Importance Of Foreign Direct Investment Research Articles

Economic Growth And FDI In China

This paper studies the importance of foreign direct investment (FDI) in economic development in China. By analyzing the data from China and comparing China with other developed and developing countries, the paper finds that FDI becomes a force in economic growth, especially in the later stage of industrialization; Specifically, the paper finds that a countrys foreign trade is the engine in the initial stage of the economic development, while FDI is the main force in the post-industrialization stage.

Foreign Direct Investment and De‐industrialisation

AbstractThe purpose of this study is to discuss the various issues regarding de‐industrialisation and to systematically analyse the causes of this phenomenon. In addition, the effect of the recent increase in foreign direct investment on de‐industrialisation will be analysed. Unlike extant studies, this study employs a more reliable method of estimation, known as the generalised method of moments system, for establishing the importance of foreign direct investment (FDI) with regard to de‐industrialisation. For a general assessment of the different factors of de‐industrialisation, including FDI, this study classifies the causes of de‐industrialisation in OECD countries into external and internal factors. As a result, the analysis has proved that not only internal and external factors are major factors of de‐industrialisation, FDI inflow and outflow are also major factors.

Does Foreign Direct Investment (FDI) accelerate growth? Evidence from Malaysia

This paper investigates the role of Foreign Direct Investment (FDI) in economic development in Malaysia for the period 1970–2007. More specifically, the study investigates the direct impact of FDI on economic growth in Malaysia and the FDI determinants in an endogenous economic growth framework. Data is analysed using three-stage least squares. The results reveal that contrary to the held view of the direct importance of FDI in Malaysia, the impact is small but positive, implying that the effect may be indirect. In addition, the study finds that openness defined in the narrow sense of FDI does affect FDI but not growth, suggesting an indirect effect. In conclusion, the study finds that the most important growth drivers in Malaysia are domestic capital, human capital, macroeconomic management and infrastructure. Financial development and macroeconomic management are the main determinants of FDI.

Financial Globalization, Governance, and the Evolution of the Home Bias

ABSTRACTWe merge portfolio theories of home bias with corporate finance theories of insider ownership to create the optimal corporate ownership theory of the home bias. The theory has two components: (1) foreign portfolio investors exhibit a large home bias against countries with poor governance because their investment is limited by high optimal ownership by insiders (the “direct effect” of poor governance) and domestic monitoring shareholders (the “indirect effect”) in response to the governance and (2) foreign direct investors from “good governance” countries have a comparative advantage as insider monitors in “poor governance” countries, so that the relative importance of foreign direct investment is negatively related to the quality of governance. Using both country‐level data on U.S. investors' foreign investment allocations and Korean firm‐level data, we find empirical evidence supporting our optimal corporate ownership theory of the home bias.

Investment Arbitration in Brazil: Revisiting Brazil's Traditional Reluctance Towards ICSID, BITs and Investor-State Arbitration

As investment arbitration has grown rapidly throughout Latin America as a favoured vehicle to resolve disputes between foreign investors and host states, in a neutral forum and with a minimum of diplomatic disruption, Brazil has remained aloof. Despite the importance of foreign direct investment (FDI) to Brazil and the increasing number of Brazilian companies themselves investing abroad, Brazil remains the only country in South America not to have ratified the ICSID Convention, or otherwise agreed to a framework for direct arbitration of investor disputes. This article explores the roots of Brazil’s traditional reluctance to consent to investor-state arbitration in light of global developments in the field and the increasing importance of FDI to economic growth, and suggests it is time for Brazil to revisit its approach, with appropriate safeguards to protect its sovereign right to regulate in the public interest.

State Characteristics and the Locational Choice of Foreign Direct Investment: Evidence from Regional FDI in Mexico 1989–2006

ABSTRACT Despite the growing importance of foreign direct investment (FDI) in the Mexican economy, statistical evidence on the determinants of the regional distribution of foreign‐owned firms is seriously limited. In this paper, empirical findings are presented from a variety of econometric models that identify several regional characteristics influencing the locational choice of FDI. The main findings are threefold. First, several locational factors appear to be potentially important; these include regional demand, wages, schooling, infrastructure, and agglomeration economies. Second, the effect of agglomeration economies stems from several sources. In particular, the regional presence of agglomerations of manufacturing activity and of foreign‐owned manufacturing firms both have an independent positive effect on the locational decision of new FDI. Third, the locational process of maquiladora firms differs from the locational process of overall FDI. The actual findings suggest that regional demand and infrastructure, as suggested above, are not important locational factors for export‐oriented firms. Furthermore, whereas agglomeration economies from manufacturing and the presence of existing FDI attract new maquiladora investment, the presence of a regional agglomeration of services deters the location of new maquiladora firms. Finally, agglomeration economies appear to be more important in the locational process of maquiladora firms.

