Investment Development Path Theory Research Articles

The Investment Development Path Theory: Empirical Evidence from Global Data

Considering the changing foreign investment environment and composition of countries in the development classifications, we examined the investment development path (IDP) based on data from 137 countries over 29 years (1991 to 2019). Categorising the countries into developing, emerging, and developed, we found developing countries to be in stage IV, ahead of theoretical stage II. Emerging economies are in stage II, a step below the theoretical stage III. Only developed countries have maintained their position in stage V as proposed by the IDP theory. Globally, the data shows countries have traversed stages I, II, III, IV and V. Firms in developing countries must maintain their competitive advantage whilst relocating operations with waning competitive advantage abroad. Emerging economies must grow their economies faster than the current rate. The extra income should support an ambitious foreign investment policy that would escalate the current level of outward foreign direct investment. Governments in developed countries must pursue the role of “strategic oligopolists”, recognising and monitoring the conduct of other governments in the development and implementation of their multinational enterprise development strategies.

The Investment development path theory: Evidence from developing countries' agricultural sector.

We examined the investment development path (IDP) through the perspective of developing countries' agricultural sector. Our analytical approach indirectly accounts for interactions among countries regarding cross-border resource transfers. Aside from providing knowledge on testing the IDP by inferential statistics, the information would be relevant for policymaking. Identifying the stage(s) in the IDP not only highlights the global appeal of agriculture but also guides firms seeking to expand beyond borders. This information is essential for developing an effective economic strategy. We employed data from 1991 to 2021 for 55 countries from the Food and Agriculture Organization Corporate Statistical Database (FAOSTAT) and applied a fixed effects estimator corrected for serial correlation and non-constant variances. We found that agriculture in developing countries is currently in stages I and II of the IDP. Broadly, agricultural production requires policies that would increase outward foreign direct investment and inward foreign direct investment. Domestic agricultural businesses in developing countries must develop capacity by learning from foreign multinationals. This would enable agricultural businesses to invest abroad. Such a move would lead to an increase in outward FDI. As this would have resulted from increased GDP per capita, it will lead to movement from the existing stage to higher ones.

The Investment development path theory: Evidence from developing countries’ agricultural sector

Background We examined the investment development path (IDP) through the perspective of developing countries’ agricultural sector. Our analytical approach indirectly accounts for interactions among countries regarding cross-border resource transfers. Aside from providing knowledge on testing the IDP by inferential statistics, the information would be relevant for policymaking. Identifying the stage(s) in the IDP not only highlights the global appeal of agriculture but also guides firms seeking to expand beyond borders. This information is essential for developing an effective economic strategy. Methods We employed data from 1991 to 2021 for 55 countries from the Food and Agriculture Organization Corporate Statistical Database (FAOSTAT) and applied a fixed effects estimator corrected for serial correlation and non-constant variances. Results and conclusions We found that agriculture in developing countries is currently in stages I and II of the IDP. Broadly, agricultural production requires policies that would increase outward foreign direct investment and inward foreign direct investment. Domestic agricultural businesses in developing countries must develop capacity by learning from foreign multinationals. This would enable agricultural businesses to invest abroad. Such a move would lead to an increase in outward FDI. As this would have resulted from increased GDP per capita, it will lead to movement from the existing stage to higher ones.

The Investment Development Path theory: Evidence from developing countries’ agricultural sector

Background: We examined the investment development path (IDP) through the perspective of developing countries’ agricultural sector. Our analytical approach indirectly accounts for interactions among countries regarding cross-border resource transfers. Aside from providing knowledge on testing the IDP by inferential statistics, the information would be relevant for policymaking. Identifying the stage(s) in the IDP not only highlights the global appeal of agriculture but also guides firms seeking to expand beyond borders. This information is essential for developing an effective economic strategy. Methods: We employed data from 1991 to 2021 for 55 countries from the Food and Agriculture Organization Corporate Statistical Database (FAOSTAT) and applied a fixed effects estimator corrected for serial correlation and non-constant variances. Results and conclusions: We found that agriculture in developing countries is currently in stages I and II of the IDP. Broadly, agricultural production requires policies that would increase outward foreign direct investment and inward foreign direct investment. Domestic agricultural businesses in developing countries must develop capacity by learning from foreign multinationals. This would enable agricultural businesses to invest abroad. Such a move would lead to an increase in outward FDI. As this would have resulted from increased GDP per capita, it will lead to movement from the existing stage to higher ones.

