Spillover Effects Of Foreign Direct Investment Research Articles

You play the bad guy: how foreign direct investment affects zombie firms in China

This paper investigates the impact of foreign direct investment (FDI) on zombie firms at both the macro and micro levels, revealing a significant negative effect on their prevalence at the city level. Our results show that FDI accelerates zombie firm exits as local governments cease subsidies, recognizing that foreign firms can sustain local economic growth. This result is robust to alternative methods of identifying zombies, alternative measures for FDI, and diverse regression methodologies. This shift is predicated on the recognition that foreign firms can sustain local economic growth. Consequently, financial constraints and profitability among zombie firms deteriorate significantly, while healthy firms remain unaffected. These results support the crowding-out effect but find no evidence for technology spillover, challenging some conventional expectations about the benefits of FDI. Our findings contribute to a nuanced understanding of FDI spillover effects and its role in the targeted disposal of non-viable firms.

The Effects of Foreign Direct Investment on Green Technology Innovation: New Evidence from China’s 278 Cities

ABSTRACT Foreign direct investment (FDI) has played a pivotal role in fostering economic development, and the FDI technology spillover effect is one of the core forces driving an open economy toward new green growth milestones. Evaluating the impact of FDI inflows on green innovation is essential for sustainable and environment-friendly city design. Based on the panel data of 278 cities in China from 2010–2019, we conducted an empirical analysis to test the impact and mechanisms of FDI on green technology innovation (GTI). The results demonstrate that FDI has a positive and highly significant effect on GTI. The channel analysis indicates that the FDI significantly stimulates urban GTI through two mechanisms: alleviating financing restraints and mitigating the risk of new GTI in the early stages. In the heterogeneity analysis, we find that the FDI effect is more pronounced in China’s resource-based regions with high levels of institutional and human capital and in regions with low-carbon pilot policies and good protection of intellectual property rights. Furthermore, the study shows FDI can affect GTI in neighboring areas through spatial spillover effects. Our findings underscore the importance of encouraging and sustaining internationalization in environmentally friendly sectors to foster green transformation. In essence, developing foreign investment policies and enhancing the green technology spillover effect of FDI are vital for strengthening GTI capacity.

Subnational Institutional Differences and FDI Spillovers Behind the R&D–Performance Relationship in Russia

ABSTRACTThis study explores how subnational institutional differences in a large emerging economy—Russia—influence the relationship between research and development (R&D), foreign direct investment (FDI) spillovers, and firm performance. We find that the relationship between R&D and firm performance is positively moderated by subnational institutional development. Furthermore, we find that FDI will more positively moderate the relationship between R&D and firm performance if subnational institutional development is also higher, thus showing that subnational institutional development may foster the positive spillover effect of FDI on local firms.

FDI technology spillovers in Chinese supplier-customer networks

This paper examines foreign direct investment (FDI) technology spillovers between firms in a supply chain and analyzes the mechanism behind their occurrence. Results using firm-level transaction data from China between 2009 and 2020 show that, unlike inter-industry linkage effects, in the Chinese market, FDI technology spillovers can directly occur through connections between suppliers and customers, demonstrating the existence of inter-firm technology spillover effects of FDI. Further analysis reveals that FDI technology spillovers between firms are generated through channels of knowledge transfer and optimized supply chain configurations, predominantly observed in state-owned firms, small and medium-sized firms, the manufacturing sector, and high-tech industries. Upon analyzing the detailed breakdown of FDI sources, it was found that FDI from developed countries exhibits inter-firm technology spillover effects. In contrast, FDI from Hong Kong, Macao, and Taiwan regions, developing countries, and tax havens such as the British Virgin Islands and the Cayman Islands show insignificant effects on inter-firm technology spillovers. These conclusions offer policy insights for China and other developing countries to better utilize FDI to promote the development of local firms in the context of the sustained global supply chain restructuring.

Connect Globally, Thrive Locally: The Spillover Effect of Sister-City Inward FDI on Regional Innovation

Sister cities are a prevalent form of subnational intergovernmental relationships. Such relationships can play an important role in attracting foreign direct investment (FDI). However, we know little about whether and how these relationships influence the localized impacts of FDI in host countries, which is pivotal in achieving the United Nation's Sustainable Development Goals. By integrating the literature on FDI spillover and sister cities, our study proposes that the higher the FDI percentage received by a city from its sister city, the greater the number of patents applied for by firms in that city. Our sample consists of 7273 inward FDI projects into China from 1558 cities in 77 countries between 2003 and 2008. The analysis results support our assumption. We also find that this positive effect is stronger when FDI projects are from recently established sister cities, when the asymmetry in the global economic networks of the two sister cities is smaller, and when regional marketization in host-country is higher.

