Manufacturing Foreign Direct Investment Research Articles

Industrialization, FDI Inflow and Climate Change in Africa: A Scenario Analysis

Despite their promises of wealth creation, productivity increase, and improved living circumstances in Africa, industrialization, and foreign direct investment (FDI) inflows have the potential to endanger the continent’s climate, particularly given the nature of energy intensity and associated emissions connected with their expansion. Thus, this study empirically examined the extent to which industrialization and FDI inflows contribute to the predictability of climate change in Africa, focusing on the top 10 greenhouse gas (GHG) emitting countries on the continent with data spanning from 1990 to 2023. Employing a bias-adjusted ordinary least square estimation technique, we considered both in-sample and out-of-sample forecasts that include several scenario analyses. We reveal both industrialization and FDI inflows as significant predictors of climate change in Africa but with varying degrees of environmental threats. This provides the foundation for, among other things, the suggestion that African continental and sub-regional bodies consider the need for differences in climate commitment strategies across the region based on the varying nature and magnitude of manufacturing intensity and FDI inflows, as well as associated GHG emissions and the nature of climate change vulnerability.

Driving Growth and Innovation: Exploring Foreign Direct Investment in the Manufacturing Sector (The Case of Lithuania)

Recent geo-economic transformations have led to new challenges for countries in their economic development. The evolving global landscape has emphasized regional competitiveness and attractiveness in terms of capital, labor force, and information. Scholars widely agree that countries receiving foreign direct investment (FDI) gain new knowledge, management skills, and advanced production techniques, leading to increased competitiveness and economic growth (Bayar, et. al., 2020). Changing conditions have also influenced investors’ behavior. Globalization and digitalization have shaped international economic relations, focusing not only on resource acquisition, but also on leveraging human capital, knowledge, institutional structures, and networking for firm efficiency. This shift is reflected in changing investors’ preferences: the importance of natural resources, cheap labor, and the size of the national market has decreased, with greater attention given to service- and technology intensive manufacturing markets (Sadeghi, et. al., 2020).
 The aim of this study is to identify the factors that determine the attraction of foreign direct investment in the Lithuanian manufacturing sector and assess their impact. To accomplish this objective, several main tasks were formulated:
 1) Highlight the necessity for assessing FDI attraction in the manufacturing sector.
 2) Identify the factors that influence the attraction of foreign direct investment in the manufacturing sector.
 3) Provide empirical evidence of the impact of these factors.
 
 The article is structured as follows: Firstly, a review of the scientific literature was conducted to address the research problem, which is the lack of literature on foreign direct investment at the sectoral level. Based on this literature analysis, the factors influencing investment attractiveness at the regional and sectoral levels were identified and compared. Additionally, the factors that determine the attractiveness of the manufacturing sector for investment were also identified. 
 In the second part of the study, a research methodology was developed to assess the impact of these factors on foreign direct investment in the Lithuanian manufacturing sector. The results of the third part of the study indicated that although the Granger causality test did not reveal any causal relationship between FDI in Lithuanian manufacturing and variables such as exports, imports, gross domestic product, the number of educated individuals, government gross debt, government R&D expenditure in manufacturing, the number of FDI enterprises in manufacturing, the wage index, and labor productivity, the correlation analysis demonstrated that exports, gross domestic product, and labor productivity have a significant influence on attracting FDI to the industrial sector. These macroeconomic indicators were statistically significant both in the short term and in the long run.
 Empirical findings indicated that labor productivity has the greatest impact on the attractiveness of foreign direct investment in the Lithuanian manufacturing sector, both in the short and long term. To maintain the viability and promote the development of the manufacturing industry, Lithuania should focus on the factors that affect labor productivity in this sector.
 Keywords: investment attractiveness, foreign direct investment, manufacturing sector, sectoral determinants of investment.

