Kinds Of Foreign Direct Investment Research Articles

Financial development threshold, private capital inflows and economic growth

PurposeThis study aims to examine the relationship between private capital inflows, financial development and economic growth in 28 sub-Saharan African (SSA) countries between the periods 1995 and 2017.Design/methodology/approachThe study used a secondary source of data obtained from the world development indicator (WDI) and used the system generalized method of moments (SGMM) and dynamic panel threshold regression to analyze the data.FindingsThe study found that foreign direct investment has a negative and significant impact on the economic growth of SSA. The study also found that portfolio investment has a positive impact on economic growth but it is statistically insignificant. However, when portfolio investment interacted with financial development, it became positive and statistically significant presupposing that financial development is a necessary condition for portfolio investment to exert impact on economic growth. Further, the study showed that the interaction of foreign direct investment with financial development has a negative and significant effect on economic growth. Finally, the study found the minimum threshold of financial development at 42.66 per cent.Practical implicationsPolicymakers in SSA should be cautious and critical in the kind of foreign direct investment they attract as the open door policy to attract all kinds of foreign direct investment would not bring about the desired result. Also, policymakers in the region should develop and implement policies that would deepen and strengthen the financial system to foster the development of the country’s financial sector and accelerate economic growth.Originality/valueThe contribution of the study lies in establishing a minimum threshold of financial development; thus, providing a clear-cut direction for policymakers in SSA countries in their pursuit of financial development and economic growth.

Foreign direct investment and repression: An analysis across industry sectors

ABSTRACTThe impact of foreign direct investment (FDI) on repression in developing nations is still disputed. Some argue that FDI improves economic development and exports human rights values. Others criticize the exploitation of cheap labor and resources, which may lead to tensions and government oppression. Previous studies have employed aggregate FDI data with conflicting results. Alternatively, I propose that the effects depend on what kind of FDI enters a country. I build a sectoral framework to discuss how skills and technology levels, as well as the motivation for FDI, can mediate the impact. I then examine the link in a panel data analysis (1983–2010) in 121 countries, integrating sectoral FDI in several resource, manufacturing, and service industries. The results show that investment in high-skilled and high-tech sectors has positive effects. The results are robust across several measures for repression, and when accounting for sector size, regional and time effects.

FDI from a ‘financing for development’ perspective. Opportunities for Africa’s Great Lakes Region

Financing for development requires that developing countries increasingly mobilize financial resources other than aid, domestically or externally. This paper looks at the external financial flows in the countries of Africa’s Great Lakes Region: Burundi, Democratic Republic of Congo (DRC), Rwanda and Uganda. First, we study the relative importance of aid flows, debt (relief), portfolio investment and Foreign Direct Investment (FDI), across our case study countries, and across time. Second, we zoom in on FDI, which is hailed as less volatile than other private external capital flows and as more able to promote local spillovers. These benefits are however not automatic but depend on the kind of FDI and the FDI policy regime. Our comparative approach across countries serves to highlight this aspect: which countries manage to attract FDI with a high development potential, which don’t, and why?JEL Classification: F21, O16, O55

Understanding foreign direct investment in Indonesia

Purpose This paper aims to examine the dynamics of foreign direct investment (FDI) inflows into Indonesia. It is interested specifically in analysing and deliberating on two important policy questions: First, are all kinds of FDI useful from a policy perspective and what does the existing data on FDI reveal about the type of FDI inflows into Indonesia? Second, does the existing data help understand the extent of de facto bilateral linkages between Indonesia and other countries? Design/methodology/approach The paper offers an in-depth case study of Indonesia using extensive exploratory data analysis on FDI inflows into Indonesia. As discussed in the paper, the data investigation uses and reconciles available FDI data both from national and international sources to understand the usefulness of such data for policy analysis. Findings A data investigation of the trends in different types of FDI flows reveals a discernible downward trend in the ratio of mergers and acquisitions (M&A)–FDI ratio over the years. The paper argues that from a sequencing perspective, while a medium-to-long-term framework encouraging both domestic and foreign Greenfield investments could help Indonesia regain its growth luster, in the near term much more attention needs to be paid to FDI inflows in the form of M&As. Further, reconciling FDI and M&A data might help identify the original sources of FDI flows because existing data are based on flow of funds rather than ultimate ownership. Practical implications Since the Asian financial crisis, Indonesia has successfully embarked on a phase of economic and political transition post-Suharto, with the cornerstones of such a strategy being a process of greater democratisation and decentralisation. However, there have been growing concerns of economic growth stagnation in recent years. One of the policies to revive the economy’s lustre adopted by the government has been to attract greater FDI inflows. In this light, this paper examines the dynamics of FDI into Indonesia and deliberates on what kinds of FDI policymakers should focus on attracting to restore the country’s growth lustre. Originality/value The question of whether a policy to attract FDI should be careful in distinguishing the kind of FDI it wants to attract has not been sufficiently addressed in the related literature. This paper provides a framework to understand the different macroeconomic policy implications of types of FDI and provides extensive data analysis to not only understand the types of FDI but also sources of bilateral FDI inflows to Indonesia by reconciling FDI and M&A data.

