Investment Relations Research Articles

EU-China Comprehensive Agreement on Investment – A Rebalancing of Investment Relations

The EU-China Comprehensive Agreement on Investment represents a significant milestone in the trading and investment relationship of two of the world’s largest economies. This article examines the key provisions of the agreement in principle and the changes they would bring for EU investors and foreign direct investment flows. Additionally, this article analyses the gaps in the agreement and seeks to shed some light on the possible future direction of travel in the areas of investment protection and investor-state dispute settlement. It also assesses whether the provisions on sustainability actually advance the EU’s value-based trade agenda.

Private and Public Investment Linkages: Some Evidence Using Sectoral Level Data

This study empirically investigates the relationship between public and private investment in Pakistan at the aggregate and sectoral level, including the sectors of Agriculture, Manufacturing, Finance, Construction, Transport & Communication and Mining & Quarrying. For this purpose, annual time series data is utilized from 1971 to 2019 except for the Agriculture sector covering the period of 1981-2019 as data for previous years is not available from any published sources. Multivariate co-integration approach and ECM are employed to empirically analyze the existence of long-run and short-run association among public and private investment. The results indicate a long run complementary type relationship of public investment with private investment at both the aggregate and sectoral level except for the Finance sector. The short-run analysis supports this long-run positive association at an aggregate level and four sectors, excluding Transport & Communication and Agriculture sector where the results were insignificant. Our results and generally declining share of public investment highlight that the government is playing its role as an “enabler” (or facilitator) of private investment in terms of association between public and private investment.

NEW SCREENING OF FOREIGN DIRECT INVESTMENTS (FDI) IN EUROPE: A FIRST STEP TOWARDS A NEW PARADIGM?

In March 2019, Regulation 2019/452, establishing a European framework for the screening of FDI in the Union, was finally adopted after a fast-track legislative procedure of only one year and a half. However, the cooperation mechanism therein designed will only apply from 11 October 2020. Although the Regulation clearly establishes the principle of non-discrimination between third countries, it is evident that one of the main triggers of the new mechanism has been the exponential increase in direct investments in Europe from emerging economies and especially from China. Does this new regulation represent a new era for FDI in Europe? What is the scope and impact of the Regulation on future investment relationships? Does the Regulation try to limit FDI in Europe? Has there been a political shift in the EU towards less liberalization of these investments? Is effective protection established against risks to public security, lack of reciprocity and / or eventual unfair competition? Is it a first step of a trend that announces new future steps in the same direction? This contribution tries to answer all these questions.

How do bidirectional migration and multinational business networks affect Japanese international royalty and license revenues?

AbstractThis study uses bilateral data on Japan and OECD member countries to examine whether migration networks and multinational business networks promote intellectual property trade. The dynamic panel data analyses are distinct in that they comprehensively examine various network effects by integrating two branches of globalization topics: trade–migration relationships and trade–foreign direct investment (FDI) relationships. The results show that international royalty and license revenues are positively related with immigrants residing in Japan, but that networks created through Japanese emigrants, FDI inflows to Japan and Japanese direct investment abroad do not display significant relationships. The results imply that either some network effects do not exist, or that they do exist but are offset by other effects.

Renewable Energy Consumption, Water Crises, and Environmental Degradation with Moderating Role of Governance: Dynamic Panel Analysis under Cross-Sectional Dependence

This study aims to investigate the relationship between renewable energy consumption, water availability, and environmental degradation with the moderating effect of governance in the South Asian region. This study collected data for renewable energy, water availability, governance, and environmental degradation for the period of 1988 to 2018 from the World Development Indicator. In panel data estimation, if cross-sectional dependence exists, it produces biased estimates. Therefore, this study applied a newly developed technique, dynamic common correlated effect, which produces efficient estimates in the presence of cross-sectional dependence. This study found that foreign direct investment positively and significantly increases environment degradation (β = 0.69 *, * indicates the significance level at less than 1%) while renewable energy and water availability cause to reduce environment degradation (β = −0.08 **, β = −0.09 **, **indicates the significance level at less than 5%). Moreover, the study also found that governance significantly strengthens the relationship of renewable energy and water availability with environment degradation (β = 0.37 **, β = 0.24 **) while governance significantly weakens the relationship of foreign direct investment and environmental degradation (β = −0.34 *). The study suggests that South Asian countries should improve political institutions, and promote renewable energy, water availability, and clean production to improve the environment quality.

