-Colonial History into 5 legal-families. Applying Generalised Methods of Moments (GMM) on a set of panel data, our empirical evidence shows that legal-families play an instrumental role in explaining FDI activities. The paper opens up a new ground of research on ‘unintended’ nation brand of which the nation branding literature largely focus on designed-nation-brand, and on FDI area in which we introduce a new determinant in addition to the traditional determinants that have been reported in the FDI literature.

Cross-border mergers and acquisitions with heterogeneous firms: Technology vs. market motives

The most common form of foreign direct investment (FDI) is cross-border mergers and acquisitions (M&A). A common explanation for M&A activity identified in the industrial organization literature is that firms seek technological expertise. However, this has not been examined in the FDI literature. In this paper, I develop and estimate a model of cross-border M&A and focus on the technology seeking explanation. In particular, I develop a general equilibrium model of exporting, greenfield FDI, technology-seeking cross-border M&A, and market-seeking cross-border M&A with heterogeneous firms. The model predicts that firms from a larger country are more likely to acquire in a smaller country when M&A activity is driven by a technology-seeking motive, but the opposite is true when it is driven by a market-seeking motive. Using detailed data on worldwide M&A activity from 1985 to 2007, I find empirical evidence that cross-border M&A activity exhibits behavior consistent with this prediction.

Foreign direct investment and renewal of industries: framing the reciprocity between materiality and discourse

ABSTRACTInformed by the evolutionary literature on economic geography, this paper develops a conceptual framework for analysing the complexity between foreign direct investment (FDI) and renewal of industries. Present contributions tend to explain the impact of FDI on regional industry evolution as a static, output-oriented phenomenon, that is, informed by an instrumental rationale in which the dynamism of FDI and regional industry development is linked to polarization of stagnation/decline vs. growth/development. Opposing this, we argue for an epistemological shift in approach to the reciprocity between FDI and renewal of industries as dynamism between material outcomes and discursive processes. To accomplish this, we build on key concepts and understandings from evolutionary economic geography; review the regional effects of FDI literature and build a framework sensitive to contextual dimensions of FDI. We focus on multinational companies’ practices and material outcomes in terms of regional spillovers and the discursive processes in terms of FDI narratives. This framework is exemplified by data from the salmon farming industry and the subsea industry in Hordaland and the oil and gas industry and the mining industry in Finnmark.

Governance and International Investment: Evidence from Real Estate Holdings

The international business literature documents that higher quality corporate governance, at both the national level and the firm level, is associated with a greater likelihood to invest abroad and to take larger stakes when investing abroad. We examine a unique set of international real estate holdings and corporate governance data to evaluate the comparability of real estate investment to foreign direct investment (FDI) more broadly. Our results at both the national and firm level indicate that real estate transactions differ fundamentally from other types of FDI. Specifically, property nation governance, real estate firm headquarter nation governance, and firm level governance are negatively associated with the propensity to invest across borders. Further, firm level corporate governance is negatively related to the stake acquired in foreign property investment. These results are counter to the FDI literature.

Impact of Corruption on Foreign Direct Investment in Africa

A new area of research has recently emerged that analyzes the impact of corruption on foreign direct investment (FDI) in developing countries. The FDI literature comprises two opposing views of corruption—the grabbing hand hypothesis holds that corruption impedes FDI by raising uncertainty and transaction costs and the helping hand hypothesis holds that corruption facilitates FDI by greasing the wheels of commerce in the presence of weak regulatory frameworks. This study analyzes the impact of corruption on FDI inflows in 53 countries in Africa over the 1995–2012 period. Using the dynamic System Generalized Method of Moments modeling framework (Arellano-Bover/Blundell-Bond linear dynamic panel), this study finds support for the helping hand hypothesis, i.e., corruption facilitates FDI inflows in Africa. It is likely that the overall regulatory environment in Africa is weak, which helps explain the context in which the helping hand hypothesis can be validated. In addition, this study finds that past levels of FDI, market size, government effectiveness, infrastructure, and economic freedom also affect FDI significantly. These results further our knowledge of the FDI dynamics in Africa, which policymakers should find helpful in devising pro-FDI strategies.

Entry Modes and Firm Performance in a Transition Economy: Evidence from Inward FDI to Romania

The article analyzes the characteristics and performance of foreign direct investment (FDI) to Romania since the 1990s. We provide evidence for some of the commonly advanced propositions about FDI in transition economies, namely the selection of entry and firms’ performance over time and across economic sectors. Contrary to the FDI literature, multinational enterprises in Romania favored greenfield FDI over acquisitions, although this does not apply to oligopolistic and technology intensive industries. Specific relationships between the nationality of the investor, the location and the entry modes decisions are also analyzed. We observed that acquisitions exhibited higher profit margin and turnover compared to greenfield FDI.