The impact of foreign direct investment (FDI) on China's manufacturing carbon emissions

This paper investigates the impact of FDI on carbon emissions in China's manufacturing sector, using statistical data from 2003 to 2020 as a reference. To account for the heterogeneity of manufacturing industries, we classify them into three categories based on input factors: resource-intensive, technology-intensive, and labor-intensive. Our main findings are as follows: there is a negative correlation between FDI and CO2 emissions in manufacturing. Specifically, FDI has a positive effect on reducing carbon emissions in capital-intensive, technology-intensive, and labor-intensive manufacturing industries, with the strongest effect observed in labor-intensive industries. Foreign investment can contribute to improving energy efficiency in China's manufacturing sector, and there is potential for environmental regulation to further reduce carbon emissions in resource-intensive manufacturing. By analyzing the impact of FDI on carbon emissions in manufacturing and the role of manufacturing heterogeneity in carbon emissions, we aim to provide recommendations and strategies to help reduce the carbon footprint of manufacturing industries.

Low-Skill Products by High-Skill Workers: The Distributive Effects of Trade in Emerging and Developing Countries

In developing countries, trade is increasingly associated with greater returns to high-skilled labor and rising inequality. These empirical patterns are at odds with canonical models of trade in the developing world. What does this mean for the political economy of trade in these countries? We argue that although developing countries have a comparative advantage in low-skill products, these are produced by workers that are relatively high-skilled compared to their peers. Trade and global production benefit relatively skilled workers, particularly those exposed to exports and inward foreign direct investment in manufacturing. Our argument offers insight into why relatively skilled workers are most supportive of free trade and why inequality is rising in developing countries. We examine micro- and macro-level implications of our argument using cross-national survey data on policy preferences and aggregate data on trade and inequality. The findings have important implications for the political economy of trade and global production in developing countries.

The effect of foreign direct investment on economic growth in developing countries

The article considers analysing the effect of sector-specific foreign direct investment (FDI) (the primary, secondary, and tertiary sectors) on economic growth in 19 developing countries over the period 2005–2018. Variables such as human capital, domestic investment, financial development, openness of the economy, labour force, and arable land were included as control variables. A robust two-step system generalised method of moments (GMM) was utilised for the analysis of the data. The study found that FDI’s growth effect is indeed influenced by its sectoral composition in developing countries. The finding reveals that FDI in manufacturing has a positive and statistically significant influence on economic growth, whereas FDI in the tertiary sector has a statistically significant negative effect on economic growth, but FDI in the primary sector has a negative but negligible effect on economic growth. Lastly, it can be concluded from the above results that the more manufacturing FDI that countries attract, the greater their economic growth will be. In light of this, the countries should provide special incentives like tariff reductions, tax holidays, and cheap-rented land supplies in order to attract more manufacturing sector FDI.

Investment Motives of MNES, FDI in Specific Sectors and Economic Growth

Drawing on mainstream theories on investment motives of multinational corporations (MNCs), known as eclectic paradigm (Dunning, 2000), and foreign direct investment (FDI)-growth nexus (Borensztein et al., 1998), this paper examines how different investment motives of MNCs affect the economic growth in host countries. It first constructs a theoretical framework in which different motives of MNCs drive FDI into different specific sectors and, in turn, affect host countries' long-term economic growth. The paper then tests the theoretical predictions on a panel of 16 least developed countries in Africa during the 2001-2017 period. Estimation results, obtained from the generalised method of moments, reveal significant and positive effects of FDI in manufacturing and FDI in agri-aquaculture but insignificant effects of FDI in utility supply and FDI in infrastructure construction on GDP growth. While the growth effect of FDI in extractive sectors is mostly negative, it is statistically insignificant. The results are robust across different regression specifications and proxies of FDI variables. They convey useful implications for research and public policy in FDI receiving countries.

On the allocation puzzle and capital flows: Evidence from foreign direct investment and real sector growth in Africa

AbstractThis paper takes a new dimension on the foreign direct investment (FDI)–growth nexus through the lens of the allocation puzzle. We examine how the influx of FDI affects the broader economy through its impact on real economic sectors in a panel of 42 Sub‐Saharan African (SSA) countries over 1980–2017. Using a dynamic panel model and decomposing the real sector into its parts, we test for the possibility of a two‐way bi‐directional relationship between growth in agriculture, manufacturing, industry and service value additions, and FDI. There is no evidence of an allocation puzzle at the level of the real sector and the components parts, which suggests that SSA countries with relatively high growth in the real sector will attract more FDI. While the effect of FDI on the real sector is positive at the disaggregated level, there is a positive bi‐directional effect between FDI and growths in manufacturing, industry and service value additions. The results are robust to key determinants of the growth–FDI nexus.