Complex dependence in foreign direct investment: network theory and empirical analysis

AbstractWe develop a theoretical framework that accounts for complex dependence in foreign direct investment (FDI) relationships. Conventional theories of FDI focus on firm-, industry-, country-, or dyad-level characteristics to account for cross-border capital movements. Yet, today's globalized economy is characterized by the increasing fragmentation and dispersion of production processes, which gives rise to complex dependence among production relationships. Consequently, FDI flows should be represented and theorized as a network. Specifically, we argue that FDI relationships are reciprocal and transitive. We test these hypotheses along with conventional covariate determinants of FDI using an exponential random graph model (ERGM) for weighted networks. We find that FDI networks exhibit strong reciprocity and transitivity. Our network approach to studying FDI provides new insights into cross-border investment flows and their political and economic consequences, and more generally the dynamics of globalization. In addition to our substantive findings, we offer a broad methodological contribution by introducing the ERGM for count-weighted networks in political science.

Investment in a model of stancetaking: I mean and just sayin’

In this paper I argue for a perspective on stancetaking that relies on the notion that stance has three dimensions rather than the traditional two, adding the dimension of investment. My view of stancetaking takes stance to be an umbrella term for the related positions an interactional animator (in Goffman's 1981 sense) takes with respect to: the things referred to in the talk (a relationship of evaluation), the talk itself (a relationship of investment) and other people or things involved in the interaction (a relationship of alignment). I demonstrate that the dimension of investment in stancetaking explains the use of two discourse markers (just sayin(g) and I mean) more perspicaciously than, for example, separate notions of epistemic and interpersonal stance. In short, just sayin(g) lowers the investment of an utterance, while I mean intensifies it. Further, there are shifts in the use of both markers that move away from their original function, but the explanation for such shifts still benefits from appealing to the notion of investment.

Macroeconomic uncertainty and investment relationship for Turkey

Macroeconomic uncertainties are expected to affect investment decisions. This study analyzes the effect of the real exchange rate, inflation, and growth uncertainties on private investment in Turkey, an emerging country. While a generalized autoregressive conditional heteroskedasticity (GARCH) model is adopted to measure uncertainties, the existence of a long-run relationship of the variables is assessed using the bound testing approach. Finally, an error correction model is estimated to capture the dynamic relationship. Findings/Originality : The results for the short-run dynamic estimation show that both inflation and real exchange rate uncertainties have a significant negative effect on investments. As for the long-run equilibrium, exchange rate, inflation, and growth uncertainties have a negative impact on private investments. The application of inflation targeting and exchange rate stabilization policy might effectively reduce uncertainty on investments, thus supporting economic growth in the short term.

Transnational corporations in private international law: do Kazakhstan and Russia have the potential to take the lead?

The aim of this paper is to determine role of transnational corporations (TNCs) in a struggle of Kazakhstan and Russia towards leadership. Concepts and hypotheses from available literature on economic globalization, TNCs, their impact on national economies, and innovation-driven development were analyzed. Most Kazakh corporations have low nominal capitals and hold shares, total value of which does not meet minimum requirements for global competition. Kazakhstan and Russia fail to secure mutual benefit of participants in investment relationship, as well as national interests. Foreign investors professionally utilize all the gaps and weaknesses that can be found in the investment law. In this regard, TNCs are the most prepared, as they have substantial resources to create favorable conditions for market presence.

New insight into Feldstein and Horioka Paradox: Analyzing the mediating roles of globalization, urbanization, and foreign direct investment

Different dimensions abound to examine the famous Feldstein–Horioka Puzzle. However, after intense discussions of the subject matter for more than three decades, researchers are yet to reach consensus on the validity or otherwise of savings–investment relationship. In this paper, we revisited the Feldstein–Horioka saving-investment puzzle, and augment their investment equation with factors that drive capital mobility, such as globalization, foreign direct investment, and urbanization using more recent annual frequency time series data over the periods 1981–2018 in the case of Nigeria. We employed unit root test with structural breaks/regime shifts inherent in time series data and Autoregressive Distributed Lag Bounds Testing for co-integration of empirical estimates. Results show existence of a long-run equilibrium relationship among variables. Domestic savings, real income, and foreign direct investment reveal positive impact, while globalization and urbanization exhibit negative impact on domestic investment both in the short and long run. We find strong capital mobility among savings–investment relationship, thus render potential policy suggestions that would drive domestic investment and bring about sustainable economic growth in the long run.

