Inward Foreign Direct Investment Research Articles

Foreign Direct Investment Response to Economic Growth Shocks: Evidence from a VAR Estimation on a Panel Dataset

This paper examines the relationship between inward foreign direct investment (IFDI) and economic growth in OECD and ASEAN, China and Hong Kong (East Asia) over the past 35 years (1985-2019). Our estimates using vector autoregression on a panel dataset show that the mutually causal relationship between IFDI inflows and economic growth exists in both the advanced and emerging countries. However, the relationship appears to be stronger in the OECD economies than in the East Asian economies, and IFDI is more responsive to economic growth in the OECD countries. The results from impulse response functions also indicate that a shock in economic growth leads to a change in the IFDI inflows into OECD countries while there is no strong evidence in ASEAN, China and Hong Kong.

From Investment to the Environment: Exploring the Relationship between the Coordinated Development of Two-Way FDI and Carbon Productivity under Fiscal Decentralization

The governance exerted by governments plays a pivotal role not only in driving local economic advancement but also in bolstering environmental management and enhancing Carbon Productivity (CP). This paper investigates the impact of two-way Foreign Direct Investment (FDI) coordination development (DFDI) on China’s CP from the perspective of fiscal decentralization (FD). Utilizing panel data from 30 Chinese provinces spanning 2006–2020, we apply a Spatial Error Model to discern that DFDI effectively elevates CP. However, an excessively high degree of FD constrains the potential environmental performance benefits that FDI might offer. Further analysis using a Dynamic Threshold Model reveals a significant dynamic non-linearity in the impact of DFDI on CP under the threshold effect of FD. In contrast to Inward FDI (IFDI), China’s Outward FDI (OFDI) actually impedes the enhancement of CP. Our results underscore that well-calibrated FD can align economic growth with environmental sustainability. This study offers insights into policy frameworks fostering sustainable development in China and similar economies. It indicates that tailored policies are essential to mitigate the diverse environmental impacts of different FDI flows, supporting sustainable investment practices.

Empirical Analysis of Export Tax Rebate on Inwards Foreign Direct Investment in China

Export tax rebate (ETR) and inwards foreign direct investment (IFDI) are important driving forces for the steady development of China’s export-oriented economy. Based on data from 2004 to 2019, this study puts forward relevant assumptions on constructing a model for empirically analyzing the impact of the ETR on China’s IFDI from the perspective of the national and the sub-national. The result demonstrates that there exists a complementary relationship between the ETR and IFDI; the weak lag effect of ETR on IFDI in the eastern, middle, and western regions of China; an explicit impact on the performance in the western region, which lags behind only one period; and no significant lag effect of ETR on IFDI in developed, moderately developed, and underdeveloped regions. On the basis of this evaluation, the conclusion could be achieved that that ETR has a significant effect on IFDI, though there may be differences in the direction and value of the impact. The highlight of this research is to detect the impact of ETR on IFDI by taking China as a case, and achieved that there exist sub-national differences, including the geographical and development-level differences.

Multilevel determinants of FDI: A regional comparative analysis

This study examines firm-, country-, and regional-level determinants of inward foreign direct investment (IFDI) in a three-level logit framework using data on 134 countries. Countries are divided into eight distinct global regions based on their geographic proximity and similarity in macroeconomic settings. The intraclass correlation coefficients (ICCs) at both the country and regional levels are significant, supporting the efficacy of a three-level model. After controlling for the endogeneity of some firm-level variables, several of the obstacles faced by firms are found to significantly (and negatively) affect IFDI: communication, finance, and institutional quality. Surprisingly, however, obstacles related to physical infrastructure seem to attract foreign investment in some regions, and those relating to administration uniformly encourage foreign investment. This suggests that foreign participation is likely a means of bypassing administrative obstacles (likely because foreign-invested firms are more likely to elicit exceptional treatment). The relative consistency in the effects of firm-level attributes is not reproduced for country-level attributes such as capital account openness, gross domestic product (GDP) per capita, inflation, and the tax rate on profits. These variables are shown to have varying impacts across regions—positive in some, negative in others, and statistically irrelevant in others. The regional-level variable, intraregional trade relative to regional GDP, is found to be positively associated with foreign participation in the aggregate model. However, that relationship is reproduced at the regional level for only two regions (Latin America and the Caribbean and South Asia) and is contradicted at that level for Central Asia.