The US and Chinese Foreign Direct Investment in Africa

This paper compares the patterns of the US and Chinese outward foreign direct investment (FDI) in Africa. The main objective of the paper is to examine if the motives for FDI for these two countries differ. This is done first with a descriptive analysis and then with empirical research. It reveals that Africa attracts only a small fraction of FDI from both the US and China. However, compared to the US, China’s FDI outflow to Africa is rising rapidly. It was only 8% of the US outward FDI in 2006, but is about 20% in 2010. Based on the standard FDI literature, the paper then investigates the determinants of FDI for both the US and China empirically. Hypotheses are developed and tested using ordinary least squares regression methods. Data are annual averages for the period 2003-2010. They are gathered from various standard sources such as the World Bank, The United Nations Conference on Trade and Development (UNCTAD), and the Chinese government. The paper finds expected result for market size, resource endowment, corruption, and openness. Chinese investment in Africa is often viewed as their desire to control natural resources, but the paper finds that the US investment is no different in this regard. The paper’s finding contradicts with the popular perception that Chinese outward FDI ignores corruption or attracted to countries with higher level of corruption. With respect to political risk, the paper finds that Chinese FDI flow is not significantly different from the US FDI flow.

FDI inflow as an international business operation by MNCs and economic growth: An empirical study on Turkey

The issue of foreign direct investment (FDI) has been affecting the world economy for years and is a considerable subject for both developed and developing countries. FDI is the fixed form of international business operation made across the national borders made mostly by the multi national corporations (MNCs). The positive impact of FDI inflow in a host country is expected to emerge as capital accumulation, technology transfer, know-how acquisition, innovative capacity and economic growth eventually. In this study, it is aimed to address the FDI literature depending on comprehensive international publications and then to analyze the FDI inflow and GDP growth in Turkey with econometric methods.The relation between FDI inflow and GDP growth is analyzed by using the Johansen cointegration test and Granger causality analysis. Afterwards, a regression equation is estimated by using the ordinary least squares method (OLS). Prior to applying the Cointegration test, the stationarity and integration degrees of the series are determined by the augmented Dickey–Fuller test (ADF). Consequently, resting on the results of entire analysis, it is possible to mention that no significant relation is determined between the FDI inflow and GDP growth in Turkey both in the short and long run.

Determinants of Different Modes of FDI: Firm-Level Evidence from Japanese FDI into the US

There are four major modes through which firms undertake foreign direct investment (FDI) – merger and acquisition (M&A), joint venture (JV), new plant (NP) and others (O). The four modes of FDI are distinct from each other, and each has its own unique advantages and disadvantages. While a large and growing empirical literature examines the determinants of FDI, very few studies examine the determinants of different modes of FDI. The central objective of this paper is to empirically analyze the extent to which the determinants of FDI such as firm size influences the choice of one mode of FDI over another. Our analysis follows a stylized two-stage investment process. First, we look at the probability of whether a Japanese firm is willing to undertake FDI in the US. Second, for firms that are willing to undertake FDI, we analyze which mode of FDI - i.e. M&A, joint venture, new plant or other FDI – they will undertake. The second stage is the innovation of this paper and its contribution to the FDI literature.

The Human Capital Dimension to Foreign Direct Investment: Training, Adverse Selection and Firm Location

While the theoretical literature on Foreign Direct Investment (FDI) focuses largely on movements in capital and firm specific technology, recent empirical evidence emphasizes primarily the local human capital necessary to absorb FDI technology. We examine how human capital affects FDI and add a new dimension to the trade and FDI literature: informational asymmetries. Multinationals (MNCs) must train labor to work with firm specific technology, but employers possess incomplete information about workers' abilities. We integrate an adverse selection model into a general equilibrium framework, and introduce Informational Gains From Trade. Examining the incentives for firm location, we can explain why FDI is more likely to occur among countries that are similar in terms of human capital and technology, and why there is little investment from developing countries in advanced economies. Informational asymmetries coupled with human capital differences give rise to empirical observed multiple wage equilibria, where MNCs pay the highest wage in advanced countries, but higher wages than domestic firms in developing countries. The dynamic analysis highlights the absence of scale effects in the model, driven by the fact that the costs of training workers with fixed human capital will eventually outweigh any benefits from productivity increases generated by research expenditures.