Impact Of Outward Foreign Direct Investment Research Articles

The impact of OFDI on firm pro-environmental behavior: Evidence from China

Outward Foreign Direct Investment (OFDI) is a crucial decision in the internationalization strategy of firms and they confront diversified environmental policies and practices of host countries, when engaging in cross-border investments. However, there is a lack of research to investigate whether foreign direct investment (OFDI) is an important factor affecting the environmental commitment of firms. This study aims to empirically analyze the impact and mechanism by which firm outward foreign direct investment (OFDI) influences pro-environmental commitments, utilizing data collected from Chinese listed companies between 2010 and 2020. The results show: 1) there is a significant positive relationship between firm OFDI and pro-environmental commitments; 2) mechanistic tests show that the OFDI can promote pro-environmental commitments through two channels: public attention and technological learning capacity; 3) heterogeneity analysis reveals that the green effects of OFDI are more pronounced firms with institutional investors and state ownership, as well as in firms situated in host countries with more stringent environmental regulations; 4) further analysis reveals OFDI-induced greater green commitments generated real environmental and economic outcomes: firms invested more in environmental protection and reduced CO2 emissions. In the meantime, they experienced lower excessive debt risk and higher innovative performance. The findings have positive implications for the promotion of firms’ pro-environmental behavior and sustainable development.

The Impact of Outward Foreign Direct Investment on Carbon Emission toward China’s Sustainable Development

It is of practical significance to evaluate whether enhancing outward foreign direct investment (OFDI) can promote carbon mitigation under the new urbanization background toward China’s sustainable development and carbon neutrality. The impact of OFDI on carbon emissions is investigated from the dual perspectives of the urbanization threshold and the mediating path by using panel data from China’s 30 provinces during the period of 2003–2015 and considering both population and land. The results show that there is a significant impact from interprovincial OFDI on CO2 emissions with the double threshold effect of urbanization, and that OFDI expansion will increase CO2 emissions with urbanization; however, the different stages of urbanization show inverted U-shaped characteristics that first rise and then fall. The optimization of industrial structures has not passed the mediating effects test during the sample period, while the rationalization of the industrial structure provides a mediating effect in the primary stage of urbanization and a suppressing effect in the high level stage of urbanization. Import dependence only shows a masking effect in the intermediate stage of urbanization, while the technical level shows an intermediary effect in the primary stage of urbanization and a masking effect in the intermediate stage. The intensification of OFDI has brought different effects on economic and social production in various regions of China under urbanization, which has further affected regional carbon emissions. Discussing these effects would help to provide constructive suggestions for the regional coordination of development, new urbanization construction and urban low carbon transformation.

The impact of OFDI in global cities on innovation by Indian multinationals

ABSTRACT We investigate the impact of Outward Foreign Direct Investment (OFDI) on the innovation performance of Indian multinationals by analysing their choice of entry mode (cross-border acquisitions versus greenfield investments) and their international location decisions (i.e. choice to locate in a global city). We rely on an augmented fractional logit estimator for 170 foreign investments in high- and medium-high tech manufacturing sectors in the period 2003 to 2011 and find that: (i) compared to greenfield investments, acquisitions generate more technological opportunities; (ii) location in a global city has a negative impact on the Indian companies’ innovation performance; (iii) the positive effect of acquisition decreases if the investment is focused on a global city. These findings should be informative for both firms and government authorities involved in developing going-global strategies.

Research on the impact of OFDI on the home country's global value chain upgrading

Based on the trade value-added accounting method proposed by Koopman et al., the "GVC Position Indices" and "GVC Participation Degree" of 64 countries from 2005 to 2015 are calculated in our paper by using the OECD-TIVA data. Then the impact of outward foreign direct investment (OFDI) on the home country's GVC upgrading is theoretically analyzed and empirically tested on this basis. Empirical results at country-specific level show that OFDI exerts a positive effect on the home country's GVC upgrading via boosting technological advancement and raising trading network status, and the impact of OFDI in emerging countries is more significant than that in developed countries; meanwhile, the empirical test using China's sub-industry data indicates that compared with low and middle-tech (LMT) industries, OFDI of high-tech (HT) industries have a stronger impact on China's GVC upgrading. Finally, we put forward suggestions on how to avoid the "low-end lock-in" risk and promote the home country's GVC upgrading through OFDI for developing countries like China.