Spillover effect of foreign direct investment on wage-inequality in Indian manufacturing industries

PurposeThe purpose of this paper is to study the spillover effects of foreign direct investment (FDI) on skilled–unskilled wage inequality in the Indian manufacturing industries.Design/methodology/approachThe authors show theoretically with a model of spillover that if foreign firms (receiving FDI) have a negative spillover effect on domestic firms (not receiving FDI), then the level of capital and skilled workers in the domestic firms falls down. Consequently, the authors conduct an empirical analysis by using system GMM estimation technique on the firm-level data of the Indian organised manufacturing sector.FindingsThe authors show that wage inequality worsens when there is negative spillover effects like competition spillover or skill spillover effect of FDI in India.Originality/valueTo the best of the authors’ knowledge, this is the first attempt to measure the various spillover effects of FDI on the wage inequality in the Indian manufacturing industries by using firm-level data.

The impacts of foreign direct investment on total factor productivity: an empirical study of agricultural enterprises

PurposeThis paper aims to examine the impact of six possible foreign direct investment (FDI) spillover channels on the total factor productivity (TFP) of Chinese agricultural enterprises and investigate the moderating role of absorptive capacity (technological acumen) on TFP spillover effects.Design/methodology/approachBased on data from 118 agricultural and related Chinese industries, the authors employ a multithreshold regression model to empirically analyze the impact of FDI on the TFP of agricultural enterprises and the threshold effect of absorptive capacity. To overcome potential endogeneity problems, the authors select the FDI stock of corresponding USA industries and the industrial access policy index as instrumental variables and re-estimate the model.FindingsThe results suggest foreign-invested agricultural enterprises are more likely to benefit from FDI, while the “aggregate” FDI spillover effect is negative for domestic agricultural enterprises. However, once threshold effects are introduced, the authors find firms “close to” (“far from”) the technological frontier experience statistically significant positive (negative) spillover effects. Similar results are obtained for virtually all FDI spillover channels for firms in both upstream and downstream industries. FDI spillovers, when they occur, can be a two-edged sword – benefiting some firms at the expense of others.Originality/valueThe authors introduce six FDI spillover channels to examine the impact of FDI on the productivity of foreign-invested and domestic agricultural enterprises. Moreover, the authors analyze the threshold effect of firms' absorptive capacity. These findings can help formulate foreign investment introduction policies based on the characteristics of agricultural enterprises with different ownership structures. These results are also beneficial for agricultural enterprises to better exploit FDI spillover effects and improve their productivity.

Do financial and governmental institutions play a mediating role in the spillover effects of FDI?

We investigate the effects of foreign direct investment (FDI) on technological change in the Association of South East Asian Nations member countries. Our analysis underscores the pivotal roles that financial and governmental institutions play as mediators in the relationship between FDI and technological change. Our empirical results based on the 25 years panel dataset from 1996 to 2020 reveal that the rule of law, one of the sub-indicators of the Worldwide Governance Indicators, has a significant mediating effect in this relationship. Though financial institutions play a mediating role, FDI negatively affects financial institutions and positively affects technological change, meaning the suppression effect. To maximize FDI’s spillover effects, governments should facilitate the effective functioning of the rule of law and develop strategies to alleviate financing restrictions, which might hamper FDI.

Gone with the epidemic? The spatial effects of the Covid-19 on global investment network

The outbreak of Covid-19 epidemic has a prolonged impact on global economic activities. In recent years, many scholars have been motivated to estimate the effects of Covid-19 shock on global foreign direct investment (FDI). However, existing studies have not paid enough attention to the spillover effects caused by the epidemic. Although few academic works have explored the geographic-neighboring spillover effects of epidemic shock on global investment, we further extent the understanding of the spillover effects in an economic network. On the basis of country-month greenfield FDI panels, we construct a spatial Durbin model, and figure out that Covid-19 shock may have positive FDI spillover effects in an economic network via global FDI transfers. Furthermore, we find that such spillovers are greatly conditioned by country-level network position and institutional ties among nations. Our research suggests that global FDI transfers may partly offset economic-adverse effects of the Covid-19 shock. While global countries, especially those in the Global South, should be more closely embedded in the global investment network in such an uncertain environment.

FDI, spillover, and government subsidy: Micro-Econometric evidence from China

ABSTRACT By analysing comprehensive firm data from 1999 to 2013 categorized by zip code, we find that Foreign Direct Investment (FDI) companies consistently received more local government subsidies in China. When comparing FDI within the same county and year, it becomes evident that FDI creates positive growth and productivity spillovers for other businesses in the same zip code. Furthermore, there is additional evidence to support the amenities channel as a possible productivity spillover channel. This paper makes a significant contribution to the debate regarding FDI's spillover effects at a disaggregated level.

