Inbound Foreign Direct Investment Research Articles

Do regulatory affairs, political stability, and renewable energy demand improve environmental quality? Perceptive from the South Asian Association for Regional Cooperation region

The contemporary era confronts formidable obstacles, including environmental deterioration and energy consumption, which jeopardize the rapid advancement of the worldwide financial system. The hazards mentioned above encompass depletion of natural resources, eutrophication, and climatic catastrophes. Within this framework, the discourse surrounding strategic planning centers on institutional positioning and economic prospects, with the incorporation of alternative energy resources serving as a significant metric of economic advancement, as underscored by the COP26 objectives. This research examines the correlation between the quality of institutions and environmental quality, as measured by carbon emissions. A fixed effect regression methodology was utilized to estimate the relationship, utilizing panel data from the South Asian Association for Regional Cooperation economies covering the period from 1990 to 2021. The results show that if there is a 1% increase in the government regulatory quality and renewable energy, carbon emissions decrease by −0.102% and −1.125%, respectively, underscores institutions’ significance in advancing sustainable growth policies within the South Asian Association for Regional Cooperation region. Moreover, if there is a 1% increase in political instability, inbound foreign direct investment, and economic growth, carbon emissions increase by 0.199%, 0.042%, and 0.129%, respectively, suggesting the presence of rent-seeking conduct and pollution haven hypothesis, adversely affecting the ecological system. The study offers significant perspectives for policymakers who aim to foster sustainable regional development.

Regulating inbound foreign direct investment in a world of hegemonic rivalry: the evolution and diffusion of US policy

AbstractWe employ insights from the international relations literature to offer a novel perspective on the regulation of inbound foreign direct investment (FDI). We argue that in a world of hegemonic rivalry, the incumbent, when it perceives a threat, tends to employ both internal and external policy mechanisms to maintain the balance of power. Specifically, in response to China’s rise, the US expanded its internal national security review regulations, moving from a primary focus on FDI by state-owned enterprises (SOEs) to including Chinese investments in a broad set of strategic industries, regardless of ownership. External mechanisms include the diffusion of those internal regulations to allied countries, and we focus on a specific Alliance, the Five Eye (FVEY) intelligence alliance. Empirically, we combine natural language processing of keywords with close reading of selected documents to analyze FDI regulations in the US and FVEY allies. The results suggest that the US is an early adopter of both SOE and broader FDI regulations targeting strategic sectors for national security considerations. While SOE regulations exhibit relatively limited evidence of convergence, we find a more significant and recent convergence between the US and its alliance partners on the national security reviews of FDI in strategic sectors.

The severity of foreign direct investment components on China's carbon productivity

Carbon dioxide emission reduction is one of the major pressures on China's current economic advancement, and the improvement of carbon productivity (CP) has become particularly relevant. Promoting sustainable foreign direct investment (FDI) can help improve carbon productivity. As a result, the need to assess the severity of FDI components on sustainable economic growth as the world economy interoperates and expands is imperative. Using 30 Chinese provinces, the study investigates the impact of FDI components on China's CP from 2006 to 2020. The spatial model is utilized in this study to assess the interactive influence of these components on CP. It was found that, while CP is significantly influenced by inbound FDI (IFDI), its spatial spillover impact is not significant. Conversely, outbound FDI (OFDI) negatively affects local CP, as well as significantly reduces CP through spatial spillover in nearby regions. Also, the developmental coordination of IFDI and OFDI significantly enhances the country's CP, primarily due to positive spatial spillover effects. There exists a regional heterogeneity exhibited by the influence of both IFDI and OFDI on CP. In the eastern region, the IFDI has a negative impact on CP. However, OFDI possesses a positive effect on CP in the eastern region and an adverse influence in the western, southern, and northern regions. These results together with the policy implications will provide great insights into encouraging green investment from foreign countries.

The China effect on regional economic integration: a longitudinal study of Central, South, and Southeast Asia

Does China’s growing economic presence pose an opportunity or a threat to regional economic integration? The authors answer this question by analyzing longitudinal and cross-country evidence from three regions, Central, South, and Southeast Asia. A unique panel dataset detailing bilateral economic cooperation and each economy’s political-economic factors from 2000 to 2019 was examined. This study concludes that (1) inbound foreign direct investment from China is positively associated with a country’s intra-regional integration, (2) trade ties to China show a negative relationship with intra-regional integration, and (3) the level of a country’s regional economic integration is conditioned by domestic economic and political factors such as transportation and information connectivity, per capita GDP, population size, trade openness, and public governance. This article contributes to the literature by using fresh cross-regional evidence to decipher the China effect on regional integration, embedding the political economy at both national and regional levels, and identifying variations and significance of various political-economic factors.