Firm size and Chinese firms' internationalization speed in advanced and developing countries: The moderating effects of marketization and inward FDI

How can firm size influence outward FDI (OFDI) expansion speed of emerging market firms (EMFs)? Because firm size may have two opposing effects, this study explored this question in the advanced and developing country environments respectively. Applying theUppsala model (UM) and institution-based view (IBV), this research developed several hypotheses and examined them on a Chinese sample. This research found the different influences of firm size on EMFs’ OFDI expansion speed in advanced and developing countries. Marketization and inward FDI (IFDI) can moderate these influences. This research contributes to the UM and the internationalization speed research, updates our understanding of the IFDI-OFDI relationship, and solves the conflict associated with firm size.

Soft Power in emerging economies: A partial least squares – structural equation modeling exploratory analysis of the effects on outward foreign direct investment

This article discusses the linkage between Soft Power institutional conditions and their effects on inward foreign direct investment (IFDI) as a mediator of outward foreign direct investment (OFDI). We measured Soft Power through the use of selected indicators between 2016 and 2019. To evaluate the proposed Soft Power constructs and their relationship with IFDI – OFDI, we applied partial least squares – structural equation modeling (PLS-SEM) analysis. The model outcomes suggest that Government, Business, Culture, and Diplomacy conditions have a significant and positive effect on IFDI and OFDI. The findings are context-moderated due to the heterogeneity of the emerging economies evaluated.

Green Finance, International Technology Spillover and Green Technology Innovation: A New Perspective of Regional Innovation Capability

Regional green technological progress is an important driver of regional green technology innovations. To explore in depth the impact of green finance and international technology spillover on regional green technology innovation, this study incorporates green finance, international technology spillover, and green technology innovation into the same analytical framework. In addition, based on a new perspective of regional innovation capabilities, this study analyzes the impact of green finance and international green technology spillovers on green technology innovation. The data were collected in 30 Chinese provinces from 2003 to 2019 and analyzed by a panel fixed-effects model. The interaction between green finance, international technology spillover, and regional innovation capability was investigated to understand the impact of each interaction on green technology innovation. Second, regional innovation capability was used as an intermediary variable to identify its underlying mechanism. Finally, the spatial spillover effect of green technology innovation was analyzed using the spatial Durbin model. We found that: (1) green finance, import trade, outward foreign direct investment (OFDI), and regional innovation capability can promote regional green technology innovation, while inward foreign direct investment (IFDI) has an inhibitory effect on the innovation; (2) the interaction of green finance, international technology spillovers, and regional innovation capacity positively impacts green technology innovation; (3) green finance and international technology spillovers can promote green technology innovation by promoting regional innovation capabilities; (4) and green technology innovations have spatial spillover effects, and innovations in one region can promote the growth of green technologies in adjacent regions. This study provides a reference not only for China but also for other developing countries to promote green technology advancement and achieve sustainable development goals.

The Effect of Exports and Two-Way Foreign Direct Investment between China and Pan-East Asian Countries

Rising protectionism and globalization have led to new interest in new regionalism. The facilitation and liberalization of two-way direct investment between China and Pan-East Asian countries result in increasing exports between these countries. By studying the relationship between China’s investment and export trade in Northeast Asian and Southeast Asian countries, this paper explores the influence mechanism of China’s two-way foreign direct investment and export trade with Pan-East Asian countries. The study discovers that with the improvement of the bilateral economic development level, China’s Outward Foreign Direct Investment (OFDI) to Northeast Asia and Southeast Asian countries will significantly increase the scale of China’s export trade. Yet, the total value of the export creation effect decreases over time. China’s utilization of Inward Foreign Direct Investment (IFDI) has a significant inhibitory effect on export trade. The two-way interaction effect of China’s OFDI and IFDI is weak. As the level of IFDI in China increases, the effect of OFDI on exports increases—though this effect differs across regions and countries.