Spatial polarization and dynamic pathways of Foreign Direct Investment in China 1990–2009

The spatial and sectoral distribution of Foreign Direct Investment (FDI) in China has changed dramatically in the past two decades. FDI was largely concentrated in the Pearl River Delta (PRD) and other Southern Coastal provinces in early stages and shifted to the Yangtze River Delta (YRD) and the Bohai Economic Rim (BER) sequentially in later stages. It created unique and dynamic paths of the spatial evolution of FDI in China. Although many provinces have received relatively more FDI since the late 2000s, Guangdong and Jiangsu are still the two major recipients of FDI in China, demonstrating and over-arching polarization process. Furthermore, most FDI in China has been in the manufacturing sector, making China well-known as the “World Factory of Manufacturing”. This paper analyses the most recent trends, characteristics and patterns of FDI in China. It portrays the factors that determined the investment location and the dynamic pathways of different kinds of FDI. This paper also foresees the possible changes in spatial and sectoral distribution of FDI in the near future and provides policy suggestions for both China and other developing countries in seeking new FDI inflows and transforming their industrial structures and economies in this particular phase of globalization.

A proposal to improve UNCTAD’s inward FDI potential index

In the literature of foreign direct investment (FDI) and international business, an increasing attention is being paid to the comparative study of countries’ attractiveness for FDI. The United Nations Conference on Trade and Development has developed several indices to evaluate and compare the location advantages of the countries and their relative success in attracting FDI. However, these indices suffer from several limitations. We have constructed an improved inward FDI potential index that can solve some of those limitations, making use of 70 variables for 49 countries and data reduction techniques. The correlation analysis shows that it fits better with the Inward FDI Performance Index, and thus this new index explains more precisely countries’ FDI inflows. Moreover, the larger number of variables included allows us to rank the countries for different kinds of FDI and to assess countries’ strengths and weaknesses for policy purposes.

The Future of Foreign Investment in Southeast Asia

The Future of Foreign Investment in Southeast Asia. Edited by Nick J. Freeman and Frank L. Bartels. London and New York: Routledge Curzon, 2004. Pp. 288. Ever since Singapore took the bold step towards attracting foreign direct investment (FDI) in the 1970s, and grew to be a success, the other Southeast Asian economies did not wait too long to follow suit albeit at a slower pace, and today, there is such stiff competition among the economies to woo FDI for sustained economic growth. Thus, for Southeast Asia, FDI has become somewhat a necessity, and this underscores the importance of the contribution of this book. In addition, much has changed in the circumstances surrounding FDI - the type of economies courting FDI, differences in the kind of FDI sought, the reasons and policies in place for attracting FDI, the nature of parent companies, the effects on and from FDI due to the increasingly globalized environment in the face of liberalization,... The list is endless, and thus the book is a timely welcome to take stock of what has happened and to discuss the future direction of the all-important FDI for this region. While it is a tough task to present the various facets of the dynamism around FDI in the region in a single volume, the editors of the book have done a good job in the selection of topics which are wide ranging and provide much scope for discussion. Incidentally, I would like to suggest that after the introductory chapter, readers move on to the last chapter by Hal Hill as it is a good review and a critique (to some extent) of the chapters presented in this book. I am not sure whether this made my task of reviewing the book an easy or difficult one. Nevertheless, in retrospect, it is highly recommended that more of the edited volumes take on this integrated approach in order to give the ideas in the book a good bind. It is thus quite appropriate that I start with the last chapter. Let me first say that I agree with Hill's remark that the seriousness of the decline in FDI due to the 1997/98 Asian financial crisis is unduly magnified by some of the other contributors. The discussion and supporting evidence provided by Hill in making this point is convincing. There seems to be a preoccupation with the gloom brought about by the crisis, and perhaps this might have been the case at the time of writing. I also disagree with the notion that policy-makers in Southeast Asia are slow to recognize and react to the sorts of changes in global business and FDI activity. While there may be some isolated support for this, one can also ask if being cautious and ensuring that one is ready before reacting impulsively qualifies for such criticism. Economies within the region operate quite differently and institutions in place dictate the pace of reaction to FDI activity and policies governing FDI. In addition, there is a subtle contradiction in two related views of Hill's. One advocates that Singapore be emulated by the other Southeast Asian economies and another strongly advises that economies move away from the second-best approach of proving incentives to adopt the first-best approach of addressing the source of unattractive features of the host economic environment. When Singapore first started courting FDI, the so-called second-best approach was an important feature and, in essence, was the optimal strategy at that time. Today, a mixed rather than the first-best approach defined by Hill would be best - that is, a combination of both approaches. In times of stiff competition to attract FDI, economies have little choice but to provide incentives in addition to improving the economic and business environment of their economy, or they stand to lose more than they gain in terms of luring FDI. …

Foreign Direct Investment and its Role in Economic Development: Do We Need a New Agenda?