Outward FDI and stock price crash risk---Evidence from China

This paper examines the impact of Chinese outward foreign direct investment (OFDI) on stock price crash risk, based on 6273 OFDI events completed by 1541 A-share listed companies in 128 host countries from 2000 to 2018. Using a propensity matching score (PSM) method and difference in differences (DID) estimation, we find that OFDI reduces the stock price crash risk of the investing company, and the effect is more pronounced in host countries that own better institutional environments. The mechanism analyses find that the impact of OFDI on stock price crash risk is more significant when the companies invest in areas where business is more convenient, the protection of minority investors is greater, and information disclosure is more complete.

Analysis of the spatial effect of outward foreign direct investment on air pollution: evidence from China.

Outward foreign direct investment (OFDI) plays a pivotal role in the strategy to build a high-level and open economy. This research used spatial panel models and data from 30 provinces in China from 2004 to 2017 to empirically analyse the relationship between OFDI and air pollution. The results revealed that, first, China's air pollution showed two spatial clustering areas: the eastern coastal area (e.g. Zhejiang) and the north-western area (e.g. Xinjiang). Second, with the increase in OFDI, the direct effect on the concentration of respirable suspended particulate matter (PM10) and sulphur dioxide (SO2) was negative, and the direct effect on nitrogen dioxide (NO2) was positive; however, the total effect was negative. An increase of 1% in OFDI would directly decrease the concentrations of PM10 and SO2 by 0.024% and 0.096%, respectively, while NO2 would directly increase by 0.061%, but the total effect of OFDI on the three air pollutants was negative. Third, the environmental Kuznets curve hypothesis existed between economic growth and SO2 and NO2 but not between economic growth and PM10. The spatial panel model results revealed that the spatial spillover effects of air pollutants (i.e. PM10, SO2, and NO2) were 0.494, 0.447 and 0.314, respectively. Moreover, the impact of OFDI on air pollution had significant temporal heterogeneity. To make the results robust, this research conducted a robustness test by replacing the spatial weight matrix and dependent variables. Finally, the conclusion of this article demonstrates the importance of OFDI in improving air pollution, and we could benefit from OFDI. Our research conclusions provide an important reference for policymakers in implementing trade policies and improving air pollution.

Does outward foreign direct investment increase debt ratio? Firm-level evidence from China

Whether outward foreign direct investment (OFDI) will increase an enterprise's debt ratioremainstobeinvestigated. Using the firm-level data, this study explores the effect of OFDI on an enterprise's debt ratio by using a combination of the propensity score matching (PSM) and difference-in-differences (DID) strategies. Moreover, we investigate the influential mechanism and heterogeneous effects of OFDI on debt ratio.The results show thatthe technological innovation effect is offset by the investment substitution effect, leading to an overall nonsignificant impact on the debt ratio. However, the impact of OFDI on an enterprise's debt ratio demonstratesstrongheterogeneity in the developmental degree of investment destinations and in the investment modes. The impacts on debt ratio by brownfield investment andthe OFDI destined for less developed countries are not apparent.In comparison, the greenfield investment andthe OFDI destined for developed countries lead to anincreased debt ratio.

A Predictive Analysis of China’s CO2 Emissions and OFDI with a Nonlinear Fractional-Order Grey Multivariable Model

Since the implementation of the Belt and Road Initiative, China’s total amount of outward foreign direct investment (OFDI) has increased each year and this has caused its relationship with carbon emissions (CO2e) to receive great attention recently. Forecasting China’s CO2e accurately by considering the impact of OFDI is important since the government can use it to formulate an appropriate emissions plan to fulfill its carbon reduction commitments. Because the relationship between OFDI and CO2e has nonlinear characteristics, a nonlinear grey multivariable model with fractional-order accumulation (NFGM(1,N)) was proposed in this study. To enhance the prediction accuracy, an optimization process was used to determine the parameters. The outcomes of the variable fractional order showed that fractional-order accumulation can better extract the grey information hidden in the original data, which confirmed the principle of new information priority. The result of the power coefficient indicated a nonlinear relationship between the CO2e and OFDI. Based on the prediction performance, the prediction accuracy of the NFGM(1,N) model was proven to be superior to those of the ARMA model, linear regression model, the GM(1,1), GM(1,N), and FGM(1,N) models. The empirical results also revealed that OFDI increased the CO2e in China. The relationship between the CO2e and OFDI exhibits a U-shaped development based on further predictions for the 2018–2030 period. Finally, some suggestions for long-term CO2e reduction plans were provided in this paper.

