Foreign Direct Investment Intensity Research Articles

Does inward FDI improve the labour‐allocation efficiency of local firms? Evidence from China

AbstractThis article estimates labour‐allocation efficiency at the firm level in China and studies whether inward foreign direct investment (FDI) has contributed to its improvement. We construct a city‐level FDI intensity measure and identify the causal effect of FDI entry on labour‐allocation efficiency. The results indicate that when FDI increases by 10%, the average labour‐allocation efficiency increases by 7.2%. The mechanism analysis further implies that the alleviation effect of FDI entry on firm‐level labour‐allocation efficiency prefers the agglomeration learning rather than the agglomeration matching channel, that is, firm‐level labour‐allocation efficiency increases only when they are more exposed to the agglomeration of foreign capital and more related industries. The heterogeneity analysis further reveals that firms located in less segmented regions, facing higher training costs, of private‐ or foreign‐owned ownership types, having a higher ratio of high‐skilled labours increase labour‐allocation efficiency more upon FDI entry.

Towards environmental impact of inward foreign direct investment: the moderating role of varieties of democracy

PurposeThis paper aims to clarify the relationship between foreign direct investment (FDI), democracy and carbon intensity. This study examines the influence of types of democracy on the relationship between inward FDI and carbon intensity. For this purpose, it uses five varieties of democracy, including a composite democracy indicator as moderating variables.Design/methodology/approachThis study applies the fixed-effects panel quantile regression approach that considers unobserved heterogeneity and distributional heterogeneity using panel data from 160 countries during 1990–2020. By taking into account sudden changes in the volume of inward FDI, an event study is conducted across various sub-samples of democracy to check the robustness of the results.FindingsThe results show that FDI has a significantly negative impact on carbon intensity of the host country in the upper quantiles. In general, different types of democracy have a significant positive impact on carbon intensity across different quantiles. After considering the other factors, including industry intensity, trade openness, green technology, fossil fuel dependency and International Environmental Agreements, there is evidence that all types of democracy moderate the relationship between FDI and carbon intensity, thereby supporting the halo effect hypothesis. In addition, the interaction effects have a significant negative impact on carbon intensity of low- and high-carbon-intensive countries.Originality/valueThis paper offers several contributions to the literature on the effect of FDI and democracy on carbon intensity. This study overcomes the limitations related to the conceptualization and measurement of democracy found in the literature. While prior research has predominately concentrated on how democracy promotes the selection of FDI host-country locations, this study seeks to answer the question of whether democracy type has any effect on inward FDI, thus contributing to improving carbon intensity. Furthermore, this paper analyses the interaction effect on carbon intensity in different countries with different carbon intensity levels separately.

Foreign direct investment and green innovation in China: An examination of quantile regression

This study employs panel data encompassing 31 provinces in China, spanning the period from 2010 to 2020, to investigate the distributional impact of foreign direct investment (FDI) on green innovation (GI). Employing a panel quantile regression model, the research finds the close association between FDI and GI, particularly considering the local GI foundation. Specifically, FDI plays a crucial and influential role in fostering GI within regions characterized by lower levels of GI. However, it does not have a significant impact on promoting GI in regions with higher levels of GI. Further analysis of regional heterogeneity demonstrates that in coastal areas, FDI exhibits a positive and significant impact on GI in provinces with a moderate level of GI. Conversely, in inland areas, FDI can only facilitate GI in provinces with a high level of GI. The research conclusion suggests that the government should enhance the intensity of FDI and implement tailored policies according to the specific characteristics of coastal and inland regions.