Despite globalisation, the essential role of foreign direct investment (FDI) in economic development has not changed. However, many mechanisms and dynamics of FDI-assisted development have changed: there is greater variation in the kinds of FDI, the benefits each offers, and the manner in which each interacts with the host economy. This introductory article attempts to place the discussions and issues raised in this special issue of The European Journal of Development Research within the wider literature on FDI and development. The articles here analyse the role of multinational enterprises (MNEs) in industrial development in a ‘learning system’ perspective. They also analyse the policy tools available for using FDI for economic development in a liberalising, post-World Trade Organisation world, and the constraints to doing this. While this is a nascent debate, this special issue points to a variety of ‘soft’ policy options that provide a pragmatic response to the complexities of globalisation.Malgré la mondialisation, le rôle essentiel des investissements directs étrangers (IDE) pour le développement économique n'a pas changé. Cependant, de nombreux mécanismes et la dynamique du développement basé sur les IDE ont, eux, bien changé: les types d'IDE sont plus variés, de même les bénéfices offerts par chacun et la manière dont chaque type interagit avec l'économie locale. Cet article d'introduction tente de placer les discussions et les thèmes soulevés dans ce numéro spécial du European Journal of Development Research dans le contexte de la littérature sur les investissements directs étrangers et le développement. Les articles analysent l'importance des entreprises multinationales (EMN) pour le développement industriel à partir d'une perspective de «système d'apprentissage». Ils analysent également les instruments politiques qui, dans un monde de plus en plus libéralisé et «post-Organisation Mondiale du Commerce», pourraient servir à utiliser les IDE dans le sens du développement économique; les contraintes existantes sont également relevées. Alors qu'il s'agit d'un débat naissant, ce numéro spécial relève un nombre d'options politiques modérées qui donnent une réponse pragmatique aux complexités de la mondialisation.

Multinational enterprise strategy, foreign direct investment and economic development: the case of the Hungarian banking industry

This paper examines foreign direct investment (FDI) in the Hungarian economy in the period of post-Communist transition since 1989. Hungary took a quite aggressive approach in welcoming foreign investment during this period and as a result had the highest per capita FDI in the region as of 2001. We discuss the impact of FDI in terms of strategic intent, i.e., market serving and resource seeking FDI. The effect of these two kinds of FDI is contrasted by examining the impact of resource seeking FDI in manufacturing sectors and market serving FDI in service industries. In the case of transition economies, we argue that due to the strategic intent, resource seeking FDI can imply a short-term impact on economic development whereas market serving FDI strategically implies a long-term presence with increased benefits for the economic development of a transition economy. Our focus is that of market serving FDI in the Hungarian banking sector, which has brought improved service and products to multinational and Hungarian firms. This has been accompanied by the introduction of innovative financial products to the Hungarian consumer, in particular consumer credit including mortgage financing. However, the latter remains an underserved segment with much growth potential. For public policy in Hungary and other transition economies, we conclude that policymakers should consider the strategic intent of FDI in order to maximize its benefits in their economies.

The product cycle model of foreign direct investment and developing country welfare

Abstract Raymond Vernon's product-cycle model predicts two distinctive kinds of foreign direct investment in developing countries: fist, subsidiaries whose operations are tightly integrated into the parent's strategy to advance its competitive position in international markets; second, subsidiaries toward the host market whose profits help fund the needs of the parent but whose output is not an integral part of the parent's global sourcing network. In practice, the latter are frequently subject to domestic content, joint venture, and technology-sharing requirements; the former almost never are. How do the two kinds of foreign direct investment differ in their impact on host country development? Somewhat surprisingly, to those who may be wary of what Vernon himself reffered to as “captive” plants, foreign investor operations intimately linked into the parent's global sourcing network make a systematically larger and more dynamic contribution to the host economy via the activities of the affiliates themselves, via backward linkages to local suppliers, and via spillovers and externalities. Foreign investor operations impeded from close integration via domestic content, joint venture, and technology-sharing requirement provide a much less positive and sometimes genuinely negative impact, especially if they are protected by trade barriers or other forms of market exclusivity.