Investment Spillovers Research Articles

Foreign direct investment and productivity spillovers: a firm-level analysis of Bangladesh in comparison with Vietnam

Foreign direct investment (FDI) is expected to generate external effects—usually termed FDI spillovers—for a host country, and these spillovers are thought to have consequences on the productivity of domestic firms. Despite this strong expectation, the empirical findings on FDI spillover are still indecisive. This study examines firm-level panel data to determine the effects of FDI spillover on firms’ productivity in Bangladesh in comparison to Vietnam. We consider both the horizontal and vertical (backward and forward) spillover effects of FDI. We find evidence that Bangladeshi firms gain productivity improvement through intra-industry or horizontal linkages, whereas Vietnamese firms gain through backward linkages. Our findings suggest that increases in foreign presence in the same industry for Bangladesh and in downstream industries for Vietnam are related with increase in output of domestic firms.

Does diversified environmental regulation make FDI cleaner and more beneficial to China's green growth?

With the internationalization and financial development, it is urgent to explore the effect of foreign direct investment on green economy under the context of multiple environmental regulations. By using the provincial panel data in the period of 2000-2016, the paper adopts the System Generalized Method of Moments and threshold models to detect the moderating effect of diversified environmental regulation on the nexus between foreign direct investment and green growth in China. The empirical results reveal that foreign direct investment has direct positive spillovers on China's green growth and supports the "pollution halo" hypothesis. There is a threshold effect of command-and-control regulation that exists in foreign direct investment's spillovers to green growth. Stricter command-and-control regulation can stimulate foreign direct investment's spillovers on green growth in China; however, market-based and informal regulations fail to. Some suggestions are proposed for constructing a matched and compatible policy system of foreign direct investment, environment protection, and economic growth by adjusting the intensity, tools, and enforcement of corresponding policies.

The Complexity of Investment Spillover from New-Type Agricultural Business Entities to Small-Scale Farmers

Aiming to clarify the leading roles of new-type agricultural business entities (abbreviated as NABEs) to small-scale farmers, integrated game models between NABEs and small-scale farmers are designed to verify the impact of scale economy and investment spillover on the equilibrium points of the game system. The influence of the investment spillover rate and the decision-making adjustment speed on the stability of the system are emphatically discussed. Numerical simulation shows that, with the increase of small-scale farmers’ decision-making adjustment speed, the system would successively show the phenomena of stability, period doubling bifurcation, chaos and discreteness. In the Cournot game, the two sides’ decision-making results such as investment intensity, selling price and eventual profits vary in the opposite direction. In the Stackelberg game of the basic mode, the two sides’ decision-making results are not evidently changed, and NABEs’ investment intensity, selling price and eventual profits are higher than those of small-scale farmers. In the order mode, system improvement can be realized by controlling the investment spillover rate. The research results indicate that with the increase of the adjustment speed of small-scale farmers’ decision-making, the repeated game decision-making aggravates the instability of the Cournot game system. This paper finds that the order pattern can make up for the scale weakness of small-scale farmers, and finally achieve a win-win situation for decision makers in the case of uncertain demands.

The heterogeneous sectoral productivity impacts of FDI on real exchange rate

The Balassa-Samuelson effect provides a theoretical explanation for the deviation of the real exchange rate (RER) from its purchasing power parity based on the heterogeneous productivity growth in the tradable and non-tradable sectors. This paper bridges the literature on foreign direct investment (FDI) spillovers with the Balassa-Samuelson effect by theoretically and empirically showing that (1) the productivity impact of inward FDI is notably larger in the tradable sector than in the non-tradable sector, generating an appreciation effect on the RER; (2) the magnitude of heterogeneous productivity impacts of inward FDI in the tradable and non-tradable sectors is commensurate with the technological backwardness in the two sectors relative to the world leaders.

Cross-national knowledge transfer, absorptive capacity, and total factor productivity: the intermediary effect test of international technology spillover

ABSTRACT Knowledge has become the most important factor of production with the emergence of the knowledge economy. We use the system GMM estimation method to analyze how cross-national knowledge transfer (CNKT) impacts the total factor productivity (TFP) of China’s 31 provinces and evolution of China’s ability to absorb foreign knowledge. We also examine the possible intermediary effects of foreign direct investment (FDI), outward FDI, import trade, export trade, and direct technology spillovers between CNKT and TFP. We find that: (1) CNKT improves China’s TFP and positively impacts FDI, import trade, export trade, and direct technology spillover; It shows that CNKT not only helps to improve China’s TFP, but also provides innovative knowledge reserve for the absorption of international technology spillovers. (2) The improvement in the domestic infrastructure construction level, R&D capacity, human capital, economic development and openness has obvious absorption effect on CNKT, which is conducive to the absorption and utilisation of international advanced knowledge. (3) FDI, import trade, and direct technology spillover play a partial mediating role between CNKT and TFP, and the intermediary effect of import trade technology spillover is the strongest.