International taxation and the organizational form of foreign direct investment

We investigate the relation between international taxation and the organizational form of foreign direct investment (FDI). Using micro-level data on inbound FDI relations in Germany, we find that a higher tax burden on income earned in a corporate subsidiary increases the probability that a multinational corporation (MNC) conducts foreign investment through a non-corporate flow-through. This effect is economically meaningful and varies with the relative importance of tax-motivated income shifting, a subsidiary’s non-tax benefits of limited liability and legal independence, and an MNC’s local knowledge. Moreover, we examine potential real effects of organizational form choices and document that affiliates established as flow-throughs exhibit a lower loss propensity and are less profitable than affiliates established as subsidiaries. Taken together, our findings inform policy makers about the potential response of MNCs to tax-law changes and suggest that the chosen organizational form can shape the future characteristics of investments abroad.

Study on the environmental effects of two-way foreign direct investment in China’s service industry

A mathematical model was built in this paper to divide the environmental effects of Foreign Direct Investment (FDI) in the service sector in terms of scale effect, structural effect and technical effect. Also, inbound FDI (IFDI) and outbound FDI (OFDI) were put under the same research framework, where the effects of two-way FDI on the emissions of SO2 and chemical oxygen demand (COD) were empirically tested with the 2004-2016 panel data of China’s service sector. The results show that IFDI in the service sector has significantly reduced China’s pollution emissions and improved environmental quality. This is mainly due to the positive technical and structural effects. OFDI in the service sector exhibits different responses to different pollution emission indexes. When there are both IFDI and OFDI in the service sector, SO2 emissions are suppressed to a certain extent, whereas COD emissions are not effectively controlled. In addition, the increased service output scale, per-capita capital stock and R&D input also have varying effects on environmental pollution in China.

A Legal Comparative Approach towards the Screening of Outbound FDI

After decades of investment liberalisation, the attitude towards foreign direct investment (FDI) has changed. FDI is nowadays perceived more and more as a threat to the national interests owing to the risks associated with it. In order to address and mitigate these risks, various countries have adjusted their existing FDI screening mechanisms and created new ones. While so far legislators and regulators have been focused mainly on inbound FDI, the US National Critical Capabilities and Defense Act (NCCDA), a bipartisan proposal, is meant to address the risks associated with outbound FDI. Taking into account the current geopolitical environment and the risks associated with it, it is necessary that the EU and its Member States also consider screening outbound FDI. In doing so, valuable lessons can be drawn from the US NCCDA proposal.

Nexus between corruption, market capitalization, exports, FDI, and country’s wealth: A pre-global financial crisis study

The study investigates the impact of corruption, market capitalization, exports, and foreign direct investment on the wealth of 178 countries worldwide. Thus, the paper uses univariate and multivariate regressions to observe the nexus among exports, foreign direct investment, market capitalization, corruption, and wealth of nations. The findings indicate that corruption poses a significant hindrance to prosperity and development, as evaluated with respect to the Transparency International Corruption Perceptions Index. Additionally, the results showed that the world’s poorest nations are becoming less corrupt while the wealthiest ones are growing more corrupt. The paper also concludes that exports and market capitalization are critical for prosperity and development when combined with lower corruption levels. Furthermore, the analysis also suggests that inbound foreign direct investment favors the development of emerging countries. Surprisingly, market capitalization and exports had little impact on wealth of countries before the crisis period. Moreover, integrity also fosters economic growth. Overall, the study concludes that the causes of wealth are country-specific. AcknowledgmentsI thank the editor and the reviewers for the helpful comments and suggestions that significantly enhanced this work. The usual disclaimer applies.

Environmental regulation and innovation: Evidence from China

The relevance of analyzing effects of environmental regulation on innovation cannot be overemphasized. In this paper, we first develop a theoretical model to predict how command-and-control environmental regulation affects innovation, and then we derive its channels. Using the difference-in-difference-in-differences strategy and a comprehensive dataset at city-industry-year level of manufacturing sectors in China, we found that the more stringent environmental regulations that are faced by cities, measured by the reduction targets of chemical oxygen demand (COD) and sulfur dioxide (SO2) during the eleventh Five-Year Plan, are negatively associated with innovation. Thus, the evidence contradicts the Porter Hypothesis. On average, a one standard deviation increase in the reduction targets of COD (SO2) is associated with a 0.023 (0.016) standard deviation decrease in the innovation index. We controlled carefully for various potential confounders, and the results were supported by robustness and falsification checks. There exists an evident heterogeneity effect across regions and industries with different pollution intensities. The channel analysis shows that stricter environmental regulation also accounts for a sharp decline in labor demand, firm entry, and inbound foreign direct investment. Our findings are also robust to alternative measures for innovation and environmental regulation.