ВПЛИВ ПІІ НА ЗАЙНЯТІСТЬ В УМОВАХ ЦИФРОВІЗАЦІЇ ЕКОНОМІКИ: ПРИКЛАД КИТАЮ

The paper investigates how the evolution of the digitalization of economies alters the influence of foreign direct investment (FDI) on employment, using China as a case study. The study focuses on China, the largest developing economy, which has a significant influence on other economies, including Ukraine. With technological shifts demanding more skilled labor, particularly within the rapid growth of the digital economy, new pathways emerge regarding how foreign investment affects the host country's job market. The development of the digital economy can reduce the costs of information retrieval, production, transactions and delivery, etc. Beyond altering organizational practices, digital technologies also impact broader social dynamics. Understanding and leveraging digital transformation require consideration of both dimensions. To examine these aspects, a set of indices was employed, estimating digital economy development through entropy estimation and the coefficient of variation. These measurements formed the basis for a digital economy development index, utilizing indicators from four digitalization sectors: digital infrastructure, industry, innovation, and tool utilization. An empirical regression model integrated multiple indicators, such as employment rate, GDP, FDI, digitization coefficient, human capital, export rates, wages, and the proxy of interaction between FDI and the economy's digitization coefficient. Different sectors and regions within China were separately studied. Analyzing panel data across 30 Chinese provinces from 2001 to 2021 revealed that increased digitalization amplifies the positive impact of FDI inflows on domestic employment. Notably, this effect is more prominent in the service sector than in manufacturing, and it's relatively stronger in the less developed western provinces compared to the eastern and central ones. As the digital economy in the western regions is less mature, investments there yield relatively higher returns. These findings support the notion that employment grows alongside rising FDI inflows. However, it's crucial to highlight that digitalization increasingly shapes the intensity of FDI's influence on employment.

A study on the effects of natural resource abundance and foreign direct investment on regional eco-efficiency in China under the target of COP26

Regional eco-efficiency emphasizes the harmonious development of the economy, society and the natural environment, which is of great significance in the construction of an ecological civilization. This study analyzed the data of 30 regions in China from 2009 to 2021, measured regional eco-efficiency by using the super-efficient SBM model and then verified the influence of resource abundance and foreign direct investment (FDI) on regional eco-efficiency using the Tobit model. The conclusions were as follows. (1) The eco-efficiency level in China shows a slow upward trend from 2009 to 2021, and the national average value is low, at 0.519. The eco-efficiency levels of three regions—east, central and west—increased between 2009 and 2021, with the highest eco-efficiency in the east and the lowest in the west. (2) The negative elasticity coefficients of natural resource abundance confirm the existence of the “resource curse” in the eco-efficiency domain in the central and western regions and nationwide, but not in the eastern region. (3) The impact of FDI intensity on eco-efficiency nationwide is negative, but not significant. Eastern and western regions enjoy enhanced regional eco-efficiency, but the effect in the central region is negative. (4) Human capital promotes eco-efficiency in all regions; urbanization in the eastern and western regions and nationwide promotes eco-efficiency, whereas it inhibits eco-efficiency in the central region. Economic growth cannot increase eco-efficiency nationwide, with a positive promotion effect in the eastern and central regions but a negative promotion effect in the western ones. Moreover, green finance can significantly improve national and eastern regional eco-efficiency, but has a non-significant promotion effect in the central region and significant inhibiting effects in the west. Finally, in this paper, the corresponding countermeasures proposed for improving eco-efficiency are described.

Boosting Energy Efficiency in Turkey: The Role of Public–Private Partnership Investment

This study draws motivation from the United Nations Sustainable Development Goals (7.8.11), which highlight pertinent issues across the globe, among which are access to energy, responsible consumption, and sustainable development. To this end, we explored the pivotal role of public–private partnerships (PPP) investment in energy in Turkey, which is currently on an aggressive trajectory for its energy mix to energy efficiency. To avoid omitted variable bias in econometric strategies, we controlled for vital macroeconomic indicators such as foreign direct investment (FDI), trade flow, and economic growth. Empirical results showed a long-run equilibrium relationship between the outlined variables as traced by the autoregressive distributed lag (ARDL) bounds test. Subsequently, we observed a positive relationship between public–private partnership (PPP) investment in energy and the country’s energy intensification in both the short and long runs. A similar trend was observed between FDI, GDP growth, and energy intensity. These outcomes have inherent policy caveats for the Turkish energy sector and economic trajectory. Policy implications include efficient investment in clean energy (renewables) as part of Turkey’s effort toward energy intensification to guarantee sustainable development. Additionally, the involvement of PPP is a welcome dimension for sustainable economic growth. Further insights are documented in the concluding remarks.