Women empowerment, supply chain linkages and FDI: Evidence from Bangladesh

This paper studies foreign direct investment spillovers on the gender-related labour market practice of domestic firms, based on a unique firm-to-firm data set of Bangladesh’s textiles and garment sectors. The paper looks at the female employment of domestic firms that are directly and indirectly related to foreign- owned firms through supply chain linkages. These domestic firms are either the local suppliers or customers of foreign-owned firms, or they share local suppliers and customers with foreign-owned firms. The estimates show that domestic firms related to foreign-owned firms have significantly more female administrative workers, but not necessarily more female non-administrative workers, owing to the former participating in more firm-to-firm interactions.

Foreign Direct Investment Spillovers and Economic Growth: Evidence from Asian Emerging Countries

Research on FDI in promoting economic growth has been the focus of recent decades, especially in developing countries. Foreign direct investment can be one of the main objectives in increasing economic growth. FDI is assumed to indirectly contribute to economic growth through a spillover effect on the absorption capacity of a country by increasing the stock of human capital and the quality of institutions. This study aims to analyze the spillover effect of FDI on economic growth in Asian emerging markets. The data were analyzed using dynamic panel regression (GMM) during 2008-2017 period with STATA 14 software.The results in this study strongly indicate that the spillovers of FDI is proven to be able to drive economic growth through human capital and institutions in Asian emerging markets.

Foreign Direct Investment Spillovers and Economic Growth: Evidence from Asian Emerging Countries

Research on FDI in promoting economic growth has been the focus of recent decades, especially in developing countries. Foreign direct investment can be one of the main objectives in increasing economic growth. FDI is assumed to indirectly contribute to economic growth through a spillover effect on the absorption capacity of a country by increasing the stock of human capital and the quality of institutions. This study aims to analyze the spillover effect of FDI on economic growth in Asian emerging markets. The data were analyzed using dynamic panel regression (GMM) during 2008-2017 period with STATA 14 software.The results in this study strongly indicate that the spillovers of FDI is proven to be able to drive economic growth through human capital and institutions in Asian emerging markets.

Foreign Direct Investment Spillover Effect on China’s Sustainable Development

Abstract The unbalanced growth of FDI in China has seriously affected the coordinated development of China’s regional economies. Therefore, to achieve comprehensive, coordinated and sustainable development, China’s main strategic task is determining how to adopt positive and effective FDI policies to reduce this regional imbalance in FDI. The purpose of this paper is to explore and study the spillover effects of foreign direct investment (FDI) on China’s sustainable development. In this paper, based on the new political economics theory and overflow effects, comparative research and statistical research methods are adopted that combine static and dynamic analysis. Empirical research methods are combined with normative research to analyse the spillover effects of FDI on China’s sustainable development, particularly under the new situation of global crisis and the accompanying difficulties, to determine how to promote China’s FDI and the development of China’s sustainable progress strategy. The study found that in 2018, FDI in China reached a value of 13.466 billion US $, and the year-on-year growth in FDI in recent years has been basically stable at approximately 4 %. Asia is the main source of FDI in China. In 2018, the amount of FDI in Asia reached $109.1938.7 billion, accounting for 83.33 % of the total investment. Hong Kong, with its unique advantages, accounted for 72.12 % of FDI in China. FDI inflows are mainly directed to primary industry and the service sector, and the growth rate of foreign investment in 2016 in these sectors was 68.52 and 170.77 %, respectively, compared with 2007. FDI also mainly flows to the eastern region of China. By the end of 2018, the amount of foreign capital utilized in the eastern region reached $1,622.9 billion, representing 85.4 % of the aggregate FDI in China. The effect of FDI on China mainly focuses on three areas: economic growth, social development and environmental protection. FDI has brought positive spillover effects to China’s sustainable evolution, but with China’s continuous development, especially the change in its economic development mode, it has been consistently exposed to negative spillover effects.

Spillovers of Urban Road Infrastructure Investment and Operation: a Case Study Using Synthetic Control Method

This study evaluates the impacts of urban road investment and operation in China, especially the spillover effect attributable to the investment of urban road projects. Using the synthetic control method and difference-in-differences technique and taking the opening of Jiaozhou Bay Bridge and its Subsea Tunnel in China on 30 June 2011 as a natural experiment, this paper investigates the causal effect between urban road investment and its economic impacts. Results show that the project has a positive externality in terms of its contribution to the output and employment: taken the industrial relative output as outcome variable, no matter whether the covariates are controlled or not, the parameters of the interactive terms are positive; taken the industrial relative employment rate as outcome variable, the gap between the treated unit and its counterpart indicates a direct program effect for the treated city as well as a spillover effect across the cities within the sample province. Furthermore, the permutation test ascertains that the probability of achieving a spillover effect as large as the treated city is around 5.88 per cent. Overall, the investment and operation of urban road transportation infrastructure has a noticeable spillover effect. Our results are robust across a series of placebo tests.