The effects of inward FDI communities on the research and development intensity of emerging market locally domiciled firms: Partial foreign ownership as a contingency

This study examined how inward foreign direct investment (IFDI) concentration affects the research and development (R&D) strategies of locally domiciled firms operating in emerging markets. From a resource dependence perspective, we argued that any community-specific interdependencies between local and foreign firms stimulate the former to engage in R&D activities. The findings of our analyses of panel data of 161,632 manufacturing firms across 525 four-digit-coded industries operating in China support our predictions that the R&D intensity of local firms responds positively to the presence of IFDI in competitive and symbiotic communities. In addition, the positive effects of IFDI on the level of R&D intensity of locally domiciled firms in competitive and symbiotic communities are enhanced by the foreign ownership of such firms. We conclude this paper by drawing the implications of our findings for theory and practice.

Inward foreign direct investment in emerging economies: a review and future research avenues

PurposeGiven the surge in foreign direct investment (FDI) in emerging economies (EEs) during the past four decades, inward FDI (IFDI) has spawned a rich, scholarly conversation on the topic. This paper aims to review the literature regarding EE IFDI determinants and the impact of IFDI on those economies. It also aims to provide some future research directions.Design/methodology/approachA systematic review with thematic analysis of 372 articles on the topic, published between 1991 and 2021, is undertaken. In addition to using the relevant keywords, the snowballing approach was used to manually track the literature.FindingsThis review highlights EE IFDI determinants such as institutional quality, corruption and intellectual property rights, regional trade agreements and distances, formal and informal institutions and their interactions, national and subnational diversity and policy expectations. Further, IFDI impacts EEs both at macro- and micro-levels. This review also indicates a substantial increase in research during the period 2000 to 2010 and a decline thereafter; it also indicates Africa and Latin America being under-researched, with a focus on Africa recently increasing.Research limitations/implicationsRich research opportunities exist in examining the mechanisms (mediators) and conditions (moderators) that influence relationships between the antecedents of IFDI and their outcomes. Further opportunities exist in examining the role of the context and in undertaking a multilevel analysis.Originality/valueThis review provides an understanding of what influences multinational enterprises’ FDI to EEs and how it impacts those economies. It also raises potential future research questions. It provides a holistic understanding of the chosen scope and domain.

The combined effect of foreign direct investment on firm productivity

This paper attempts to answer the economic implications of combining inward foreign direct investment (IFDI) and outward foreign direct investment (OFDI) by constructing a panel fixed effects model using Chinese industrial firm-level data for the period 1998–2013. Specifically, we focus on the impact of combining IFDI and OFDI on firm productivity in China. We also introduce interactive terms into the model to explore the direct and indirect mechanisms through which IFDI and OFDI affect productivity growth. The results show that IFDI and OFDI work together to contribute to productivity growth by acting directly on the level of technology, thereby increasing productivity. IFDI intensifies market concentration, which in turn positively moderates the relationship between OFDI and productivity. Furthermore, IFDI moderates the financing constraints of firms, but has a weaker effect; the easing of financing constraints facilitates the positive impact of OFDI on productivity. Absorptive capacity favours IFDI spillover, but OFDI inhibits absorptive capacity improvements. Our in-depth analysis of the mechanism of the combined impact of IFDI and OFDI on productivity reveals the objectives of using this combination, thereby providing theoretical support and policy recommendations for the implementation of this strategy.