Peran Moderasi Human Capital Diantara Pengaruh PMA dan PMDN Terhadap Pertumbuhan Ekonomi

Investment and development of human capital is a major concern for the current government. By increasing the value of domestic and foreign investment and the competence of human capital will increase Indonesia's economic growth. The purpose of this study is to determine the effect of domestic investment and foreign capital investment on economic growth with moderated human capital. This research uses a quantitative approach. The number of samples selected amounted to 10 samples obtained from time series data during the period 2010- 2019. Data analysis methods used were multiple regression analysis and the Moderated Regression Analysis (MRA) test. From the results of the study indicate that domestic investment has a positive and significant effect on the money supply. Foreign Investment has a positive and not significant significant effect on the money supply. Human capital is not able to moderate the relationship of Domestic Investment to economic growth. While human capital can moderate the relationship of Foreign Investment to economic growth.

The Impact of Terrorism Activities As Threat To Unstable Economy on Foreign Direct Investments FDI: A Panel Study of 33 Sub-Saharan African Countries

The study aims to assess the impact of terrorism activities on foreign direct investment in a panel study of 33 Sub-Saharan African countries. In order to achieve the objective of the study, it employed panel data methodologies such as GLS random-effect, ML random-effect, fixed effect regression, generalized linear model and multivariate regression methods to enable it make statistically and robust inference or conclusion. However, the study found that there is an inverse linear relationship or impact on foreign direct investment in Sub-Saharan Africa. Also, the study found out that economic growth and foreign direct investment are inversely related and corruption control has positive and direct linear relationship with foreign direct investment. As the study focused on the linear relationship of terrorism activities and foreign direct investments, it recommends further studies into the subject-matter by employing the non-linear approaches to ascertain the non-linear relationship between the two.

Does Investor Gender Matter? The Signaling Effect of Gender Homophily in Entrepreneurial Finance

One proposed solution to closing the gender gap in venture capital is to encourage female investors to invest in female entrepreneurs. This paper explores how gender homophily affects the long-term success of male-founded and female-founded firms, defined as the continued ability to raise venture financing. Using longitudinal data on venture-backed firms in the United States and employing matching methods, we find that female-founded firms backed only by female investors are two times less likely to raise additional capital compared to those whose first-round investors include male venture capitalists. We find no equivalent effect for male-founded firms. We propose that when female entrepreneurs receive funding from female investors, the market interprets this as an expression of diversity activism, rather than as a signal of quality. We test this explanation in an experimental setting and show that a female-female investment relationship produces a competence discount for the female entrepreneur, leading to lower evaluations of quality for female, but not male founders.

Irrigation Canals: Foreign Venture Capital Investment and Cross-Border Knowledge Spillovers

Prior studies have documented that VC investments provide channels facilitating knowledge flows through investment relationship networks. Such knowledge diffusion, although it may help entrepreneurial companies overcome initial resource constraints, can undercut their competitive advantages by leaking their intellectual properties to competitors in domestic and international markets. The potential for unwanted spillovers may even adversely affect a nation’s competitive advantage. This study examines whether and how foreign VC investments in a host country’s industries are associated with knowledge spillovers in their home countries. Using a dataset of foreign VC investments in 27 U.S. critical industries and related patenting activity between 2007-2017, we find counterintuitive evidence that increased foreign VC investment in U.S. critical industries is actually associated with knowledge spillovers in an inverted U-shaped relationship. Such a relationship is also moderated by home country intellectual property regimes and technology gaps between the home and host countries.

Invisible Defense Mechanism: Qualitative Research on Strategy of Entrepreneurs Swimming with Sharks

This research explores how entrepreneurs deploy defense mechanisms when facing the potential misappropriation of their own resources by established corporate partner “sharks.” The prior literature has examined legal and timing defenses, along with social defenses that utilize the network structure of investment relationships with power imbalances between young firms and large corporations. By conducting qualitative analysis based on 41 semi-structured interviews with entrepreneurs' firms, broader and more detailed defense strategies were identified, including seven (invisible) defense mechanisms, such as “control of competitive state,” “resolution of information asymmetry,” “capability of idea execution,” and “choice of composition,” which were not immediately identifiable as defense mechanisms.

The difference in the FDI – private investment relationship between developed and developing countries: does it stem from governance environment?