Impact of Foreign Direct Investments on the Hospitality Sectors in Ethiopia

Purpose: The study sought to analyze the impacts of foreign direct investments on the hospitality sectors in Ethiopia.
 Methodology: The study adopted a desktop methodology. Desk research refers to secondary data or that which can be collected without fieldwork. Desk research is basically involved in collecting data from existing resources hence it is often considered a low cost technique as compared to field research, as the main cost is involved in executive’s time, telephone charges and directories. Thus, the study relied on already published studies, reports and statistics. This secondary data was easily accessed through the online journals and library.
 Findings: The results show that showed that the success of the hospitality industry in developing countries depends on the levels of foreign direct investment. Although many developing countries have natural features such as beaches, rivers, and other natural resources, local capital to invest in those resources is unavailable. The tourism industry is one of the largest and fastest-growing sectors in the global economy and a key driver of socio-economic development, as it is labor-intensive and stimulates SME growth and investment. It has been used in other countries as an economic driver for growth which can widely support poverty reduction.
 Unique Contribution to Theory, Practices and Policies: The capital market theory, investment development path theory and the eclectic theory may be used to anchor future studies in the tourism sector. The study results will also benefit other stakeholders such as the policy makers as well as researchers and scholars from different parts of the world. The top management of hospitality management companies in the country will also use the study findings to improve tourism performance in all their activities and programs. The study recommends that the adoption of effective social protection development policies in the tourism sector will help to improve efficiency in their major operations and activities.

Reflections on FDI in an post-communist country in the context of EU membership: retrospectives and prospects

ABSTRACT Participation of a country in the European Union and hence the participation in the European single market, have obvious consequences for capital flows, including those in the most advanced form, i.e. foreign direct investment. Foreign direct investment is considered one of the major incentives of economic integration. Thus, this study reflects on the impact of EU membership on FDI inflows to Poland as an EU member and signals key priorities for further integration. The theoretical foundation of the study resides in the theses of the new theory of economic integration and the investment development path theory. The paper employs the descriptive approach and inductive reasoning. We highlight the benefits resulting from the position of Poland on the investment development path and indicate possible associated threats. Moreover, we discuss retrospective reflections, some of the prospects, and possible directions of action recommended to optimise the future benefits of hosting foreign investors.

An Empirical Testing of Investment Development Path Theory in the Indian Context

There has been a substantiated rise in the FDI flows (both inward and outward) across the globe since the 1990s. The most remarkable fact about the global FDI flows is that the share of developing countries in total FDI is continuously rising. India, being one of those important developing countries, has also seen a surge in both inward and outward FDI flows. The present study uses Dunning's investment development path (IDP) paradigm as a theoretical framework to examine long-term developments in India's inward and outward FDI. Its primary goal is to assess how far the country has progressed along its IDP. The study has analysed the annual time series data from 1991 onwards using the quadratic specification model as proposed by Dunning. The analysis indicates that India has reached the stage 3 of the IDP, with a few notable exceptions, the assessed IDP trajectory is in accordance with Dunning's model.

Level of Income and the Investment Development Path Theory: Evidence From Africa

The investment development path theory delineates countries in stages I, II, III, IV, and V according to the level of development as developing, transition, and developed countries. The World Bank’s classification of countries by income, however, identifies countries as lower-income, lower-middle-income, upper-middle-income, and high income. In this paper, we test the investment development path theory for countries based on the level of income using data from 1980 to 2019. Africa offers unique data as it is the only continent made up of entirely developing countries together with countries that fit into all four classifications based on income. Income level classifications appear to enhance the position of countries within the investment development path ahead of that based on the United Nations classification. The use of income classification should complement that of the United Nations in the empirical testing of the investment development path theory for a more current investment development path status.

The investment development path theory and small states

Small states, classified as countries with population barely exceeding 1.5 m, encounter special development challenges. Although they share common characteristics of small population and size of land area, they also differ along other characteristics such as geography, remoteness, and dispersion. These have combined to depict them as different from large states and hence could differ from large states regarding responses to macroeconomic indicators such as foreign direct investment. Thus, this paper investigated the stages of Small states within the investment development path (IDP) framework. As a collective, developing Small states depart from the theory of the IDP. As individual Small states, some of the countries also showed stages that are inconsistent with the theory and empirical evidence. Small states need to be studied as a collective and as individual countries.

베트남의 해외직접투자 유치와 경제발전: 투자발전경로 이론의 적용과 검증

This study applies investment development path theory to a recent successful FDI attraction case of Vietnam. The fixed effect panal data estimations for a total of 20 sample countries including Vietnam were applied initially and further for a subset of 11 Asian countries. In the regression of net outward investment(NOI) for the sample period of 2000 to 2018 on the level of economic development as proxied b y GDP per capita and t he s quared G DP p er c apita, t he i nvestment development path t heory was generally confirmed. Significant country specific effects were found especially in the analysis for the subset of 11 Asian countries in the panel regression analysis.

The Investment Development Path in China

This paper introduces the past studies about the Investment Development Path theory and the current development situation of Chinese FDI. Based on the fact that China’s outward FDI first surpassed it inward FDI, this paper clearly defined each stage’s classification of the dynamic phases of Chinese investment development path by analysing the data of Chinese inward and outward FDI during 1985-2015. Meanwhile, it also points out that China has entered into the fourth stage officially in 2015. In the last, some suggestions to facilitate the further developing of Chinese FDI are brought forward.