The relationship between foreign direct investment and economic growth: evidence from transition countries

This paper examines the importance of foreign direct investment on economic growth. Using a panel data set for 27 transition economies over the period 1991–2004 as well as the methodology of panel cointegration and causality tests, the empirical findings show that foreign direct investment does exhibit a significant relationship with economic growth, at least for those transition countries that are characterized by high levels of income and have implemented successful privatization programs.

The Way to a Multilateral Investment Agreement

Despite the large and growing importance of foreign direct investment (FDI), the international legal investment framework is highly fragmented. The contention put forward in this paper is that this situation is unsatisfactory because it creates transaction costs for multinational enterprises (MNEs) which range from the cost of legal advice to the cost of the uncertainty about rights and obligations. This paper points out a way to a future multilateral investment agreement by proposing answers to the following questions: (1) Which issues should be tackled on the multilateral level? (2) What are the optimal regulations for these issues from an economic perspective?, and (3) What is politically feasible?

Predicting the economic impact of the 2010 FIFA World Cup on South Africa

The impact of the sporting industry on economic decision making has increased dramatically since the global media explosion in the 1980s. Tourism and advertising revenues generated by mega-events such as World Cups or Olympic Games have become a major boost to the economies of hosting nations. In addition, globalisation has placed great emphasis on the importance of Foreign Direct Investment (FDI), especially to developing countries. This paper seeks to examine the impact of the 2010 FIFA World Cup on the South African economy. Using a 32-sector Computable General Equilibrium (CGE) model, the various shocks on the economy, such as infrastructure developments, increased tourism and financing implications, are modelled. Results are shown and carefully explained within the context of the model. It is found that in the short term, there would only be a favourable outcome in the economy should financing be shared between higher present taxes and revenue generated from future economic growth and private investment.

The Relationship between Foreign Direct Investment and Economic Growth: Evidence from Transitional Countries

This paper examines the importance of Foreign Direct Investment (FDI) on economic growth. Using a panel data set for 27 transition economies over the period 1991-2004 as well as the methodology of panel cointegration and causality tests, the empirical findings show that FDI does exhibit a significant relationship with economic growth, at least, for those transition countries that are characterized by high levels of income and have implemented successful privatization programs.

Information Age Ireland: The Attraction, the Reality and Never Ending Geography

This paper is an attempt to probe deeper behind the well-documented success story of the Irish economy over the 1990s. Over the decade, the country experienced unparalleled levels of economic growth that saw unemployment levels plummet, inflation levels stabilize and inward investment rise at a substantial rate. Growth rates of gross national product (GNP) best surmise the Irish case, the tigerish performance brought the country from one with a per capita GNP two-thirds of the European Union (EU) average in 1987, to one which exceeded the average 10 years later. An exposition of Ireland's pursuit of a foreign direct investment (FDI) development model forms a major part of this work. Recognizing the importance of FDI in Ireland, and FDI in the software sector in particular, this paper shows how and why investors flocked into the country over the golden era of the 1990s. Exogenously, Ireland's place on the outskirts of one of the world's biggest markets made it an alluring option for outside investors. Endogenously, the rationale behind the pursuit of high-tech FDI policy, beyond employment creation was the expected spill-over effects of multinational companies (MNCs) on the local economy. Questions are asked about the nature of positive externalities both in terms of the growth of an indigenous sector alongside a foreign-owned one as well as the sustainability of this type of investment. Changes in the organizational structures of MNCs over the 1990s, through decentralization of activities and outsourcing are integral to the Irish success story. Organizational transformation resulting in networks of global production have helped Ireland, as a peripheral region, to reposition itself as an access point to the lucrative European market. The geographic alteration on the national level however, has not been recreated on the sub-national scale. Contrary to the writings of many technology determinists, Ireland's pursuit of an information economy has had a very real impact in terms of regional economic divergence within the country. The lack of coherent regional or spatial planning is to blame along with a telecommunications infrastructure that has exacerbated the regional woes of an economy with an explicit focus on high-technology industries.

The Role of Russia in the Lithuanian Oil Business

SUMMARY This research aims at elaborating performance of an oil refinery owned by a Russian corporation in Lithuania. The article strives to trace how important Russian capital is for the Lithuanian oil business. The study examines the development of the oil refinery: (1) from its initial state-ownership to (2) privatization conducted by an American private company and, finally (3) to its acquisition with the Russian capital. This case study illustrates the importance of foreign direct investment, namely Russian FDI.