Re‐examining the impact of sectoral‐ and industrial‐level FDI on growth: Does institutional quality, education levels and trade openness matter?

AbstractThis study examines whether institutional quality, education levels and trade openness affect the relationship between sectoral‐ and industrial‐level foreign direct investment (FDI) inflows and economic growth. Previous studies highlight the heterogeneous effects of FDI at the sectoral‐ and industrial‐level suggesting the need to examine the growth effects of FDI at a disaggregated level. However, previous studies have not empirically explored the role of absorptive capacities at the industrial‐ and sectoral‐level. Consequently, using a sample of 36 Organisation for Economic Co‐operation and Development countries from 2000 to 2019, we examine the relationship using the system generalised method of moments estimator to control for endogeneity. Our results show that the magnitudinal effects of overall FDI is dampened as sectoral‐ and industrial‐effects are not considered. We find that both manufacturing and services FDI contributes to growth. However, the effect of manufacturing FDI is greater. Meanwhile, we find education levels to be an effective moderator for services FDI, while trade openness enhances the growth effects of manufacturing FDI more effectively. Institutional quality is shown to have a positive complementary effect across both sectors and certain industries. Policy implications are discussed.

The role of foreign direct investment in economic growth of Nigeria

The paper investigates the relevance of foreign direct investment (FDI) as a factor inhibiting economic growth in Nigeria. This paper inspects the sectorial influence of FDI in manufacturing, mining, oil and the telecommunications sectors on economic growth in Nigeria based on theoretical framework founded on the standard growth accounting theory, detailed analysis of the sectorial FDI over the period 1981 and 2017 was carried out. Various econometric methods are employed, such as the ADF test, Dickey and Fuller test (1979), PP test (Phillips and Perron, 1988) are used for the unit root test, and the Shahbaz and Rahman (2010) method is used for the long-run relationship between the foreign direct investment and economic growth. The paper also adapted the framework provided by M.B. Obwona (2004). The paper formalizes a mechanism of recommendations to allow for the influence of foreign direct investment in the transmission of socio-economic growth generated in Nigeria. In conclusion, government should provide an enabling environment that will encourage foreign investors to invest in Nigeria economy by addressing the security challenges in the country, understanding that investment friendly environment will improved regulatory framework as well as encourage domestic investment.

Does Mining FDI Crowd in or Crowd Out Other Investments? A Cross-Country Investigation of FDI Intersectoral Linkages

Foreign Direct Investment (FDI) extractive industries (mining and quarrying) is expected to increase dramatically many developing countries, due to the rising global demand for commodities. One key question for policymakers is whether this form of FDI could help spur investments other sectors, order to help boost their countries’ long term growth prospects. Countries with large extractive industries seek to promote economic diversification, so other types of FDI would also be critical this regard. This paper analyzes whether mining FDI crowds or crowds in FDI other sectors via intersectoral linkages. It utilizes a novel data set covering sector-disaggregated FDI flows 70 countries from 1985 to 2010. Results show differential effects of mining FDI on FDI other sectors (manufacturing, services, financial services, non-financial services) and across country groups. Some of the interesting results are seen the high income countries group, where mining FDI is observed to have crowding out effect on total services and more specifically, financial services FDI and the lower middle income countries group, where mining FDI is observed to crowd both manufacturing and financial services FDI.

The Correlation between Foreign Direct Investment and Trade: Foreign Direct Investment Outflows, Gross Exports and Exports in Value Added

