Foreign Direct Investment Location Choice Research Articles

Does Religion Matter When Investing in Africa? An Empirical Analysis of Moroccan FDI Location Choice in 27 African Countries During the Period 2007-2021

ABSTRACT In this study, we investigate the impact of four religious factors on Moroccan outward FDI in African countries: the religious freedom index, religious tension index, religious similarity, and religious diversity index. Using panel data from 27 African countries between 2007 and 2021, our findings show that religious factors significantly influence Moroccan FDI in Africa. A shared Islamic religion increases FDI likelihood, indicating cultural proximity facilitates multinational enterprise adaptation. Additionally, religious freedom and diversity positively affect FDI, supporting cultural adaptability. However, religious tension negatively impacts FDI. These findings highlight the importance of considering religious factors in FDI decision-making processes. Policy implications include promoting cultural understanding, encouraging religious freedom, fostering religious diversity, and reducing religious tensions to facilitate investment and enhance economic cooperation in African countries.

Location choice of foreign direct investment in technical KIBS in China: impact of human capital and intellectual property rights protection

PurposeThis study considers the “technology creation” characteristic of technical knowledge-intensive business services (T-KIBS) and examines how human capital and intellectual property rights (IPR) protection affect the location choice of foreign direct investment (FDI) in China for two types of T-KIBS: (1) information transmission, software and information technology (ICT) services and (2) scientific research and technology (SCI) services.Design/methodology/approachOur empirical analysis is based on panel data on 22 Chinese provinces from 2009 to 2017. We use the generalized method of moments estimation for the regression analysis.FindingsFDI in ICT services prefers regions with high human capital, while FDI in SCI services favors regions with good IPR protection.Research limitations/implicationsFuture research could use more comprehensive data and qualitative interviews to enhance the findings.Practical implicationsThese findings provide a foundation for China’s future policy on attracting FDI into T-KIBS, especially in areas related to human capital and IPR protection.Originality/valueThis study bridges the research gap on the FDI location choice of T-KIBS in China by clarifying the influences of human capital and IPR protection and providing theoretical support for the location choice of T-KIBS FDI.

Quantifying adaptation costs in sequential FDI location choices: Evidence from German firms

Initiating foreign direct investment (FDI) is expensive for multinational firms due to the need to adapt to new business practices, ethical norms, and regulations in a foreign country. This paper examines how such adaptation costs affect firms' FDI decisions in current and subsequent periods. We develop a dynamic structural model of how firms make sequential decisions regarding where to invest. Using unique data covering all German firms' FDI from 2002 to 2009, we estimate the model that allows for country-specific adaptation costs and firms' heterogeneous preferences for location attributes. The estimation results suggest that the adaptation costs are statistically and economically significant, ranging from 0.9% to 22.4% of a firm's average expected discounted profits. If adaptation costs were completely subsidized, firms' FDI location choices would change drastically. Moreover, the average expected discounted profit would increase by 10.9%, not only because of the reduction in adaptation costs but more importantly, due to better matching between firms and locations.

Host‐country terrorism and outward foreign direct investment location choice of Chinese multinational firms: The moderating roles of state ownership and immigrant influence

AbstractThis study employs a novel approach based on real options theory to explore how host‐country terrorism influences the location decisions of companies seeking to invest overseas. Using data for publicly listed firms in China that engaged in outward foreign direct investment (OFDI) between 2008 and 2020, this paper reveals that the severity of host‐country terrorism negatively affects the flow of OFDI from Chinese firms to that specific country. Notably, this adverse impact of host‐country terrorism on OFDI is less pronounced for state‐owned enterprises (SOEs) compared to non‐SOEs. Furthermore, the extent of immigrant presence in the host country acts as a mitigating factor against the negative influence of host‐country terrorism on firms' OFDI decisions. A significant contribution of this article is its pioneering examination of the intricate connection between extreme risks such as host‐country terrorism and the firm‐level OFDI location choices. The insights derived from this study can play a crucial role in assisting companies in bolstering their strategies for risk mitigation and security when venturing into foreign markets. Beyond its practical implications, the findings also hold theoretical value, offering a deeper understanding of how a country can maintain a resilient and diversified international economic order, fostering stable trade relationships, and facilitating high‐level engagement with the global economy.

Geopolitical risk and green outward foreign direct investment location choice: evidence from Chinese listed companies.

Green outward foreign direct investment (OFDI) has become an important driving force for sustainable economic and environmental development. However, increasing geopolitical risks (GPR) pose a critical obstacle to the green OFDI of multinational enterprises. Drawing upon international production eclectic theory, we explore the impact of GPR on the green OFDI of Chinese enterprises and discuss the moderating role of firms' green technological and political capabilities including different moderating effects of these types of capabilities in the Belt and Road Initiative (BRI) and non-BRI countries. Using the BvD Cross-border Investment database and annual reports of Chinese A-listed companies, we constructed a unique micro-firm overseas green project dataset in 2013-2020. Negative binomial models were used for empirical testing. The GPR has a significant negative impact on Chinese enterprises' green OFDI location choices. The impact intensity varies with the firms' green technological and political capabilities. In addition, compared with non-BRI countries, the role of firms' green technological capability in BRI countries is stronger, while firms' political capability is not significant. These findings expand research on the relationship between GPR and green development by emphasizing the differential impact of GPR on enterprises' green OFDI location choices under different firm capabilities and bilateral country relations.