Is knowledge spillover from human capital investment a catalyst for technological innovation? The curious case of fourth industrial revolution in BRICS economies

The issue of knowledge spillovers, and technological innovation has received immense importance, particularly in the Fourth Industrial Revolution. In this context, this endeavor to carry out this study aims to empirically examine the determinants of technological innovation of Brazil, Russia, India, China, and South Africa (BRICS) countries, using the data that spans from the year 1990 to 2017. Moreover, this study further aims to investigate the role of human capital in mediating the relationship between the spillovers, through imports, foreign direct investment, and the technological progress that will prevail. This study is confined to the employment of the Westerlund (2007) cointegration and augmented mean group (AMG) method for the analysis. The cointegration method outcomes show that there is a stable, long-run equilibrium relationship among the variables in all the five models that have been considered. The results of the AMG method show that in the long run, an increase in the gross domestic product, human capital, research and development expenditures, and the foreign direct investment spillovers, increases the technological innovation in BRICS economies. The results also suggest that an improvement in the human capital strengthens the relationship between technological innovation and the spillovers. Hence, the knowledge spillovers and the developed human capital are more likely to affect the total technological innovation.

How Does Diversity in Employee and R&D Facilitate FDI Knowledge Spillovers: A Threshold Perspective

This paper examines how the diversity of a firm’s employee composition and R&D structure affect its absorption of foreign direct investment (FDI) spillovers. Using a unique dataset of Chinese firms in Beijing Zhongguancun (ZGC) Science Park from 2005 to 2015, we demonstrate a positive FDI spillover effect on domestic firm innovation. Our empirical results also indicate that a firm’s diverse employee composition and R&D spending can improve its absorptive capacities to learn from foreign firms. By employing a seminal dynamic panel threshold model, we further show that after reaching a certain threshold, the increasing diversity of a firm’s employee composition begins not to affect the relationship between FDI spillovers and its innovation, while a higher diversity of R&D structure turns into a negative moderating effect. Firms therefore need to place more attention on their diverse innovation structures.

Unraveling the Other Side of the Coin: Outward FDI of Emerging-market Multinationals and Reverse Technology Spillovers

Purpose - Building on the literature on foreign direct investment (FDI) spillovers and 2R-based view, we aim to hypothesize and examine whether outward FDI contributes to the productivity of domestic firms in a large emerging market. In addition, we explore how firm-specific knowledge resources and subnational regions may matter considerably in shaping the contribution of outward FDI spillovers to the productivity of domestic firms. Design/Methodology/Approach - We test our hypotheses empirically using a longitudinal dataset of Chinese manufacturing firms and the panel data approach. Findings - We observe the positive contribution of outward FDI spillovers to the productivity of domestic firms in China. Moreover, we demonstrate that subnational regions play a crucial role in explaining the variations in the contribution of outward FDI spillovers to the productivity of domestic firms. Research Implications - Our study conducts an initial examination on whether outward FDI matters for domestic firms and how knowledge resources within firms and subnational regions where firms are located shape the contribution of outward FDI spillovers to the productivity of firms in large emerging markets. Our findings offer important theoretical and practical implications.

The Impact of Foreign Direct Investment Spillover Effects on Total Factor Productivity in Sri Lanka

This paper examines whether FDI generates productivity spillovers in Sri Lanka, using the annual data over the period from 1978 to 2015. The autoregressive distributed lag model has been estimated to investigate the effects of FDI, research and development, human capital, international trade, technological gap, rate of inflation, population growth and civil war on total factor productivity (TFP). The results reveal that FDI positively influences TFP. The results also confirm that research and development, human capital and international trade have positive effects. The findings suggest that Sri Lanka needs to increase investment in human capital and in research and development and needs to introduce policies to attract FDI inflows.