Does FDI foster technological innovations? Empirical evidence from BRICS economies.

The idea behind the spillover effect of FDI on economic growth is based on the idea that multinational companies can bring technological innovation and rich knowledge to host countries. Therefore, FDI plays a vital role in technological innovations. This study aims to investigate the impact of foreign direct investment (FDI) on the technological innovation of BRICS countries from 2000 to 2020. This study uses the latest econometric techniques, such as the cross-sectional dependence (CD) test, second-generation unit root tests, panel cointegration tests and the Dumitrescu-Hurlin causality test. For long-run run estimation, this study uses the augmented mean group (AMG) panel estimator and the common correlated effects mean group (CCEMG) estimator for empirical analysis. The findings of the study show that foreign direct investment (FDI), trade openness, economic growth, and research & development expenditure positively impact technological innovation in BRICS countries. Also, the model's long-term causality and lagged error correction term (ECT) are significantly negative. Suggested policy measures will be helpful for BRICS economies in boosting technology innovation through FDI.

The Influence of Foreign Direct Investment on Physical Health of Rural-Urban Migrants—Empirical Evidence from China Migrants Dynamic Survey

The purpose of this study is to explore the influence of Foreign Direct Investment (FDI) on rural-urban migrants' physical health and its influencing mechanism. A total of 134,920 rural-urban migrant samples are matched based on the China Migrants Dynamic Survey in 2017 and the China Urban Statistical Yearbook in 2016. On the basis of the samples, a Binary Probit Model is used to explore the relationship between the degree of FDI and rural-urban migrants' physical health. The results show that compared with migrants who lived in cities with a lower FDI level, rural-urban migrants who lived in cities with a higher FDI level are better in physical health. The results of the mediation effect model show that the degree of FDI has a significant positive impact on employment rights and benefits the protection of rural-urban migrants, improving rural-urban migrants' physical health, which means employment rights and benefits protection plays an intermediary role in the process of FDI affecting rural-urban migrants' physical health. Therefore, when formulating public policies such as plans to improve the physical health of rural-urban migrants, not only the availability of medical services for rural-urban migrants needs to be improved, but the positive spillover effect of FDI should be taken into account. By doing so, FDI can positively affect the physical health of rural-urban migrants.

Do human capital and institutional environment constrain the impact of foreign direct investment inflows on economic growth in Africa?

This paper investigates the role of human capital and institutional quality in the nexus of foreign direct investment (FDI) and economic growth in 46 African countries between 2002 and 2018. Based on panel data modelling, the empirical findings suggest that FDI in itself does not promote economic growth in Africa; however, we observe that human capital and institutional quality play a supportive role in enhancing the positive spillover effect of FDI on economic growth in uppermiddle- income countries in the region. The findings for low-income and lowermiddle- income countries are mostly not significant. Given the initial conditions and absorptive capacity constraints in these countries, the positive spillover effects of FDI might be limited. From a policy perspective, the findings call for special attention by policymakers to improving the quality of their human capital and strengthening their institutions to maximize the benefits of FDI.

FDI, Technology Spillovers, and Green Innovation: Theoretical Analysis and Evidence from China

Foreign direct investment (FDI) technology spillovers play an increasingly important role in a host country’s development. Evaluating the positive effect of FDI inflows on green innovation is essential for correct city design. Based on the panel data of 262 cities in China from 2004 to 2018, we first analyzed the impact of FDI technology spillovers on green innovation in Chinese cities and then tested the threshold effect in four absorptive capacity factors: environmental regulation, economic growth, human capital, and industry size. Finally, we compared the time and space of two types of cities crossing the threshold from the perspective of innovative and non-innovative cities. The results show that FDI can significantly promote green innovation in Chinese cities and the promoting effect of FDI on green innovation has nonlinear characteristics, namely, such effects only make sense when absorptive capacity is above the threshold points. Additionally, among the four absorptive capacity factors, the development degrees of innovative cities are ahead of non-innovative cities; in particular, there is a significant difference between them in terms of economic growth. Local governments should develop reasonable policy combination tools according to the absorptive capacity characteristics of different cities to effectively promote the technology spillover effect of FDI and achieve coordinated ecological and economic development.

The domestic patent application and international technological innovation in an open economy: promotion or substitution?