PurposeThe paper attempts to empirically examine the difference in the foreign direct investment (FDI) – private investment relationship between developed and developing countries over the period 2000–2013.Design/methodology/approachThe paper uses the two-step GMM Arellano-Bond estimators (both system and difference) for a group of 25 developed countries and a group of 72 developing ones. Then, the PMG estimator is employed to check the robustness of estimates.FindingsFirst, there is a clear difference in the FDI – private investment relationship between developed countries and developing ones. Second, governance environment, economic growth and trade openness stimulate private investment. Third, the effect of tax revenue on private investment in developed countries is completely opposite to that in developing ones.Originality/valueThe paper is the first to provide empirical evidence to confirm the dependence of FDI – private investment relationship on governance environment. In fact, contrary to the view (arguments) in Morrissey and Udomkerdmongkol (2012), the paper indicates that FDI crowds out private investment in developed countries (good governance environment), but crowds in developing countries (poor governance environment).

The relationship between FDI inflows and private investment in Vietnam: Does institutional environment matter?

AbstractThe recent literature confirms that foreign direct investment (FDI) can crowd out/in private investment. However, questions concerning the FDI–private investment relationship under different kinds of institutional environment is of great interest. This study examines the role of institutional environment in the FDI–private investment relationship in Vietnam using the two‐step GMM Arellano–Bond estimators for a balanced panel data of 52 provinces during the period 2005–2014. More interestingly are the empirical findings. First, both FDI and institutional environment significantly boost private investment. Second, the FDI–private investment relationship completely varies based on the quality of institutional environment. Third, the positive effects of government revenue and government investment remain under different institutional environments. These findings suggest some important implications for governments in developing countries, especially the Vietnam government.

The relationship of domestic institutional investors and India stock market returns: An ARDL bound testing approach

Purpose This study explores the relationship of investment done by domestic institutional investors (DII) and stock market returns. The paper covers a bigger definition of DII’s, bifurcating them into four categories, (a) mutual fund, (b) venture capital fund, (c) financial institutions and (d) insurance companies who have invested in national stock exchange of India. Design/Methodology The study uses CNX Nifty 50 to represent the stock market of India. ARDL bound testing cointegration model is applied to find the relationship between the Dependent variable (nifty 50) and Independent variables (mutual fund, venture capital fund, Indian financial institution and insurance companies) Practical implication This analysis will help regulatory authorities to improvise on policy making on investment in stock market for insurance companies, financial institution, venture capital fund and mutual fund. The surge in domestic institutional equity inflows, will help to insulate the Indian equity market from the high velocity traders of overseas. Originality/value This is the first study to undertake domestic institutional investors at a disintegrated level.

Drivers of Indian FDI to Africa – an initial exploratory analysis

This paper attempts to analyse the drivers of the emerging Foreign Direct Investment (FDI) relationship between India and Africa. Using a fixed effect negative binomial model, it examines the determinants of FDI from India to 23 African countries from 2008 to 2016. The study finds that Indian FDI to Africa is a unique combination of both private sector and state driven investment. It is driven by the search for markets, and is pulled despite an adverse business environment. Indian FDI has contributed to several African countries by development of their manufacturing sector and contribution to employment, and has the potential to solve regional problems of poverty and inequality. The paper thus makes a pioneering contribution as an empirical study on OFDI from India to Africa and also to the literature on south – south FDI.

Impact of outward FDI on home country exports

PurposeThe relationship of outward foreign direct investment (OFDI) with home country's exports has significant implications for policymakers as well as business managers of MNEs. Since BRICS nations have emerged as important sources as well as destinations of FDI, this paper aims to study the impact of OFDI from these countries on home country exports by using panel data for BRICS for time period 1993–2015.Design/methodology/approachThe author use panel unit root tests, panel cointegration, VECM and causality tests in the study.FindingsThe results reveal that OFDI has a negative and significant impact on home country exports indicating that outward FDI is a substitute for exports in these countries. It also indicates long-run causality from exports towards OFDI. There is no long-run causality running from OFDI to exports, suggesting that MNEs do not “connect” with home economies' firms through forward and backward linkages in value chain.Practical implicationsFrom the point of view of policymakers, it implies a net outflow of capital as the outflow of foreign investment would not be matched by any incremental export earnings since exports are getting substituted by production abroad. For business managers, it is indicative of a growing foreign market that warrants large scale production and justifies the high cost and risk involved in FDI as a mode of entry compared to exports.Originality/valueTo the best of authors' knowledge, this is the first attempt to deal with the relationship between home country exports and OFDI, for an important group of emerging market economies, i.e. BRICS. The understanding of this relationship allow us to identify whether factors contributing to OFDI from emerging economies are “tied” to their home economies thereby making exports necessary or are rather based on firm specific competencies which are leveraged in different locations to cater to expanding markets.