Cleaner Technology and Natural Resource Management: An Environmental Sustainability Perspective from China

In economies, cleaner technology, increased demand for renewable energy, and more efficient use of natural resources contribute to meeting environmental sustainability targets. The Chinese economy is no exception in its attempts to conserve economic and natural resources via collaborative efforts to embrace cleaner technology, green energy sources, and resource conservation management to preserve resources for future generations. This research examines the influence of cleaner technologies, green energy sources, and natural resource management on reducing greenhouse gas emissions using quarterly data for the Chinese economy from 2000Q1 to 2020Q4. The findings demonstrate that increasing demand for green energy reduces greenhouse gas emissions, hence substantiating the premise of ‘green is clean’ energy development. Additionally, optimum resource usage enhances environmental quality, corroborating the ‘resource cleaner blessing’ hypothesis. The positive link between inward foreign direct investment and greenhouse gas emissions substantiates the ‘pollution haven’ concept, according to which inward foreign direct investment uses unsustainable technology in manufacturing processes, hence degrading air quality indicators. Inadequate access to clean cooking technology and increased population density has a detrimental effect on the country’s environmental sustainability agenda, which must be corrected via sustainable regulations. The causality estimates show the feedback relationship between renewable energy demand (and economic growth) and cleaner technology, between economic growth and green energy (and inbound foreign direct investment), and between population density and economic growth (and green energy). The Impulse Response function estimates suggested that economic growth and population density would likely increase GHG emissions. In contrast, cleaner technology, green energy demand, natural resource management, and inbound foreign direct investment would likely decrease greenhouse gas emissions for the next ten-year time period. The sustainability of the environment and natural resources in China is bolstered by developing cleaner technologies, a greater reliance on renewable energy sources, and better management of natural resources.

The impact of carbon pricing, climate financing, and financial literacy on COVID-19 cases: go-for-green healthcare policies.

Climate finance and carbon pricing are regarded as sustainable policy mechanisms for mitigating negative environmental externalities via the development of green financing projects and the imposition of taxes on carbon pollution generation. Financial literacy indicates that it is beneficial to invest in cleaner technology to advance the environmental sustainability goal. The current wave of the COVID-19 epidemic has had a detrimental effect on the world economies’ health and income. The pandemic crisis dwarfs previous global financial crises in terms of scope and severity, collapsing global financial markets. The study’s primary contribution is constructing a climate funding index (CFI) based on four critical factors: inbound foreign direct investment, renewable energy usage, research and development spending, and carbon damages. In a cross-sectional panel of 43 nations, the research evaluates the effect of climate funding, financial literacy, and carbon pricing in lowering exposure to coronavirus cases. The study utilized Newton–Raphson and Marquardt steps to estimate the current parameter estimates while evaluating the COVID-19 prediction model with level regressors using the robust least squares regression model (S-estimator). Additionally, the innovation accounting matrix predicts estimations over a specific period. The findings indicate that climate finance significantly reduces coronavirus exposure by introducing green financing initiatives that benefit human health, which eventually strengthens the immune system’s ability to fight infectious illnesses. Financial literacy and carbon pricing, on the other hand, are ineffectual in controlling coronavirus infections due to rising economic activity and densely inhabited areas that enable the transmission of coronavirus cases across countries. Similar findings were obtained using the alternative regression apparatus. The COVID-19 predicted variable was used as a “response variable,” and climate financing was shown to have a favorable impact on containing coronavirus exposure. As shown by the innovation accounting matrix, carbon pricing would drastically decrease coronavirus cases’ exposure over a time horizon. The study concludes that climate finance and carbon pricing were critical in improving air quality indicators, which improved countries’ health and wealth, allowing them to reduce coronavirus infections via sustainable healthcare reforms.

Проблемы учета прямых иностранных инвестиций в международной и российской статистике

The paper discusses the approaches to statistical accounting of foreign direct investment (FDI) present in Russian and international practice, as well as alternative approaches to accounting of FDI using microdata. International practice shows that often the official statistics provided by national central banks according to the methodology of the International Monetary Fund (IMF) and the Organization for Economic Cooperation and Development, and alternative estimates of FDI at the enterprise level differ significantly. The purpose of this article is to identify the main problems of traditional methods of accounting FDI and assess the applicability of the microdata approach to address these problems. To this end, the paper analyzes the recommendations of the OECD and the IMF on accounting FDI in statistics, as well as the methodology of the Central Bank of the Russian Federation (CBR). According to the author, the methodologies of international organizations do not solve a number of problems in relation to the Russian ones. Thus, the present methodologies do not address the issue of offshore FDI, as well as the actual geographical distribution of FDI in the regions of the Russian Federation. The article demonstrates that a number of problems associated with traditional FDI statistics can be addressed with enterprise microdata. The article proves why traditional statistics can give a distorted picture due to unresolved issues of these and other issues, and shows how microdata can help in solving this problem. In particular, micro-level data helps to understand the structure of FDI at the regional level, as well as the role of offshore companies in the structure of inbound and outbound FDI.