Long-Term Implications of Economic Complexity and Energy Intensity on the Environment in Lower-Middle-Income Countries in Asia

This study aims to determine the long-term impact of Foreign Direct Investment (FDI), Population (POP), Economic Complexity Index (ECI), and Energy Intensity (EI) on environmental quality as measured by carbon dioxide (CO2). The objects of this research are lower-middle income countries in the Asian region during the 2000-2018 range. The method used in this research a is Fully Modified Ordinary Least Square (FMOLS). The results of this study indicate that FDI, population, economic complexity, and energy intensity increase the amount of CO2. These results produce policies related to the environment, where the government, the private sector, and the community have the same vision to improve the quality of the environment. The policy that can be taken is by setting strict regulations for investors so that the pollution haven hypothesis does not occur in lower-income countries in Asia. The policy was adopted by imposing a carbon tax. This policy is accompanied by reducing the birth rate, increasing innovation and economic complexity by paying attention to environmental sustainability, as well as carrying out energy transformation. Thus, it is expected to reduce the spread of CO2 that lower-middle-income countries are ready to become upper-middle-income countries or even high-income countries.

Growth and Instability in Foreign Direct Investment Inflows to India Since 1991

With the introduction of new economic reforms in 1991, there has been a significant increase in the intensity of foreign direct investment (FDI) inflows to India which shows the liberal policy regime and increase in the confidence of investors with the passage of time. The purpose of this study is to identify the trend, growth and instability of FDI inflows to India in the wake of economic liberalisation and deregulation. This paper lays down the analytical framework for empirically testing the annual rate of, the compounded annual growth rate and instability associated with the flow of FDI to India since the initiation of economic reforms in 1991. Through employing regression analysis, the results show that FDI is increasing with a growth rate of 19.31 % which is highly significant with a falling growth in the instability of FDI inflows to India which is -1.42655 %.

Impact of Macroeconomic, Governance and Risk Factors on FDI Intensity—An Empirical Analysis

The study analyzes the impact of macroeconomic, governance and risk factors on foreign direct investment (FDI) intensity with respect to the US market during the period 1960–2019. The study adopted regression methodology. The FDI, macroeconomic and risk data were sourced from the Federal Reserve Economic Data (FRED) database. The governance data were collected from the World Bank Governance Database. The study suggests that infrastructural investments lead to higher FDI. A stronger Euro leads to higher FDI activity in the United States. Research & Development investments is a significant factor which contributes towards enhanced FDI activity. The higher the corporate profitability, the greater the FDI inflows. Exports and imports are significant factors which determine FDI in markets like USA. Inflation has a negative impact on FDI flow regulations, which are aimed to promote private sector development is negatively related to FDI intensity. FDI activity by firms tend to be lower when corruption levels are higher in the country. The higher the governance perception in terms of voice and accountability of citizens, the greater the propensity to attract FDI. The perception of the effectiveness of a government’s commitment towards the quality of public and civil services is directly related to FDI investment.

Influence of Social Identity on Family Firms’ FDI Decisions: The Moderating Role of Internal Capital Markets

This paper examines the foreign direct investment (FDI) decision by family firms from an emerging economy, China. Despite the increasing attentions to family firms’ FDI, extant research has focused largely on the comparisons between family firms and non-family firms with inconsistent findings. Limited research effort has been devoted to the heterogeneous FDI among family firms. We investigate how different family firm types affect its FDI. Family firms differ in the identity of family owners due to their variation in the trade-off between preserving family’s socioemotional wealth (SEW) and maximizing firm economic goals. Family owners with different identities will behave differently in their FDI decisions. We find that family firms owned by a lone founder (i.e., lone-founder firms) who perceives himself more as an entrepreneur, have higher propensity and intensity of FDI than those owned by multiple family members (i.e., family-controlled firms) who share the identity of family guardians. Moreover, we find that the positive effect of lone-founder on family firms’ FDI decisions is stronger when they have adequate access to internal capital markets through pyramidal ownership structure or financial slack. Overall, this paper enhances our understanding of family firms’ FDI decisions and offers an explanation for prior inconclusive findings on this important area by highlighting the effect of huge heterogeneities among family firms on their FDI decisions.