Environmental technology effect of two-way foreign direct investment interactive development in China

This paper examines the impact of the interactive development of inward foreign direct investment (IFDI) and outward foreign direct investment (OFDI) [two-way foreign direct investment (FDI)] on regional environmental technology by using data from 30 provinces and cities in China from 2004 to 2017. To overcome the possible endogeneity problem of the model, the system generalized moment estimation method (system GMM) is used to estimate the model. The results show the following: First, two-way FDI could inhibit the progress of regional environmental technology. Second, the results of the regional heterogeneity test show that the development of two-way FDI interaction promotes the environmental technology in the eastern region, but inhibits the environmental technology in the central and western regions of China. Third, the heterogeneity test results of the two-way FDI interactive development degree show that the two-way FDI interactive development in China promotes environmental technology in high-interactive areas, but inhibits environmental technology in low-interactive areas. Finally, the results of the phased heterogeneity test show that as China’s two-way FDI interactive development gradually increases, its inhibitory effect on regional environmental technology gradually declines. Therefore, it is believed that in the future, China should further strengthen inward FDI and OFDI, realize the benign interaction of two-way FDI, and finally promote the progress of regional environmental technology.

Outward FDI in China’s hotel industry: An inward FDI perspective

Outward foreign direct investment (OFDI) from emerging economies in the hospitality industry, the hotel sector in particular, has drastically increased in recent years. Based on Dunning's eclectic paradigm/Ownership-Location-Internalization (OLI) theory and the Investment Development Path (IDP) theory, the OFDI in the hotel sector was assessed from the home country's perspective using an inward FDI (IFDI) approach. Using China as a case study, this paper employed panel data and a negative binomial regression method to examine the impact of IFDI on hotel OFDI. The empirical findings showed that hotel-related IFDI is an important source of the ownership advantage of China's hotel OFDI. Meanwhile, China's IFDI in the hotel industry appear to exert positive and significant effects on its hotel OFDI. Furthermore, international market proximity, economic development, and tourism development were found to moderate significantly these effects. Finally, additional robustness checks showed that the results are reliable.

Coordination of IFDI and OFDI, government innovation support, and China's industrial green transformation.

Accelerating industrial green transformation (IGT) is the intrinsic requirement of realizing low-carbon and green economic development. Inward Foreign Direct Investment (IFDI) and Outward Foreign Direct Investment (OFDI) are the main channels of international technology spillover. Whether the coordination of IFDI and OFDI (CIO) can promote IGT and what role the Chinese government's innovation support plays need to be investigated. Using China's provincial panel data from 2003 to 2019, this paper discusses the impact of CIO on IGT and the moderating effect of government's innovation support. It is found that the CIO can significantly promote the IGT. Government providing R&D funds directly can enhance the promotion of CIO to IGT. However, government releasing innovation signal indirectly shows a significant negative impact on the promotion of CIO to IGT. In addition, the impact of CIO on IGT and the moderating effect of government's innovation support are heterogeneous significantly among different regions. This study not only helps to clarify the relationship between CIO and IGT but also provides enlightenment for government to scientifically formulate innovation policies to achieve green economic development.

Role of imported raw materials in the performance of inward foreign direct investments in Ethiopia