Obstacles or catalysts? A balanced view of formal institutional risks on FDI location choice

Obstacles or catalysts? A balanced view of formal institutional risks on FDI location choice

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.

Correction: Subnational-level government influence and FDI location choices: The moderating roles of resource dependence relations

Correction: Subnational-level government influence and FDI location choices: The moderating roles of resource dependence relations

Location choice of Chinese outward FDI – An ethnicity-based population ecology perspective

Drawing on population ecology theory (PET) which conceptualizes an individual organization's survival as a result of organizational changes at the population level, we explain why multinational enterprises (MNEs) from emerging markets prefer to enter countries with an existing population of co-national peers. Our study of a sample of Chinese MNEs shows that the size of co-national MNEs population in the host country has a positive effect on new FDI entries by firms from the same home country. Interestingly, the co-province and co-industry-formed organizational population in the host country has an inverted U-shaped effect on the new FDI entries, and that provincial dialect and co-national immigrants flatten this curvilinear effect. We also analyze how the focal relationships vary between host countries with different levels of economic development and between different industries. Our study contributes to the research of FDI location choices by providing a population ecology-based explanation that differs fundamentally from those based on agglomeration economics and institutional theory. The study also advances PET by theorizing how legitimizing and competing forces interact to jointly influence the way the extant population of certain types of organizations influences the entries of the same type of organizations into the population.

Subnational-level government influence and FDI location choices: The moderating roles of resource dependence relations

Subnational-level government influence and FDI location choices: The moderating roles of resource dependence relations

Does Religious Proximity Affect FDI Location Choice? An Empirical Analysis of Outward FDI from Morocco to 54 Host Countries


 
 
 The present paper investigates the effect of religious distance on the choice of location of Moroccan Multinational Enterprises (MNEs) when investing abroad. The main research hypothesis considers the religion as an element of the psychic distance between the home country and host countries that can affect the FDI location decision. The results of the Robust Weighted Least Squares (RWLS) estimation method using panel data of outward FDI flows from Morocco to 54 host countries from 2007 to 2020 show that the more the local Muslim population is important in the host country, the more it receives FDI from Morocco. The results of the study are highly relevant to policymakers as they prove that the religion is important for inward and outward foreign direct investment. On the one hand, policy makers in charge of FDI attractiveness in the host country have to adopt religious strategies accompanied by public–private partnerships to integrate main foreign religions to facilitate the integration of MNEs and reduce their transaction costs. On the other hand, policy makers in charge of promoting outward FDI from the home country have to establish a liaison office in host countries to support the MNEs and facilitate their internationalization process.
 
 

Doe technological capabilities matter for Moroccan FDI location choice in African countries?

Our paper investigates the effect of digital transformation and the technological capabilities of African countries on Moroccan foreign direct investment location choice, using the Networked Readiness Index (NRI). To this end, we used the estimation methods of FMOLS and EGLS (Cross-section SUR), with panel data of 14 sub-Saharan countries over the period 2007-2020. We concluded that the effect of technological capabilities on foreign direct investment location choice takes a U-shape quadratic form. However, the impact of digital transformation remains almost non-significant due to the positioning of African countries in the Average-trap. Our paper contributes to the literature framework by considering the three motivations of FDI, market-seeking, efficiency-seeking, and technology-seeking. Furthermore, we use the NRI index as an innovative and synthesised measure of technological capabilities and digital transformation. The study constitutes an insightful policy implication for decision-makers in charge of FDI attractiveness in host countries having average scores of technological capabilities.

The Relationships Between National Intellectual Capital and Foreign Direct Investment

Foreign direct investment (FDI) has a significant influence on economic development, productivity and competitiveness in host countries. Policymakers are eager to attract FDI. With the importance of the knowledge economy, intellectual capital becomes a critical determinant of FDI location choice. Thus, the study tries to understand the relationships between national intellectual capital (NIC) and FDI in host countries and to compare the differences between developed countries and developing countries. The study hypothesizes that each component of NIC (human capital, market capital, process capital, renewal capital and financial capital) is positively related to FDI. Moreover, in developed countries, human capital and renewal capital has more influence on FDI while in developing countries, market capital and process capital have more influence on FDI.
 The study uses data from United Nations Conference on Trade and Development (UNCTAD) and Taiwan Intellectual Capital Research Center (TICRC). Because of data availability, the sample needs to be both included in the database of UNCTAD and TICRC during 2001 to 2018. The final sample consists of 59 countries which extends over the five continents. The study proceeds by using panel data, pooling 56 countries for the period from 2001 to 2019 after the Hausman test to determine whether there are fixed effects or random effects. A generalized least square (GLS) model is used to test the hypotheses with country-year data for FDI analysis.
 The results confirm that each dimension of NIC is positively related to inward FDI, indicating to the importance of NIC to attract inward FDI. In addition, national market capital, national process capital and national renewal capital have more influence on inward FDI in developing countries than in developed countries. Conclusions and practical suggestions are also provided.