PROSPECTS FOR INTEGRATION

This research allows us to consider the problem of transition to monetary integration between the countries participating in the EAEU from the importance standpoint of economic prerequisites. The practical significance of the work lies in the substantiation of the objective prerequisites for the formation and creation of a monetary union in the course of regional integration processes development. The statistical data on foreign investments in the EAEU countries, on the share of gross volumes of mutual trade in the total volume of foreign trade in the EAEU as a whole and in the EAEU member states, are given. Analysis of mutual trade and investment indicators showed an insufficient level of economic convergence in the EAEU, assessed from the standpoint of the mutual trade intensity and mutual foreign direct investment intensity. At the moment, the volumes and dynamics of trade and investment flow between the EAEU member states do not cause an objective need for a transition to monetary cooperation at the level of a currency union.

Does Foreign Direct Investment Impact Energy Intensity? Evidence from Developing Countries

The paper presents the results of a study that attempts to investigate the impact of foreign direct investment (FDI) on energy intensity by constructing panel regression model and panel smooth transition regression (PSTR) model. Based on panel data from 1990 to 2014, this study contributes to conduct the impact of FDI on energy intensity from the perspective of emerging country, including BRICS and non-BRICS countries, and investigates the channels of influence of FDI on energy intensity. Besides that, we intend to employ the PSTR model to reveal the nonlinear mechanism of FDI on energy intensity. Our findings reveal several key conclusions: first, FDI exerts insignificant impact on energy intensity in the emerging countries. Second, the impact of FDI on energy intensity is heterogeneous between BRICS and non-BRICS countries. Third, innovation capacity plays various moderating effects on the relationship of FDI and energy intensity among different types of emerging countries. Furthermore, the nonlinear mechanism of FDI on energy intensity is realized with industrial structure as the transition variable, which plays a different effect on the impact of FDI on energy intensity between different samples.

FOUNDATIONS OF REGIONAL MONETARY INTEGRATION

The statistical data on foreign investments in the EAEU countries, on the share of gross volumes ofmutual trade in the total volume of foreign trade in the EAEU as a whole and in the EAEU member states, are given.Analysis of mutual trade and investment indicators showed an insufficient level of economic convergence in theEAEU, assessed from the standpoint of the mutual trade intensity and mutual foreign direct investment intensity. Atthe moment, the volumes and dynamics of trade and investment flow between the EAEU member states do not causean objective need for a transition to monetary cooperation at the level of a currency union. This research allows us toconsider the problem of transition to monetary integration between the countries participating in the EAEU from theimportance standpoint of economic prerequisites. The practical significance of the work lies in the substantiation ofthe objective prerequisites for the formation and creation of a monetary union in the course of regional integrationprocesses development.

The Impact of Economic Growth, FDI and Energy Intensity on China’s Manufacturing Industry’s CO2 Emissions: An Empirical Study Based on the Fixed-Effect Panel Quantile Regression Model