What Drives Outward Fdi Of China?: A Regional Analysis

China has become one of the world's biggest source of outward FDI in the past decade. A fair amount of literature have emerged explaining home determinants of China's outward FDI at country- and firm-level. Our study attempts to examine drivers of China's overseas investment from a fresh angle – China's regional outward FDI. While central outward FDI is made by large central firms which are directly supervised and managed by the State Council, regional outward FDI is from regional firms that are owned by regional governments and the private sector. The rising importance of regional outward FDI compared with central outward FDI warrants a thorough investigation on the former. We propose a theoretical framework that incorporates an extended Investment Development Path (IDP) theory, home locational constraints, policy incentives and geographic factors. Many variables examined in our study have never been introduced previously to analyse China's outward FDI. Empirically, we employ the Bayesian Averaging Maximum Likelihood Estimates method to address model uncertainty. This is the first time this method is used in FDI literature. All proposed theories (except the geographic factors) are found to capture important perspectives explaining China's regional outward FDI. Our results particularly highlight the importance of government policies (presence of SOEs, willingness to approve local outward FDI, and investment in R&D), but do not support the original IDP hypothesis that outward investment is automatically generated as income grows. We found two variables based on the extended IDP theory, namely trade openness and agglomeration effect to be robust determinants. Pollution is the only home locational constraint that is robust, and geographic factors have little impact on regional outward FDI. Our findings have both regional and central policy implications. Central policy makers need to recognise that local outward investment may response to different set of factors compared with central investment abroad and take this into account when setting outward FDI policies. At regional level, our study provides direct reference on tools local government can employ to facilitate outward investment.

FDI, domestic investment and 2008 financial crisis: Evidence from emerging nations

This research extends Dunning’s investment development path theory to assess the long-run relationship among foreign direct investment (FDI) inflow, outflow and domestic investment (DI) for 32 emerging market economies (EMEs) based on 17 years data from 1996 to 2012. Breitung Panel unit root test has been used to identify the presence of unit root in the panel data. Since the FDI flows and domestic investments were found to be non-stationary at they were first differenced for converting to stationary variables. Based on Pedroni’s panel cointegration test a long-run relationship among DI, FDI inflow, and FDI outflow was observed indicating that the variables were integrated of order one. Further panel VECM was carried out to assess the causality and it was observed that a joint long-run causality was present both from FDI inflow and outflow towards DI. This essentially indicates that the FDI flows to EMEs will augment domestic capital formation. Therefore policy makers from the EMEs instead of focusing on standalone increase in FDI inflow should focus on both FDI inflow and outflow. However, in the short-run, DI was caused only by FDI inflow, and FDI outflow did not have any causal impact on DI. Further applying fully modified OLS (FMOLS) and dynamic OLS (DOLS) it was observed that FDI inflow and FDI outflow have crowding-in effects on DI. Hence, it can be concluded that for EMEs FDI outflow is also equally important in addition to FDI inflow to augment DI. The impact of 2008 crisis was also examined in the light of FDI outflows and inflows from EMEs. Results based on FMOLS and DOLS indicate that 2008 crisis negatively affected the FDI inflow but the effect on outflows was not statistically significant. These results advocate for a protection mechanism from the financial crises for the EMEs as the FDI inflow declined during the period. Further incentivizing the domestic firms investing abroad for technologies and synergies as FDI outflow also enhances growth.

Determinants and motives of outward foreign direct investment by China's provincial firms

Based on Dunning’s OLI framework and the investment development path theory, this paper investigated the determinants of outward FDI by China’s provincial firms. The results show that provincial economic development, innovation and technology, and export to GDP ratio are statistically significant determinants, while FDI inflows, import to GDP ratio and provincial market size are not statistically significant determinants. The results suggest that the main motives for China’s provincial firms to invest abroad are mainly market-seeking and efficiency-seeking.

Uma proposta de arcabouço teórico para análise do comportamento dos investimentos diretos estrangeiros em economias emergentes A proposed theoretical framework for the determinants factors for outward investments from emerging countries

The purpose of the study presented here in the form of a theoretical essay was to identify determinants factors for outward foreign direct investments by companies headquartered in countries rated as emerging economies. A critical analysis was conducted on the UNCTAD database and a review of the Investment Development Path(IDP) Theory, fostering the integration of the findings of empirical studies related to direct investments in the most pertinent literature. The conclusion reached by this research underpins the suggestion of a theoretical framework with key factors that might push or pull outward investments from emerging countries. This framework is intended to boost the contributions of IDP Theory, suggesting determinants factors that are supplementary to the per capita GDP. With regard to the state of the art, this framework may provide guidelines for the internationalization strategies of firms in the emerging countries, as well as for steering government policies in these countries. Keywords: Outward investment. Emerging countries. IDP Theory. Foreign direct investment.