ABSTRACT The purpose of this study is to explore the relationship between the domestic patent application and international technology innovation in an open economy. Using the panel data of Asia-Pacific countries, this paper empirically analyzes the effect of economic openness level on international technological innovation and the moderating mechanism of the domestic patent application on them. The results show that the promotion effect of economic openness level on international technological innovation is different in countries with different income levels. With the increase of Foreign Direct Investment (FDI), the domestic patent application displays a promotion effect on Patent Cooperation Treaty (PCT) application. Due to the improvement of intellectual property protection in middle-high-income countries, more and more foreign investors are attracted to invest in those countries and then learn from the new technologies brought by foreign capital. The technology spillover effect of FDI is more obvious in middle-high-income countries. With the increase of Outward Foreign Direct Investment (OFDI), the domestic patent application can promote PCT application in high-income and middle-high-income countries. But there is no evidence that domestic patent application positively or negatively moderates the relationship between OFDI and international technological innovation in middle-low-income countries.

How Does FDI Affect Cities’ Low-Carbon Innovation? The Moderation Effect of Smart City Development

ABSTRACT Analyzing data from 285 Chinese cities for the period 2005–2016, we examined the impact of foreign direct investment (FDI) on low-carbon innovation, and explored smart city development’s (SCD) moderating role. We found that FDI had a significant positive effect, while SCD played a positive moderating role. Specifically, SCD’s moderating role occurred through three channels: information and communication technology, smart finance, and smart government. Moreover, SCD may maximize innovation advantages and facilitate low-carbon innovation resource flow into more efficient departments. Finally, FDI may improve low-carbon innovation, while SCD may maximize the spillover effect of FDI on low-carbon innovation.

Spatio-temporal impulse effect of foreign direct investment on intra- and inter-regional carbon emissions

The introduction of foreign capital has promoted China's economy but causing environmental pollution problems. A novel PVAR model integrating spatio-temporal analysis impulse could eliminate the endogenous problem and reveal the evolution of FDI shocks on carbon emissions. Traditional models often ignore endogeneity problems, which leads to insignificant results. The existing research has mostly focused on the impact of foreign direct investment (FDI) on CO2 emissions at intra-region level. This study filled the research gaps by studying the spillover effect of FDI on carbon emissions at inter-regional level. The study aims to characterise the impact of FDI on carbon emissions at intra- and inter-regional levels where the endogenous problem is eliminated. Based on the panel data of the 229 cities in China from 2003 to 2015, this paper establishes a novel panel vector autoregression (PVAR) model which integrated the spatio-temporal impulse analysis to reveal the evolution of FDI shocks on intra- and inter-regional carbon emissions. The results corroborate that the evolution of FDI shocks increased intra-regional carbon emissions as shown by the inverted U-curve; while the evolution of FDI shocks decreased inter-regional carbon emissions as shown by the U-curve. Interaction mechanism between FDI and China's low-carbon economy should be strengthened.

Foreign direct investment and productivity spillovers: a firm-level analysis of Bangladesh in comparison with Vietnam

Foreign direct investment (FDI) is expected to generate external effects—usually termed FDI spillovers—for a host country, and these spillovers are thought to have consequences on the productivity of domestic firms. Despite this strong expectation, the empirical findings on FDI spillover are still indecisive. This study examines firm-level panel data to determine the effects of FDI spillover on firms’ productivity in Bangladesh in comparison to Vietnam. We consider both the horizontal and vertical (backward and forward) spillover effects of FDI. We find evidence that Bangladeshi firms gain productivity improvement through intra-industry or horizontal linkages, whereas Vietnamese firms gain through backward linkages. Our findings suggest that increases in foreign presence in the same industry for Bangladesh and in downstream industries for Vietnam are related with increase in output of domestic firms.

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.

Spillover Effect of FDI on Food Exports: Based on Firm-Level Analysis in China

This paper examines the spillover effect of foreign direct investment (FDI) on Chinese domestic food exports under firm heterogeneity. By using a rich firm-level panel data of China’s food firms, the empirical analyses rely on the first-order difference generalized method of moments (GMM) for industry-level analysis, and Heckman’s two-stage method for firm-level analysis. The results show that the horizontal FDI led to a positive spillover effect on domestic food industry exports, varying across food subindustries. The paper also finds that a large part of the promotion effect is driven through extensive margin (the probability to export) instead of intensive margin (the quantities of exports) in firm-level analysis. The heterogeneous export spillovers across food firms are further considered to depend on their nature characteristics, like productivity, size, and ownership. Moreover, the heterogeneities of FDI origins and business purpose are confirmed to influence export spillovers. The estimation results are quite robust for different types of regression specifications and substitutions of variable measurement. These findings provide suggestions for decision-makers to carefully assess the impact of FDI and make policy for the sustainable development of domestic food exports.