Since the reform and opening-up, China’s CO2 emissions have increased dramatically, and it has become the world’s largest CO2 emission and primary energy consumption country. The manufacturing industry is one of the biggest contributors to CO2 emission, and determining the drivers of CO2 emissions are essential for effective environmental policy. China is also a vast transition economy with great regional differences. Therefore, based on the data of China’s provincial panel from 2000 to 2013 and the improved STIRPAT model, this paper studies the impact of economic growth, foreign direct investment (FDI) and energy intensity on China’s manufacturing carbon emissions through the fixed-effect panel quantile regression model. The results show that the effects of economic growth, FDI and energy intensity on carbon emissions of the manufacturing industry are different in different levels and regions, and they have apparent heterogeneity. In particular, economic growth plays a decisive role in the CO2 emissions of the manufacturing industry. Economic growth has a positive impact on the carbon emissions of the manufacturing industry; specifically, a higher impact on high carbon emission provinces. Besides, FDI has a significant positive effect on the upper emission provinces of the manufacturing industry, which proves that there is a pollution paradise hypothesis in China’s manufacturing industry, but no halo effect hypothesis. The reduction of energy intensity does not have a positive effect on the reduction of carbon emissions. The higher impact of the energy intensity of upper emission provinces on carbon emissions from their manufacturing industry, shows that there is an energy rebound effect in China’s manufacturing industry. Finally, our study confirms that China’s manufacturing industry has considerable space for emission reduction. The results also provide policy recommendations for policymakers.

Business cycle co-movements and transmission channels: evidence from China

This article examines the impacts of international trade, foreign direct investment (FDI) and industrial structure on international business cycle co-movements between China and its major trading partners. We investigate the principal transmission factors of business cycle co-movements and their contributions to China’s economic growth in the context of economic globalization. Through studying the 27 major trading partners during 1990–2015, we find that, from China’s perspective, the synchronization tendency was continuously growing before the 2008 financial crisis but slowed down or even reversed after the crisis. Bilateral trade intensity and FDI intensity contributed more to cyclical co-movement behaviors between China and its emerging market partners, but less to economic synchronization between China and its advanced economic partners. Industrial structure similarity, on the contrary, could explain the co-movement behaviors between China and its advanced economic partners, but not emerging market partners. China’s past economic growth was also significantly correlated with the economic performance of its non-Asian trading partners, but not Asian neighbors.

Theoretical foundations of regional monetary integration and the practice of forming its prerequisites in the EAEU

The article discusses the historical, political and fundamental economic prerequisites for the transition to monetary integration within the framework of the EAEU at the present stage of its development. The purpose of the study is to identify the readiness degree of the EAEU member countries transition to integration in the monetary sphere in modern conditions. The study makes it possible to substantiate the idea that a currency union in the framework of regional economic integration should be viewed as a natural result of significant volumes of goods, services and investments movement between member countries. The necessity and possibility of creating a currency union are determined and evaluated from the standpoint of the trade intensity and investment flows between the member countries of the Eurasian Economic Union. The methodology of the study is based on the key ideas of the “optimum currency areas” theory. The statistical data on foreign investments in the EAEU countries, on the share of gross volumes of mutual trade in the total volume of foreign trade in the EAEU as a whole and in the EAEU member states, are given. Analysis of mutual trade and investment indicators showed an insufficient level of economic convergence in the EAEU, assessed from the standpoint of the mutual trade intensity and mutual foreign direct investment intensity. At the moment, the volumes and dynamics of trade and investment flow between the EAEU member states do not cause an objective need for a transition to monetary cooperation at the level of a currency union. This research allows us to consider the problem of transition to monetary integration between the countries participating in the EAEU from the importance standpoint of economic prerequisites. The practical significance of the work lies in the substantiation of the objective prerequisites for the formation and creation of a monetary union in the course of regional integration processes development. Key words: Currency union, optimal currency area, mutual trade intensity, mutual investment intensity, customs union.

Estimating the Effects of Economic Agglomeration on Haze Pollution in Yangtze River Delta China Using an Econometric Analysis