해외직접투자와 무역의 상관관계에 대한 연구는 적용되는 이론의 기반이 국제무역이론 또는 다국적기업 이론인지에 따라 상호 대체적 또는 상호 보완적으로 규명되어져 왔다. 하지만 1990년대 이후 글로벌 경영환경의 변화는 해외직접투자와 무역의 상관관계에 많은 영향을 미쳐왔고, 그 대표적인 변화가 기업들의 글로벌 가치사슬(Global Value Chain, GVC)의 확대와 부가가치 기준 무역(Trade in Value Added, TiVA) 데이터의 등장이라고 볼 수 있다. 글로벌 가치사슬의 확대는 해외직접투자와 무역을 동시에 증가시켰고, 부가가치 기준 무역 데이터의 등장은 전통적인 총무역(Gross Trade) 데이터를 사용한 기존의 해외직접투자와 무역의 상관관계 연구에 큰 변화를 예상했다. 한국 제조업의 해외직접투자 유출, 총수출 그리고 부가가치 수출 데이터를 사용한 본 연구의 실증분석에 의하면, 첫째, 해외직접투자 유출과 부가가치 수출의 상관관계가 해외직접투자 유출과 총수출의 상관관계보다 더 높게 나타났다. 둘째, 위 두 개의 상관관계는 전반기(2000-2005)보다 후반기(2006-2011)에서 그리고 선진국보다 개발도상국 에서 더 높게 나타났다.The study on the correlation between foreign direct investment(FDI) and trade have investigated the correlation as substitute or complementary according to the theoretical backgrounds: international trade theory or multinational enterprise theory. After 1990s, the changes on global business environment have impacted on the correlation. The important changes are the expansion of global value chain(GVC) and the introduction of trade in value added(TiVA). The expansion of global value chain stimulated FDI and trade simultaneously and the introduction of trade in value added(TiVA) expected to change the existing correlation studies based on the traditional Gross trade data. There are three findings by this study based on korean manufacturing FDI flows, gross exports and exports in value added. First, the correlation between FDI outflows and exports in value added is bigger than the correlation between FDI outflows and gross exports. Second, the above two correlations are more positive at the second time period(2006-2011) compared to the first(2000-2005). Third, the above two correlations are more positive in developing countries compared to those in advanced countries.

Politicising embedded neoliberalism: continuity and change in Hungary’s development model

Focusing on the critical Hungarian case, this article analyses the fate of embedded neoliberal capitalism in the wake of the global financial crisis. The changes include policies to combat foreign dominance in the financial, energy, and retail sectors, and efforts to reform and retrench the hitherto relatively generous welfare state. Nevertheless, the article finds no less evidence of continuity than of change: the politicisation of fighting dependency is combined with the quiet politics of subsidising foreign direct investment in manufacturing, and the noisy politics of protecting pensioners and middle-class families parallels the erosion of future-oriented social investment. Notwithstanding the radical turn in development rhetoric, the actual path correction has merely shifted the pattern of dependency without breaking out of it: financing socio-economic development in Hungary (as in other Visegrád states) is still largely dependent on foreign sources, albeit of a more diversified nature, including not only manufacturing FDI, but the EU’s structural funds and migrant labour’s remittances as well.

Foreign Direct Investment and Economic Growth in the Republic of Kosovo—Empirical Evidence

<p><em>Whether Foreign Direct Investment (FDI) is beneficial to host country growth or not, it is a question debated since a long time (Acaravci & Ozturk, 2012). This paper will examine the flow of FDI and their impact on economic growth in the Republic of Kosovo. This correlation between FDI and economic growth will be studied through regression (Quantile Regression Median). The results of the study will be obtained using multiple regression to evaluate the effect of FDI on the economy, using secondary annual data from 2007 to 2017. In addition to the basic model to be used to assess the impact of FDI on total growth amount, we have also decomposed them into the second model: FDI in manufacturing and FDI in services as well as other FDI. The research results show that the impact of total FDI and FDI in manufacturing is negative and insignificant while the impact of FDI in services and other FDI is positive but insignificant to economic growth in Kosovo. Due to the importance of FDI, as an important source of capital in a transition country such as Kosovo, these results are informational for decision-makers to improve policies in order for the country to become more attractive in attracting FDI. </em></p>

State-level FDI and within-occupation wage inequality in the United States

ABSTRACTOur paper explores the relationship between inward foreign direct investment (FDI) and within-occupation wage inequality at the state level in the U.S. We argue that sectoral FDI may affect different occupations differently, and our study looks at possible heterogeneous effects of sectoral FDI on wage inequality for 22 occupations. Using data over 1999–2007, our results show that state-level manufacturing FDI tends to reduce wage inequality, measured by the ratio of the 90th percentile wage and the 10th percentile wage in an occupation. Manufacturing FDI is significantly associated with less wage inequality in the production occupations and the construction and extraction occupations. In contrast, non-manufacturing FDI is associated with increased within-occupation wage inequality in the arts, design, entertainment, sports, and media occupations, as well as the transportation and material moving occupations. Non-manufacturing FDI is associated with decreased wage inequality in the sales and related occupations.