Technology Transfer and Diffusion among Manufacturing Small and Medium Enterprises in Indonesia

It is evident everywhere that in manufacturing industry, levels of productivity are higher in large enterprises (LEs), including foreign-owned firms or multinational companies (MNCs), than in small and medium enterprises (SMEs), partly because the former enterprises enjoy higher levels of technological capacity. Thus, for SMES, increased productivity might be facilitated through a scaling-up of knowledge or technology. The case study of the Tegal metalworking industry in Central Java presented in this article shows that the most important channels for the diffusion of knowledge/technology among domestic manufacturing SMEs include subcontracting arrangements with foreign direct investment (FDI). However, the importance of FDI as a source of technology/knowledge varies across the differing types of domestic firms. This study also shows that government agencies are currently the largest providers of training and similar assistance for manufacturing SMEs in the country. Such programmes, however, are rendered less effective by a low level of coverage, a lack of effective evaluation and assessment, and a supply rather than a demand orientation.

Why does so much FDI from Hong Kong and Taiwan go to Mainland China?

While the European Union, the US, and Japan (the Triad) supply 90% of global foreign direct investment (FDI) and China is the second largest FDI recipient in the world, most FDI into China did not come from the Triad but from Hong Kong and Taiwan (HKT). Evidence presented in the paper reveals that the unusually large amount of Hong Kong–Taiwan direct investment (HKTDI) cannot be fully appreciated without understanding China's location characteristics and differences between HKTDI and the Triad FDI. Four determinants of the dominant HKTDI in China are identified: China's export-promotion FDI strategy, its large pool of cheap labor, HKT's specific advantages in export-oriented FDI, and their unique links with China (the Chinese connections). Empirical results suggest that HKTDI was primarily motivated by low labor costs while FDI from the Triad was market-oriented. As China's domestic markets become more open to foreign investors, the share of HKTDI may shrink and the importance of FDI from the Triad may rise.

Exchange Rate, Exchange Rate Volatility and Foreign Direct Investment

In the light of the importance of foreign direct investment (FDI) for the promotion of economic development, this paper examines the impact of the changes in the real exchange rate and its volatility on FDI. Examining Japan's FDI by industries, we found that the depreciation of the currency of the host country attracted FDI, while the high volatility of the exchange rate discouraged FDI. Our results suggest the need to avoid over‐valuation of the exchange rate and to maintain stable but flexible exchange rate in order to attract FDI.

Prema‐chandra Athukorala. Trade Policy Issues in Asian Development. New York: Routledge, 1999. Pp. xvi+244. $90.00 (cloth).

Economists agree that an export-oriented trade policy promotes growth. However, there remain a number of specific areas where the appropriate trade policies are still under debate. This is a collection of case studies dealing with some of these policy issues. In each study, the particular policy issue is stated clearly, the analysis is conducted with rigor, and, where appropriate, sophisticated econometric tools are employed. In the Sri Lanka study, the importance of foreign direct investment (FDI) is emphasized, including that from other Asian countries such as Korea and Taiwan. The point is made that specific incentives, such as tax holidays and so on, are not highly effective in attracting FDI. The most effective policy is creating an investment climate conducive to exploiting the country’s comparative advantage. The Indonesian study comes down hard on government policies to promote linkages (e.g., domestic input requirements) in the expansion of manufactured exports. Attempts to create linkages through policy intervention are likely to be ineffective, and possibly counterproductive, by applying a brake to export growth. There is an engaging analysis of the impact of trade expansion on Indian saving and investment levels. The data show substantial increases in corporate and household financial saving but a large decrease in household tangible saving, which has the effect of reducing the overall domestic saving rate. Athukorala goes on to suggest that this may result from a statistical glitch in the data. So in the end we are left uncertain whether trade expansion was favorable to saving and investment behavior in India. One of the Malaysian chapters focuses on the equity impact of export expansion. Data are assembled to show a reduction in the absolute poverty level and an improvement in income distribution, leading to the conclusion that Malaysia has dodged Kuznets’s inverted U-curve. Perhaps, but the data used to demonstrate this conclusion relate to improved income distribution by ethnic classifications, not by income size. Similarly, Athukorala’s claim