An Empirical Analysis on the Effects of Corruption, International Trade, and National Income on Inward Foreign Direct Investment

Purpose - The study centers on how corruption, national income, and international trade volume can give an impact on a nation’s performance in terms of Foreign Direct Investment (FDI). Design/Methodology/Approach - We used the data of Foreign Direct Investment (FDI) using Corruption Perception Index(CPI) from 217 countries and inward FDI using Panel Regression Analysis such as the Fixed Effect Panel Model and the deviation from mean model. Findings - As the empirical results of this study, the members of the OECD and EU corruption did not give the significant impact on their inbound FDI. However, there were correlations between corruption and FDI for the developing nation in ASEAN and UNASUR. In further development of globalization, corruptions of each nation are no longer domestic issues but are rather shared by the world, including neighboring countries. Research Implications - Global investors are calling for a higher level of transparency from investment destinations. Nowadays, the developing country’s effort to root out corruption has become a prerequisite condition to beef up its economy.

Nonlinearity in the relationship between COVID-19 cases and carbon damages: controlling financial development, green energy, and R&D expenditures for shared prosperity.

The world faces a high alert of coronavirus disease 2019 (COVID-19), leading to a million deaths and could become infected to reach a billion numbers. A sizeable amount of scholarly work has been available on different aspects of social-economic and environmental factors. At the same time, many of these studies found the linear (direct) causation between the stated factors. In many cases, the direct relationship is not apparent. The world is unsure about the possible determining factors of the COVID-19 pandemic, which need to be known through conducting nonlinearity (indirect) relationships, which caused the pandemic crisis. The study examined the nonlinear relationship between COVID-19 cases and carbon damages, managing financial development, renewable energy consumption, and innovative capability in a cross section of 65 countries. The results show that inbound foreign direct investment first increases and later decreases because of the increasing coronavirus cases. Further, the rise and fall in the research and development expenditures and population density exhibits increasing coronavirus cases across countries. The continued economic growth initial decreases later increase by adopting standardized operating procedures to contain coronavirus disease. The inter-temporal relationship shows that green energy source and carbon damages would likely influence the coronavirus cases with a variance of 17.127% and 5.440%, respectively, over a time horizon. The policymakers should be carefully designing sustainable healthcare policies, as the cost of carbon emissions leads to severe healthcare issues, which are likely to get exposed to contagious diseases, including COVID-19. The sustainable policy instruments, including renewable fuels in industrial production, advancement in cleaner production technologies, the imposition of carbon taxes on dirty production, and environmental certifications, are a few possible remedies that achieve healthcare sustainability agenda globally.

Be good to thy neighbours: A spatial analysis of foreign direct investment and economic growth in sub‐Saharan Africa

AbstractThis paper employs a spatial dependency framework to examine intermediary roles played by trade, institutional quality and natural resource endowment in determining direct and indirect (spillover) effects of inbound foreign direct investment (FDI) on economic growth. We develop a number of spatial mechanisms to assess how these intermediary factors limit and/or enhance the effect of FDI on economic growth. In particular, we test whether different levels of resource rents, severity of civil conflict and openness to international trade are statistically different in attenuating direct and indirect (spillover) effects of inbound FDI on growth. Last, we conduct a test of asymmetry to investigate whether the effect of FDI on growth is statistically different from zero in three democratic (autocratic) regimes, that is, low democratic (high autocratic), moderate democratic–autocratic and high democratic (low autocratic) societies. A number of insightful contributions to the economic growth‐FDI literature can be extracted from our analyses. First, results indicate that inbound FDIs on their own have positive and significant effect on economic growth. However, the positive FDI effect on growth is significantly dampened by the negative intermediary role of civil conflict. Second, we find that, the more opened sub‐Saharan African economies are to international trade, the greater is the impact of FDI on growth. However, trade among African countries as a share of their economies plays insignificant intermediation role on direct and indirect effects of FDI on growth. Third, we find that an increase in resource rents as a share of the economy significantly reduces direct and spillover effects of inbound FDI on economic growth. Last, our analysis indicates that both low democratic (high autocratic) and high democratic (low autocratic) regimes do accelerate the positive impact of FDI on growth. However, results indicate a slow‐down effect of FDI on growth under moderate democratic–autocratic regimes. This particular finding suggests that the intermediary role of democracy in determining the effect of FDI on economic growth is non‐linear. A number of policy implications can be extrapolated from our analysis. Most importantly, trade policies, which boost integration of sub‐Saharan African countries and open up the continent to the rest of the world, are likely to play major intermediation roles in accelerating the positive effect of FDI on growth.