Haze pollution, a serious livelihood and environmental issue, has hindered China’s economic development. This paper, based on the improved output density model, empirically analyzes spatial patterns and impact factors of haze pollution within the Yangtze River Delta from 2015 to 2017 by statistical and spatial econometric models. The study shows that: (1) The characteristics of haze pollution due to seasonal changes are obvious in the Yangtze River Delta region, and the situation has gradually improved. (2) The haze pollution has significant local agglomeration characteristics and spatial heterogeneity, demonstrated as significant low-level agglomerations in Hangzhou, Ningbo, and Taizhou, and high agglomerations in Chuzhou, Yangzhou, Zhenjiang, and Taizhou. The polluted area clusters around the provincial boundary, and its level gradually decreases from northwest to southeast. There is a significant spatial positive correlation and spatial spillover effect of intercity haze pollution, which will have a negative impact on the region and surrounding areas. (3) The population growth, research and development (R&D) investment, industrial structure, industrial smoke and dust emissions, and urban construction in the Yangtze River Delta have positive impacts on haze pollution, while factors, such as investment intensity of foreign direct investment (FDI), energy consumption and precipitation, have a negative impact on smog pollution. However, there is no Kuznets curve relationship between smog pollution and economic growth. By optimizing spatial distribution, incorporating production factors, and sharing pollution control infrastructure, this paper shows that economic agglomeration has an inhibitory effect on haze pollution.

Do Financing Constraints Impact Outward Foreign Direct Investment? Evidence from India

This study examines the role of financing constraints in explaining outward foreign direct investment (FDI) using unique firm-level panel data on Indian manufacturing during the period 2007–2014. We consider the role of both internal and external finance, and employ instrumental variable probit and Tobit models to examine financing constraints in outward FDI decisions and intensity. We find that internal finance impacts the likelihood of outward FDI. Further, using count data models, we examine financing constraints in determining strategies regarding a firm's number of affiliates abroad. Our findings reveal that firms with greater cash flows and liquidity are likely to have more foreign affiliates.

What drives outward FDI from emerging economies? The interplay between exploration orientation and home‐country institutional changes

AbstractWe examine how home‐country government involvement and institutional environments interact with the exploration orientation of emerging market firms (EMFs) and how these interrelationships affect the outward foreign direct investment (FDI) behaviours of EMFs. By using a unique data set of Chinese firms, we find that exploration orientation has a positive effect on the outward FDI propensity and outward FDI intensity of Chinese firms. The findings further demonstrate that government support can enhance the independent effects of exploration orientation on outward FDI propensity and outward FDI intensity, but such effects will weaken when a high degree of state ownership exists within these firms. No evidence is found that regional institutional development moderates the effect of exploration orientation on outward FDI behaviours. Copyright © 2017 ASAC. Published by John Wiley & Sons, Ltd.

Foreign direct investment industry characteristics and spillovers

Purpose– The purpose of this paper is to develop a double mechanism model to separate two foreign direct investment (FDI) intra-industry spillovers mechanisms: spillovers by FDI intensity and by FDI efficiency. This paper seeks to illustrate the potential use of the double mechanism model rather than provide precise estimates of spillovers. The evidence on the links between technology and the nature, size and mechanisms of FDI spillovers effects in economically developing countries is mixed.Design/methodology/approach– A model is developed and tested, in principle. Empirical testing was conducted in two steps. In the first step, the authors examined the effect of each influencing factor to FDI spillovers separately. To complete this step, the authors divided the whole sample industry into sub-groups and tested them with the double-mechanism using ordinary least squares regression. This study applies Chinese National Bureau of Statistics manufacturing industry level data, for the years 2000, 2001 and 2002, including the food industry, beverage industry, textile industry, textiles and garments, chemicals and chemical products industry, overall manufacturing equipment, special equipment, computer and other electronic equipment manufacturing industries.Findings– The analysis suggests significant differences between types of spillovers: export orientation of domestic firms mainly influences FDI spillovers by intensity; the capability gap between local and foreign firms influences spillovers by efficiency; and the growth of local firms influences both types of spillovers. This paper develops existing models of FDI and suggests that disaggregating spillovers types may provide important theoretical and policy insights.Originality/value– This study has found, first, that compared with the classic single mechanism model, the double mechanism model is more appropriate for testing FDI intra-industry spillovers, as it is able to separate spillovers by intensity and spillovers by efficiency, which are shown as two distinct mechanisms for FDI spillovers. This allows a deeper analysis into each mechanism and the identification of relevant influencing factors.