Testing IDP Hypothesis by Cluster Analysis: Which Countries in which Stage?

Abstract Although there are some theories to explain foreign direct investments, an approach that everybody agree on could not be developed to explain these investments’ dynamic structure. Stages of investment development path theory emerge as a dynamic approach to Vernon's “product cycle theory” and Dunnings’ “eclectic paradigm”. Although, there exist very valuable studies to test IDP hypothesis, there is no agreed method in the literature. GDP is used as the absolute indicator of development in econometric models used by many studies. We accept that countries that have identical GDP level may not be at the same development level, it is decided that using multivariate statistical techniques will give much more rational results to test IDP hypothesis. For that purpose, emerged from oriented theoretical and empirical literature, variables are decided from the determinant of foreign direct investment researches. Those variables are studied in 4 periods of (1980-1989), (1990-1999), (2000-2005), and (1980-2005). Cluster Analysis, grouping resemble individual and objects in the same cluster, is implemented according to predetermined choice criteria. Then, the countries displaying similar features take place in the same cluster. At the same time, statistical significance of partition of sets examined by Discriminant Analysis.

Investment Development Path in the European Union in the Context of Financial Crisis

Since the start of foreign direct investment (FDI) studies, scholars asked themselves what drives companies to invest abroad, what incentives are needed to start the flow of FDI to one destination country and how is the flow changing as that countries development is more and more advanced. The academic community launched the hypothesis that the level of development of one country influences the flow of FDI, also known as the investment development path theory. This article is a case study of EU member states as the EU is one of the most advanced forms of cooperation between countries in the world and the flow of FDI has a great impact on its development. The authors follow the evolution of FDI since the year 2000, including the effects of the financial crisis on the flows of FDI, and their post-crisis recovery, and the correlation of the net output investment per capita of FDI with the GDP per capita levels.

Institutional quality, financial development and OFDI

Using a panel of 73 countries from 2000 to 2008, this study uses Investment Development Path theory as a framework that utilises institutional quality (IQ) as a threshold for the effect of economic development on OFDI. Using the dynamic threshold model, we find new evidence that the strong promoting effect is initiated when IQ is within a certain interval, which is supplementary to IDP theory. Finally, we propose the corresponding advice.

The investment development path theory: evidence from India

PurposeThe purpose of this paper is to focus, at the country‐specific level, on India's recent outward foreign direct investment (OFDI) surge, and more broadly test the investment development path (IDP) hypothesis for India.Design/methodology/approachA combination of descriptive and empirical analysis has been used to ascertain the relevance of the IDP theory for India. The theoretical background of this paper is the IDP hypothesis, which states that the net outward investment position (NOIP) of a country depends on its level of development. The hypothesis is tested with a time series data set from 1991 to 2006.FindingsThis paper highlights that while India's sharp rise in investments since 1991 has followed the gross domestic product driven development, its NOIP fails to exactly match the stylized IDP model.Research limitations/implicationsThis paper undertakes a macro level analysis and has not tested the hypothesis at the sectoral or bilateral levels.Practical implicationsThe paper identifies some peculiar features of Indian OFDI that cannot be explained by the IDP modelper se. Hence modifications are required for a fuller understanding of India's investment position.Originality/valueThis paper addresses an under researched topic of Indian OFDI.

A Comparative Study on Japan's Outward FDI to Korea and China

This paper addresses a comparative analysis of outward FDI to Korea and China by Japanese MNCs. The study aims to review the level of economic development of countries expanding overseas and the relativity of outward FDI patterns, and the change process of Japan's outward FDI from the standpoint of the Investment Development Path Theory. The result can be summarized as follows: First, as a result of examining the long-term changes of Japan's outward FDI, the development process can be mapped in the order of resource securing→entry into developed markets→production cost reduction→measurements to regional economic integration→establish international division of production→entry into developing countries for markets. In particular, the exchange rate factor called high Yen played a vital role in terms of production cost reduction. Second, as result of outward FDI compared with Korea and China, while the proportion of non-manufacturing industry is higher in the case of Korea, China still has a high proportion in the manufacturing industry. This implies that the investment towards Korea in Japan's outward FDI pattern is swaying toward developed countries. Third, since the 2000s, Japan's outward FDI to China began increasing tremendously, as a new phenomenon, by strategic asset seeking motivation, such as R&D base, rather than the traditional efficiency seeking or market seeking motivations. This explains that the strategic asset seeking motivation can be demonstrated both in South→North and North→South, which can exist in third or fourth phases of the IDP theory. It shows that, dynamics of different directions are also feasible within the strategic asset seeking motivation depending on technology levels.