A Review on Impact of OFDI in Malaysia as a Home Country Since Malaysian Firms Going Global: Time to Accelerate or Slowdown

This paper goals to explore the role of global expansion of MNCs and impact of outward foreign direct investment (OFDI) on home county from Malaysian perspective. This study brought together the insights from previous studies on impacts of OFDI on home country benefit. Search was limited within paper published between 2010 to 2019 with special focus on OFDI in impact on development on Malaysia. Nevertheless, the study discloses the investment development path (IDP) theory hypothetically supports internationalization of Malaysian local firms as MNCs (Multinational Corporation) to conduct business activities overseas.

Exchange Rate Movements, Foreign Direct Investment, and Domestic R&D

This paper develops a game-theoretical model to investigate heterogeneous firms’ entry mode choice of international expansion. The distinct feature of this paper is that exchange rate, R&D competition, and intra-industry firm heterogeneity are incorporated into the theoretical framework. The possible impact of a firm’s outward foreign direct investment (OFDI) on its R&D spending and other non-OFDI firms’ R&D spending is also examined. Our analytical results indicate that, if host country has lower labor costs, when facing rising domestic labor costs or appreciation of home currency, a firm with lower productivity in production or R&D activity will choose OFDI, whereas the firms with higher productivity will produce at home and export. In addition, our results demonstrate that the impact of OFDI on R&D spending is ambiguous, depending on firm heterogeneity as well as the wage gap between home country and host country.

Outward foreign direct investment, wage rigidity and unemployment: A computable general equilibrium analysis

Taiwan has started to liberalize its exchange rate and foreign investment policies since the mid 1980s. The subsequent considerable appreciation of its currency and increasing labor cost has stimulated many Taiwanese firms to actively undertake outward foreign direct investment (FDI). The possibility of the industrial hollowing-out induced by the FDI has been a great concern in Taiwan. The purpose of this paper is to establish a computable general equilibrium (CGE) model to investigate the impact of outward FDI by Taiwanese firms on its domestic economy. The efficiency wage theory is incorporated into the analytical framework. This paper first employs regression analysis to show that there exists severe wage rigidity in the labor market of Taiwan. Its simulation analysis then indicates that the outward FDI from Taiwan might reduce its income and employment to some extent. These results reveal that the outward FDI might hurt a distortion-ridden economy, which is consistent with the theoretical findings of Brecher and Choudhri (1987) and Basu (1998). However, it seems that the outward FDI could account for only a very small part of the recent increase in Taiwan's unemployment level.

Globalisation and employment in the OECD

This article reviews some of the possible changes that may occur in the national labour markets of many OECD countries as a result of the internationalisation of production by multinational companies, with a particular focus on the impact of outward foreign direct investment (FDI) from OECD countries on employment in the home country of the investing firms. Existing studies suggest that the overall impact of trade and the internationalisation of production on aggregate labour market outcomes has been comparatively small, although particular skill and occupational groups have been affected more strongly. The empirical findings in the paper suggest that the aggregate employment impact of outward FDI varies across industries and countries. For manufacturing industries with strong commercial links with the non-OECD economies, there is evidence that domestic employment has become more sensitive to movements in domestic labour costs. At the country level, the growth of outward investment is found to have a significant positive effect on domestic employment growth in the United States. In contrast, there is a negative association in Japan, especially from outward investment in China.