Who Benefits More From Manufacturing Foreign Direct Investment? Examining Its Earnings Distribution Effects Across Earnings Quantiles

Although several studies suggest foreign manufacturers in the United States may provide access to good quality employment opportunities with fair compensation and stable benefits, the question of who benefits more from the location of manufacturing foreign direct investment (FDI) remains open. Using the National Establishment Time Series data set and individual earnings data from the American Community Survey Public Use Microdata Sample files, this research conducts a quantile regression to estimate the earnings distribution effects that a concentration of manufacturing FDI may have on different earnings groups in Georgia between 2004 and 2010. The research does not measure inequality directly, but the findings both from place-of-work and place-of-residence earnings analyses suggest strong implications relating to the issue of inequality among people. The concentration of manufacturing FDI in a certain area shows the largest distribution effects on area workers in the lower earnings group and residents in the middle earnings group.

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.

The effects of financial development on foreign direct investment

This paper empirically investigates the various effects that source and destination countries’ financial development (SFD and DFD respectively) have on foreign direct investment (FDI). We establish causality by exploiting variations in both country-specific financial development and sector-specific financial vulnerability. This approach is made possible by our use of detailed databases on real manufacturing FDI projects worldwide. We find that both SFD and DFD have a large positive influence on greenfield, expansion, and mergers & acquisitions FDI, by directly increasing access to external finance and indirectly promoting manufacturing activity. The overall economic impacts of SFD and DFD tend to be similar but their direct and indirect effects vary across margins and types of FDI.

Differences in FDI Determinants by Sector: A Knowledge-capital Model Approach

This paper analyzed the differences in foreign direct investment (FDI) determinants of various sectors using the Knowledge-capital (KC) model framework. Specifically, it compared the differences in the influence of FDI determinants between the manufacturing and service sectors. In the empirical analysis of the Korean outward FDI, the study found that service FDI is likely more demand-seeking than manufacturing FDI. Moreover, service FDI does not tend to be largely affected by trade impediments, caused by the differences in idiosyncratic features between the two sectors. Although past manufacturing FDI is expected to lead current producer service FDI, which facilitates production of manufacturing goods, the Korean manufacturing FDI is not complementarily related to the Korean producer service FDI. Given the rapid growth of the global service sector, the Korean government needs to promote the overseas expansion of service companies through the reinforcement of the overseas expansion support system such as providing sufficient foreign market information, supporting R&D activities for new service development and quality upgrade, and improving the customized financial support system.

External Asymmetries in the Euro Area and the Role of Foreign Direct Investment

AbstractSoon after the introduction of the common currency, a divide emerged between two groups in the Euro area: one comprised of the North European countries achieving external surpluses and the other of the South European countries with large external deficits. This paper shows that different patterns of foreign direct investment (FDI) inflows across the Euro area countries contributed to this divergence. Our theoretical framework shows that if the economy is relatively capital‐intensive in the production of traded (non‐traded) output, FDI will be channelled in greater proportions to the traded (non‐traded) sector, thus improving (deteriorating) the trade balance. Focusing on ten Euro area countries over the period 1980 to 2009, we establish a positive (negative) long‐run effect of FDI inflows on the trade balance in the North (South). In the North, the positive effect stems from the traded sector FDI inflows that were significantly higher in comparison with the South, both before and after the EMU. In contrast, in the South, the increased FDI inflows in the post‐EMU era were dominated by investments in the non‐traded sector. When industry‐level data are employed, a positive (negative) long‐run effect of manufacturing (non‐manufacturing) FDI inflows on the trade balance in the North (South) is further established.

Determinants of inward FDI in manufacturing: a cross-sectoral analysis for Greece

This paper examines the sectoral patterns and determinants of inward foreign direct investment (FDI) in Greek manufacturing. The panel-econometric analysis across manufacturing sectors reveals that, in contrast with low labour costs, a sector's size, labour productivity, scale economies and R&D intensity do significantly affect the attraction of FDI across manufacturing industries. Additionally, the empirical findings imply that policy measures which strengthen the natural resources-based advantages, promote industrial clusters and export processing zones, as well as upgrade the export-oriented logistics and outsourcing activities, would be expected to raise the inflow of manufacturing FDI in the country.