The influence of environmental regulation on the FDI location choice of EU ETS-covered MNEs

This paper explores how cross-country differences in environmental regulatory stringency among member states of the world's largest multinational cap-and-trade system, the European Union Emission Trading Scheme (EU ETS), influenced the FDI location choice of listed multinationals (MNEs) regulated by the environmental policy. After controlling for other country characteristics driving FDI location choice, we find that the likelihood of EU ETS-covered MNEs locating new FDI projects in less environmentally stringent member states strongly depends on firm- and industry-specific environmental characteristics during the system's first two phases. Our results are robust to different measures of environmental stringency and provide evidence for the existence of an intra-regional pollution haven effect (PHE). This investment behavior by MNEs is, moreover, only found in the industries least compensated for the environmental costs induced by the policy. This suggests that the EU inadvertently promoted an intra-regional PHE not only by allowing cross-country variation in environmental stringency but also by overly focusing on and compensating for external carbon leakage risk. Our conclusions have major implications for countries and regions currently establishing or implementing an emissions trading system.

Get into Uncharted Waters: The Asymmetric Imitation Between State-Owned and Non-State-Owned Firms

Prior literature has documented that firms tend to imitate each other in entering new product/geographic markets. We advance this line of research by examining how the nature of the risk that firms aim to address may affect the pattern of inter-firm imitation. We examine this question in the context of Chinese firms’ foreign direct investment (FDI) location choices. First, we argue that the number of investments made by Chinese firms in a country is positively related to the likelihood that a Chinese firm will make a new investment in that country, especially that country has a higher level of political risk. Based upon this baseline argument, we propose that state-owned enterprises (SOEs) and non-SOEs will differ in their imitation behaviors, in terms of both tendency of imitation and imitation targets. Regarding tendency of imitation, we propose that non-SOEs’ location choices are more sensitive to the number of Chinese investments in a country than SOEs’ location choices since the former are more vulnerable to the host country’s political risk than the latter. Regarding imitation targets, we propose that non-SOEs tend to follow SOEs than following non-SOEs in their location choices whereas SOEs may follow SOEs but do not care about non-SOEs in their location choices. With data on Chinese firms’ FDI location choices in 90 countries during or period of 2001 to 2013, we find strong empirical evidence to support our arguments.

Populism and FDI Location Choice

In this study, we investigate how populist governments influence the location choice of multinational enterprises (MNEs) in terms of foreign direct investment (FDI). We also examine how experience of MNEs acts as a contingency in this relationship. With a sample of 525,688 observations on FDIs from 2007 to 2019 we find that MNEs are less likely to invest in a country the more its government is considered populist. More internationally experienced firms that already have invested in the target country and that have experience with populist governments are less deterred from uncertainties of populist governments. Overall, our results highlight the specific uncertainties populist governments cause for MNEs’ location choice and that experienced MNEs can better deal with them.

Owner Identity, National Institutional Systems and Outward FDI Location: The Case of Chinese MNEs

We examine the relationship between majority owner identity, national institutional systems and Chinese MNEs' outward FDI location choices. We reason that particular owner types will prefer to locate in institutional systems with complementary institutional characteristics. Drawing upon the comparative capitalism literature that classifies institutional systems into nine configurations, we predict that owner identity significantly affects the selection of foreign investment destinations. Using a two-decade sample of 8,000 OFDI investment decisions, we explore the probabilities that particular owner types will select a specific institutional configuration as an OFDI destination. Our results show the likelihood of choosing a destination varies greatly across configurations. In particular, we find a strong correlation between owner identity and preferred institutional system in three types of enterprise. This study contributes to new understandings of how owner identity shapes the MNEs' ODFI destination and institutional system relationship.

What Kind of Cities are More Attractive?—The Impact of Business Environment on Foreign Direct Investment Location Choice

What Kind of Cities are More Attractive?—The Impact of Business Environment on Foreign Direct Investment Location Choice

China’s FDI Location Choice in the Lens of the Internationalization Process Model

China’s FDI Location Choice in the Lens of the Internationalization Process Model

FDI propensity and geo-cultural interaction in former Yugoslavia: pairwise analysis of origin and destination countries

This research examines FDI location choice across the successor states of Yugoslavia roughly 25 years after dissolution. Based upon 12,245 pairwise observations from 2005 to 2016, the paper employs logit models to estimate empirically the impact of geographic distance, cultural similarity, and geo-cultural interaction on FDI propensity. The contributions are twofold. First, while geographic distance and culture similarity are typically modeled as independent FDI determinants, their interaction is also examined here. Second, the paper contributes to the sparse scholarship on FDI in this complex European region, using binary-choice models to highlight its linkages to the global economy. The findings suggest that—in addition to mainstream economic, regulatory, and political factors—a tradeoff exists between distance and culture in attracting FDI. Host governments seeking FDI that promotes economic growth might increase the likelihood of FDI by targeting geographically-proximate partners that are culturally similar. The role of geographic distance in reducing FDI propensity gives way to other enabling variables beyond the distance of 1800 km.