An Analysis of Home Country Trade Effects of Outward Foreign Direct Investment: The Korean Experience with ASEAN, 1987– 2002

I. Introduction Foreign direct investment (FDI) has long been exercised by multinational enterprises (MNEs) from industrialized countries. However, during the 1980s and 1990s some developing countries, especially the newly industrialized economies (NIEs) in East Asia, rapidly emerged as one of the major sources of world FDI flows (Suh and Seo 1997; UNCTAD 1995; Petri 1995). During this same period, annual flows of Korean outward FDI increased at an unprecedented pace. For example, Korea's total approved outward FDI, in nominal terms, increased by about 24-fold between 1985 and 2003: from US$219 million in 1985 to US$5,437 million in 2003. Manufacturing was the leading sector, representing almost 53 per cent of the total outward Korean FDI during this period. The trading sector was the next largest sector, with 24 per cent of the total amount (Korea Export-Import Bank 2003). In terms of factor intensity, labour-intensive manufacturing industries mostly relocated to developing countries, particularly ASEAN countries and China, while most Korean FDI conducted in industrialized countries was capital-intensive manufacturing (Tcha 1998). Such a rapid increase in outward FDI has raised some concern among policy-makers and researchers, primarily about the impact of outward FDI on the domestic economy, and potential welfare implications. (1) One major impact of outward FDI is the trade effect, particularly on the exports of a home country. As for the relationship between FDI and trade, theoretical arguments have been made that the two complement or substitute each other. Earlier theoretical efforts, like Mundell (1957), highlight the trade-substituting nature of FDI, and more recent efforts tend to favour FDI being trade-complementing (Markusen 1983, 1984; Helpman 1984, 1985; Helpman and Krugman 1985; Kojima, 1978, 1991 among others). As Petri (1995) and Pfaffermayr (1996) argue, however, the relationship is not predictable because the trade impact of FDI can be influenced by a range of factors, such as firm strategies, motivations for FDI, and government policies. Therefore, the relationship between FDI and trade remains a subject requiting empirical investigation. There is a mixture of results from empirical studies of FDI on home country exports. Some, like Mundell (1957) and Svensson (1996), found FDI had a negative effect on home country exports. Others found outward FDI had a positive effect on exports: Lipsey and Weiss (1981), Helpman (1984), Grossman and Helpman (1989), Lin (1995), Pfaffermayr (1996), Lim and Moon (2001), KOTRA (1997), Hejazi and Safarian (2001). More recently, Lewer and Terry (2003) demonstrate in their evaluation of the impact on trade stemming from capital account liberalization, that foreign capital in general--and FDI--have strong trade creating effects. In this paper, we study the trade impact of Korean outward FDI in four major ASEAN countries. Lim and Moon (2001) have shown the trade impact of FDI using Korean firm-level information. However, their study tends to show foreign affiliates' inclination to export back to the home country, as do other firm-level studies, rather than the trade-creating or displacing effects of FDI. This arises because they did not control for other trade-affecting factors, such as income and prices. Furthermore, firm-level studies ignore the possibility that foreign affiliates in a host country may drive out local firms in an export-oriented industry. In this case, a foreign affiliate's exports may not necessarily be complementing a home country's exports. Therefore, other trade-related variables need to be appropriately controlled in this type of analysis. In the next section, we discuss the theoretical background as to how FDI and trade are potentially related. In section III, a simple econometric model is constructed to empirically investigate the relationship between FDI and trade. The model is set to consider the impact of outward FDI on exports and imports separately, while taking into account country-specific fixed effects. …

The relationship between domestic and outward foreign direct investment: The role of industry-specific effects

Previous research has been inconclusive as regards the effect of outward foreign direct investment (FDI) on domestic investments. In this article, we show that this inconclusiveness can be explained at a disaggregated level as a function of the way industries are organized. Based on a simple theoretical framework including monitoring and trade costs, we argue that a complementary relationship can be expected to prevail in vertically integrated industries, whereas a substitutionary relationship can be expected in horizontally organized production. The empirical analysis confirms a significant difference between the two categories of industry as regards the impact of outward FDI on domestic investment. The results may thus have profound policy implications. JEL no. F12, F21, F23, G34.

Home country employment and foreign direct investment: evidence from the Italian case

The present paper provides further insights on the relationship between home country employment and foreign direct investment (FDI) undertaken by national firms. The unit of analysis is each ensemble of firms operating in the same industrial sector and localised in the same geographical region. That allows us to capture both direct and indirect effects of foreign production on the parent's environment, which arise through the generation of linkages and externalities. Empirical evidence has been provided with reference to the Italian case in the decade 1985–95. Results suggest that the impact of outward FDI on the labour intensity of domestic production is negative in the case of vertical investment undertaken—especially by smaller firms—in less developed countries, and positive for horizontal and market‐seeking investments in advanced countries.