PurposeDrawing on the resource dependence theory (RDT), this paper investigates ownership composition, export intensity, and industry class as moderating factors to investigate the role of imported raw materials in performance of inward foreign direct investment (IFDI) in Ethiopia.Design/methodology/approachThe hypotheses were tested using secondary data obtained from the 2016 Central Statistical Agency (CSA) on Large- and Medium-Scale Manufacturing and Electricity Industries Survey. The data included basic quantitative information on the country's manufacturing industry. The data items for the 2016 manufacturing and electricity industries surveyed are the numbers of proprietors or establishments involved in various sectors. The report did not record small firms that employed fewer than 10 people and did not use power-driven machinery. Two-Stage least squares (2SLS) regression analysis was performed to test the proposed hypotheses.FindingsThe results of this study indicate that three moderators (ownership composition, export intensity, and industry classification) interact with the hypothetical relationships between imported raw materials and performance. These findings enrich the knowledge of IFDI firms' operations in Ethiopia and in other least-developed countries (LDCs). The findings could provide information for IFDI firms that are looking to invest in LDCs.Research limitations/implicationsLike all social science research, this study has some limitations. First, the research was conducted with the data found in the Report on Large- and Medium-Scale Manufacturing and Electricity Industries Survey In 2016. This was the first year of the second five-year Growth and Transformation Plan (GTP II), a national development plan for the 2016–2020 period. Continual research on IFDI in Ethiopia in the following years will be needed to get a full picture of the effects of the determinants on IFDIs.Practical implicationsTo IFDI investors, the result of this thesis demonstrates several alternatives to overcoming hurdles in manufacturing operation. The results find that J.V. firms make better use of imported raw materials than W.O. subsidiaries in order to achieve better performance. Concerning the choice between focusing on export or domestic markets, the study suggests that domestic market—oriented companies require less imported raw materials to achieve better performance. Concerning the comparative advantage on different industries, this study found the performance of firms in Industry 12 depended on imported raw materials. These findings highlight the challenges and opportunities for potential foreign investors. Ownership composition, market factors, and industry factors should be well considered in making investment decisions.Originality/valueThis is one of few studies on IFDI in Ethiopia, the most populous LDC. Ownership composition, export intensity, and industry class are used as moderating variables to investigate the difference between imported raw materials and the level of expatriate deployment to IFDI performance. For IFDI investors, the results of this study demonstrate several alternatives to overcoming hurdles in manufacturing operation.

Impacts of two-way foreign direct investment on carbon emissions: from the perspective of environmental regulation.

China's foreign direct investment is an important driving force for economic growth, which also aggravates carbon emissions. Based on China's provincial panel data from 2003 to 2018, this paper uses the panel-fixed effect model and panel threshold model to explore the impacts of two-way foreign direct investment on carbon emissions and analyze the threshold effects of different environmental regulations. The empirical results show that inward foreign direct investment (IFDI) has a significant inhibitory effect on carbon emissions, while outward foreign direct investment (OFDI) leads to the aggravation of carbon emissions. Considering regional heterogeneity, environmental regulation in high-carbon areas mainly affects local OFDI, and environmental regulation in low-carbon areas mainly inhibits carbon emissions by affecting IFDI. In addition, high-carbon regions can achieve the inhibition of OFDI on carbon emissions by strengthening command-and-control regulation and reducing the promotion of OFDI on carbon emissions by strengthening market incentive regulation and voluntary regulation. Meanwhile, excessive command-and-control regulation and market incentive regulation in low-carbon areas bring unexpected regulatory effects, but the inhibitory effect of IFDI on carbon emissions can be increased by strengthening voluntary regulation.

Sustainable relationship between FDI, R&D, and CO2 emissions in emerging markets: An empirical analysis of BRICS countries

This paper empirically analyzes sustainable relations between inward FDI (IFDI), outward FDI (OFDI), the R&D expenditure ratio and CO2 emissions based on balanced panel data from the BRICS (namely, Brazil, Russia, India, China and South Africa) countries for the period 2003–2017. Generally, the results confirm a negative effect of IFDI and a positive effect of OFDI on the R&D expenditure ratio, both with statistical significance. Further exploration of the IFDI, OFDI and R&D impacts on CO2 emissions was based on an assumption that innovation development mitigates environmental pollution. The research outcome revealed positive associations between IFDI and the R&D expenditure ratio with CO2 emissions, showing the connection of environmental pollution to growth-focused national economic strategies. Based on these results, we recommend the following policies: (1) rethinking domestic industries protectionism trends and research support to enhance FDI spillover effects, (2) the drafting of New Development Bank specific environment-friendly investment programs aimed at innovation activities, and (3) looking into further easing the green technologies from developed countries.

Evaluation of the Investment Development Path concept in selected Baltic Sea Region states: Where are we?