Global and Local Culture in the 21st Century

The economic, technological, and political forces of globalization are having dramatic effects on local communities and personal identities. Labor, financial, and commodity markets are becoming interconnected and globalized at an accelerating rate. Production and consumption are occurring less and less in local markets and more and more in global markets. Multinational enterprises and sophistical forms of technology are the locomotive forces driving these dramatic changes. What an innocent American consumer may think of as Made in America is the product of factories located in many different parts of the world and is made with labor from many different countries. Cross-border alliances in industries such as computers and automobiles have resulted in a global car and a global computer. In today's world, brand name does not determine who owns a company that produces a particular commodity, nor where that commodity is produced. For example, Eastman Kodak operates in 170 countries, has the majority of its sales outside the United States, and nearly half of its employees are non-American. It even has a photography shop and a processing lab in Antarctica. The Dodge Caravan is assembled in Windsor, Ontario; the Jaguar, thought of as British, is wholly-owned by Ford; and the Swedish Saab is now whollyowned by General Motors. The liberalization of world markets has been accompanied by the benefits of economic efficiency. Drawing upon the theory of comparative advantage in production, globalization results in greater efficiency by allowing an optimal location of a firm's activities. Enlarging markets beyond national borders allows global firms to create dynamic gains in efficiency through economies of scale. Firms operating internationally are usually more competitive in both their home and foreign markets. Globalization of production has the potential for dynamic change and growth through technological upgrading and innovation in countries that attract multinational investments. However, for developing countries, these benefits depend upon the role assigned to local affiliates and on the extent to which local affiliates become integrated into the national production framework. Changes in the global environment have emerged with the rapid growth of foreign direct investment and international collaboration between firms. As the importance of foreign direct investment and international inter-firm agreements have grown in importance, the strategies of multi-- national businesses are operating in new ways leading to the globalization of industry and the expansion of world trade. Improvements in technology, trade liberalization policies, and the rise of international production have facilitated the rapid development of multinational corporations. The rise of highly globalized multinationals has weakened their identification with any one nation. Senior executives in these firms no longer equate superiority with the nationality of the country in which their headquarters reside. Executives now seek the best qualified employees, regardless of nationality, to solve the country's problems anywhere in the world. The approach of these geocentric executives, to use Perlmutter's (1972) term, is to create a collaborative effort between affiliates and headquarters to establish universal standards and to meet the goals of both the affiliates and headquarters. When a corporation realizes the need to mobilize its resources on a world scale, it will sooner or later have to face the reality that the home country does not have a monopoly on quality personnel and ideas (Perlmutter 63-64). The globalization of economic activity heightens the importance of links between nation-states as never before. This is because globalization increases the need for closer cooperation among governments at the international level. Inter-linkages between different levels of policy making are increased as the lines between national and international activities become blurred. …

Transformation and foreign direct investment: Observations on path dependency, hybridisation, and model transfer at the enterprise level

This article deals with the impact of foreign direct investment (FDI) on transformation processes in Central and Eastern Europe (CEE). Our specific interest is in the effects of FDI on the organisation of work and labour relations at the enterprise level; in a more general sense we are concerned with the contribution of FDI to the creation of the microeconomic foundation essential to functioning market economies. We hold that there is a discernible process of selective harmonisation taking place between outside influences and existing domestic factors. In this context we postulate that the importance of FDI is further enhanced by the fact that it influences a broad array of societal transformation processes beyond the enterprise itself, thus contributing to a process which could develop into what we have labelled a European-style environment. Admittedly, the outcome can as yet only be rudimentarily defined, especially since a European-style environment, as a point of reference, is itself currently undergoing continuous change. But we hypothesise that it will be a process which reflects to varying degrees both the endogenous and exogenous sources of its making.

Foreign direct investment in Bulgaria: patterns and prospects

This article examines the nature and role of foreign direct investment in Bulgaria. Set in the context of the transitional economies of the countries of Central and Eastern Europe, the article serves to illustrate the importance of foreign direct investment in bolstering the market system, rebuilding the economy and underpinning the success of the privatisation process. An account of the pattern of foreign direct investment in terms of time period, sector and nationality of the investor is presented from official data sources. Since the collapse of communism the Bulgarian economic and political climate has been one of the least conducive in Central and Eastern Europe to the attraction of foreign businesses; however, recent reforms, and in particular the election of a new government, provide the beginning of a more favourable environment for foreign direct investment in Bulgaria.

Technology and Human Capital in Maturing Asian Countries

The performance of the technological leaders of different Asian economies has been very impressive. Each of them has to keep improving its policies and the supporting skill and institutional base, since each is entering into the most difficult competitive areas of manufacturing where sheer technological and skill superiority, flexibility and speed count rather than just manufacturing capability. This paper describes the characteristics of the Asian economies, their size, growth, productivity levels, export orientation, and importance of foreign direct investments, as well as the qualitative basis for their competitive success. The paper goes on to examine the level and needs of human resources in terms of schooling, level of basic education, vocational training and in-firm training. The levels of research and development and some striking examples of policy tools oriented toward skill enhancement are also dis cussed. An assessment of the maturing process, the weaknesses as well as the possible future orientations of each group of countries is done. Whereas the old Tigers seem well on their way toward maturing, the newer Tigers, which have been quite success ful in creating efficient production structures, need to abandon their largely passive and dependent approach and follow a more active 'innovation culture' in industry. China and India need to resolve their serious production and infrastructure diffi culties rather than technology development.