THE EFFECT OF FOREIGN DIRECT INVESTMENT SPILLOVER ON THE LEVEL OF TECHNICAL EFFICIENCY IN LARGE AND MEDIUM MANUFACTURING INDUSTRY IN EAST JAVA

Foreign Direct Investment (FDI) takes an important role in the development process, especially in developing countries. The purpose of this study is to examine and analyze FDI spillover on the level of technical efficiency in the large and medium manufacturing industry in East Java. This study uses a time-varying stochastic frontier approach for firm-level panel data of the East Java manufacturing industry. The results show that all factors in this study affect the level of technical efficiency of large and medium industries in East Java. Variable foreign share, FDI horizontal spillover, and firm size have a positive influence on the technical efficiency of the industry. Whereas the variable FDI backward spillover, FDI forward spillover and the level of market concentration negatively affect the level of technical efficiency of the industry. Finally, it’s needed to build synergies and sustainable relationships between products produced by domestic and foreign firms. Thus, the presence of foreign firms in East Java could have a positive impact on improving the technical efficiency of the domestic industry both at the upstream and downstream levels. Keywords: Foreign Direct Investment Spillover, Technical Efficiency, East Java IndustryJEL Classification: F21, L60, D24

The threshold of absorptive capacity: The case of Vietnamese manufacturing firms

The paper empirically examines the impact of foreign direct investment spillovers on the performance of Vietnamese manufacturing firms from 2007 to 2015, and the role exerted by absorptive capacity on this relationship. Importantly, it is expected that the thresholds of absorptive capacity of the domestic firms exist, and the benefits which local firms enjoy can vary subject to the thresholds. This paper applies a threshold fixed effect model with panel data in Vietnam to show several findings. Firstly, the domestic firms can benefit from spillovers via the horizontal channel and backward linkage. Secondly, absorptive capacity is a vital factor in linking horizontal spillovers to local firms. Finally, the paper finds that there are thresholds of absorptive capacity in the case of Vietnam.

Retailer information sharing under endogenous channel structure with investment spillovers

This paper studies information sharing under an endogenous distribution channel structure, where the retailer has superior demand information over the manufacturer, who can conduct demand-enhancement investment that will spill over to the retailer. Though traditional wisdom suggests that manufacturer encroachment and information sharing will hurt the retailer, we show that the retailer may encourage manufacturer encroachment in the endogenous channel structure via information sharing under the premise that the investment is efficient enough. Specifically, the retailer's incentive to share information may be higher in the endogenous channel structure than that in the exogenous channel structure. We also characterize the manufacturer's equilibrium encroachment decision, which is contingent on the retailer's information sharing choice if the encroachment cost lies in the intermediate range. The manufacturer encroaches under information sharing and forgoes encroachment under non-sharing. Moreover, the retailer's preference for manufacturer encroachment is higher under no information sharing than that under information sharing. The manufacturer, consumers and the total social welfare all become better off with information sharing, given that the retailer has the incentive to do so.

Can the improvement of living environment stimulate urban Innovation?——Analysis of high-quality innovative talents and foreign direct investment spillover effect mechanism

In the early stages of China’s economic development, the ecological and environmental problems left over from the extensive approach were gradually exposed. Urban environmental problems such as haze attack and water pollution not only related to residents’ happiness, but also challenged urban economic structural transformation and sustainable development. Based on the panel data of 211 cities in China from 2007 to 2016, this paper uses the entropy weight method to construct the evaluation index of urban living environment, and empirically analyzes the impact of improving living environment on urban innovation. The results show that for each 1% improvement in the urban living environment, the urban innovation raises by 34.5835; there is an inverted-U relationship between the two. In the analysis of the transmission mechanism, each 1% increase in the concentration of high-quality innovative talents will raise the urban innovation by 4.6548; and each 1% increase in foreign direct investment (FDI) spillover effect will reduce the urban innovation by 0.6498. The results of the geographic weighted regression (GWR) model show that the urban living environment, high-quality innovative talents gathering, and FDI spillover effect have obvious spatial differences in urban innovation. In short, this paper provides innovative inspiration for governments and enterprises to balance ecological environmental protection and sustainable urban development.

Gender Empowerment, Supply-Chain Linkages and Foreign Direct Investment: Evidence on Bangladesh

This paper studies foreign direct investment (FDI) spillovers on gender labor market practices of domestic firms, based on a unique firm-to-firm dataset of Bangladesh’s textiles and garment sectors. We look at the female employment of domestic firms that are directly and indirectly related to the FDI firms through supply chain linkages. These domestic firms are either the local suppliers or customers of FDI firms or they share local suppliers and customers with the FDI firms. The estimates show that domestic firms related to FDI firms have significantly more female administrative workers, but not necessarily female non-administrative workers, due to more firm-to-firm interactions participated by the former.

Natural Disasters, FDI and Intra-National Spillovers: Evidence from India

This paper examines the effects of natural disasters on FDI, considering the case of India. Our analysis evidences persistent investment reductions in affected regions following a disaster as well as lasting positive investment spillovers into unaffected Indian regions. We show that these intra-national shifts in multinational firms’ investment patterns are non-random and tend to flow into more developed regions with more skilled labor and greater market potential. Combined, our findings suggest that natural disasters may permanently increase the “risk factor” of investing in affected regions, while systematic FDI spillovers may help explain the prominent divergence in India’s regional economic growth.