In the European Union (EU), there are four Baltic Sea Region (BSR) states – Estonia, Latvia, Lithuania, and Poland – which are interlinked by the following facts: the common moment of obtaining EU membership, a common historical path from communism to democracy, and being part of the BSR. Although the selected countries share common roots, it seems that, in terms of the economic development, they may follow a different path. Investment development path (IDP), a concept developed by J.H. Dunning, stresses that the development of a country is a result of being an active exporter of capital. This paper aims to evaluate the progress of the four selected economies in terms of their IDP. The analysis takes into consideration their peculiar economic determinants. The methods used include quantitative and qualitative methods. Among the qualitative methods, a literature review briefly presents Dunning’s IDP paradigm. The review of existing empirical research highlights the contributions of the paper. The quantitative methods cover the statistical data illustrating the progress of the selected countries in terms of the IDP. The data were obtained from United Nations Conference on Trade and Development (UNCTADStat) and Eurostat. The BSR states under investigation differ in terms of their economic growth. However, they share a common denominator of maintaining the role of importer of capital. The highest dynamics of the growth of the outward stock of Foreign Direct Investment (FDI) was observed in Poland and Lithuania. It is Poland and Estonia, however, that seemingly will climb on the ladder of IDP faster than Latvia and Lithuania. In all cases, these countries deal with higher dynamics of annual growth of Outward Foreign Direct Investment (OFDI) than Inward Foreign Direct Investment (IFDI), which suggests that all are at the third stage of IDI. However complex analysis reveals differences that shed new light on the progress of development paths of these BSR states.

Main Determinants Influencing Inward and Outward Foreign Direct Investments in Thailand: Comparisons and Vital Implications

Abstract Foreign direct investment (FDI) has played an important role in the evolution of globalization and is the cornerstone of industrial expansion and economic development. From 1988 to 1990 till now, Thailand has been one of the main destinations of FDI, namely inward FDI (IFDI). However, outward foreign direct investment (OFDI) increased rapidly from 2003 to 2011, and it continues to grow. Although initially a net importer, Thailand has transformed into a net exporter of direct investment in 2011. Since 2003, Thailand has entered a stage of re-emergence of OFDI, and this growth trend of OFDI will continue in the future. The purpose of this study is to investigate the main determinants of Thailand's IFDI and OFDI, and apply a panel data model to determine which determinants have a significant impact on Thailand's IFDI and OFDI. We considered the FDI flows between Thailand and its five FDI partners (Japan, Hong Kong, the Netherlands, Singapore and the United States) from 1997 to 2014, where IFDI was 1997-2014, and 2004-2014 was OFDI. Regarding the determinants of Thailand's IFDI and OFDI, the market size (relative per capita GDP), Thailand's openness, relative R&D intensity and bilateral trade agreements have a positive impact on FDI decisions for both IFDI and OFDI. Relative wages and geographic distance have opposite effects on Thailand's IFDI and OFDI. Specifically, our empirical results show that market size is the most important determinant of IFDI inflows into Thailand, while the most important determinant of Thai OFDI is bilateral trade agreements. JEL classification numbers: F14, F23, F43. Keywords: Foreign Direct Investment, Panel Data Model, Fixed Effects, Generalized Least Squares (GLS).

Inward FDI spillovers and emerging multinationals’ outward FDI in two directions

Inward foreign direct investment (IFDI) carries critical implications for emerging market multinational enterprises’ (EMNEs’) outward foreign direct investment (OFDI). While extant research provides evidence for the positive linkage between IFDI and EMNEs’ OFDI, less is known about the directionality of such OFDI—where to go. This study aims to extend the IFDI-OFDI linkage by differentiating EMNEs’ upward and downward OFDI (i.e., OFDI projects in more and less advanced host countries than their home markets). Using panel data on 1334 Chinese multinationals, I find that IFDI promotes EMNEs’ upward OFDI, but this effect is weakened by state ownership and industry competition. Moreover, my findings show that although IFDI is not related to EMNEs’ downward OFDI in general, their linkage becomes positive in the conditions of higher state ownership or weaker industry competition. This study advances our understanding of the directionality (i.e., where to go) of EMNEs’ OFDI in the face of IFDI spillovers.