Do surges in foreign direct investment inflows lead to surges in economic growth? Evidence from developing countries

PurposeThe purpose of this paper is to examine whether surge in foreign direct investment (FDI) inflows leads to surge in economic growth in 52 developing countries for the period 1990-2014.Design/methodology/approachThe author used a threshold approach to identify surge incidences in gross domestic product (GDP) per capita growth rates and FDI inflows (measured as percentage of GDP) for each country included in the sample. Three different criteria are used to identify surge instances. As a preliminary analysis the author used the probit and complementary log–log regression methods to estimate the likelihood of growth surge occurrence. To correct the potential endogeneity problem the author jointly estimated the growth surge and FDI surge equations using the recursive bivariate probit (RBP) regression.FindingsThe author found that East Asia and the Pacific region has highest rate of growth surge incidences followed by South Asia. The results suggest that surge in FDI inflows significantly increases the likelihood of growth surge. The finding is robust to alternative surge definitions and methods of estimation.Practical implicationsThe analysis reveals that inbound FDI flow is a critical driver of economic growth in developing countries. Large FDI inflows matters for achieving rapid economic growth. Therefore developing countries should adopt favourable policies to attract more FDI. Policymakers should focus on improving the investment climate of the country to boost domestic investment and to attract larger amount of FDI into the economy.Originality/valueTo the best of the author’s knowledge this is the first study to examine whether surge in FDI inflows stimulates surge in economic growth in developing countries. The analysis reveals that FDI surge is a robust predictor of rapid economic growth in developing countries.

The determinants of services FDI location in the UK regions

This paper contributes to scholarly knowledge and understanding of the way in which economic conditions and government policy affect foreign direct investment (FDI) location in the United Kingdom (UK) regions. It does so by exploring their impact on inbound services FDI location in a sample of one of the UK's core (South East England) and four non-core (West Midlands; Wales; Scotland and the North West) regions. Use is made of multiple regression techniques to analyse a set of official, longitudinal data gathered for the period from 1980 to 2015 as a means to this end. The findings offer new insights into the relative influence of the search for markets, efficiencies and strategic assets and government policy over the location of services FDI in all five regions. The resultant implications for future inward investment policy development after the UK leaves the EU are also considered, including the potential benefits of increasing policy variations from region to region.

The determinants of services FDI location in the UK regions

This paper contributes to scholarly knowledge and understanding of the way in which economic conditions and government policy affect foreign direct investment (FDI) location in the United Kingdom (UK) regions. It does so by exploring their impact on inbound services FDI location in a sample of one of the UK's core (South East England) and four non-core (West Midlands; Wales; Scotland and the North West) regions. Use is made of multiple regression techniques to analyse a set of official, longitudinal data gathered for the period from 1980 to 2015 as a means to this end. The findings offer new insights into the relative influence of the search for markets, efficiencies and strategic assets and government policy over the location of services FDI in all five regions. The resultant implications for future inward investment policy development after the UK leaves the EU are also considered, including the potential benefits of increasing policy variations from region to region.

한국의 FTA 15년 성과와 정책 시사점 (Fifteen Years of Korea’s FTA: Achievements and Policy Implications)

한국의 FTA 15년 성과와 정책 시사점 (Fifteen Years of Korea’s FTA: Achievements and Policy Implications)

The Status of China's Market Economy and Structural Reforms: The Issues Behind the U.S.–China Trade War

This paper investigates the most essential issues behind the ongoing U.S.–China trade war. In addition to the apparent bilateral trade imbalance, China's status as a non-market economy (as labelled by the Trump administration) is one of the most fundamental reasons that the United States triggered the U.S.–China trade war. Accordingly, the United States’ most pressing request is to urge China to implement further structural reform. This paper argues that the current Chinese economy is quickly becoming a modern market economy with a unique Chinese character. This is evident from ongoing structural reform to create a competitive environment between state-owned enterprises and private enterprises, and through a further opening-up of the market by guaranteeing a wider and deeper market access for inbound foreign direct investment.