Motives For Foreign Direct Investment Research Articles

The (Im)possibility of Distinguishing Horizontal and Vertical Motivations for FDI

AbstractSkill differences between parent and host countries are considered a key variable for distinguishing horizontal and vertical motivations within aggregate foreign direct investment (FDI). This paper tests the robustness of the skill difference term in the knowledge‐capital model for FDI in a sample of Organisation for Economic Co‐operation and Development (OECD) countries. The evidence in this paper indicates that skill differences per se do not properly explain FDI: the skill level of the host country is also important. This paper argues that both horizontal and vertical FDI may increase in the skill level of the host. It follows that the distinction between vertical and horizontal motivations for FDI with respect to skills is less straightforward than generally assumed in the literature.

Inbound Foreign Direct Investment in Japan: A Typology

Foreign direct investment (FDI) has generated a wealth of research covering differentiated situations with an increasing interest for emerging economies. However, mature economies still account for a large share of worldwide inbound investment flows. Host countries’ local determinants, as well as investors’ motives for FDI can differ to a great extent. The case of Japan is rather significant, since the country has been attracting far less foreign investment than other mature economies, as reflected by dismal inbound FDI stock and flows respectively. The analysis of Japan’s particular domestic business context can offer insights into FDI decision-making taking into account these contrasted characteristics. Using a Delphi methodology, a qualitative approach relying on foreign direct investors’ and experts’ contributions, we propose a model of inbound FDI in Japan and identify four types of investors based on the nature of investments and market maturity. Empire builders, leveraging their established core co...

The current assessment of foreign direct investment in the Middle East and North African region

This research aims to assess the growth and the current status of foreign direct investment (FDI) in a sample of 16 Middle East and North African (MENA) countries over the period 1984–2011. Our goal is to give some insight on the importance of the different factors affecting foreign direct investment (FDI). To reach our goals, we will examine the growth of FDI over time in the MENA region as compared to that of other regions. Second, we will determine the most important factors that promote FDI to the region. Our empirical results reveal the instrumental factors that help to promote FDI in the area. We find that the lag in GDP, market size, and political risk have a positive and direct effect on FDI while financial risk has a negative effect on FDI. FDI motives, however, vary greatly among oil-rich resource countries and the non-rich resource countries in the MENA region.

Motywy inwestycji zagranicznych polskich przedsiębiorstw

The aim of this study was to examine the motives of foreign direct investment (FDI) of Polish enterprises. Our studies have confirmed that the market seeking and – to a lesser extent – resource seeking motives are most important for Polish companies investing abroad. The search for efficiency is still not as significant as above factors. The study also shown the importance of geographical distance – this is reflected by concentration of Polish FDI in neighboring countries. We also identified the differences in motives to invest across various sectors and equity based entry modes.

Contrasting perspectives on China's rare earths policies: Reframing the debate through a stakeholder lens

This article critically compares China's rare earth policy with perspectives upheld in the rest of the world (ROW). We introduce rare earth elements and their importance for energy and present how China and the ROW are framing the policy debate. We find strongly dissonant views with regards to motives for foreign direct investment, China's two-tiered pricing structure and its questionable innovation potential. Using the metaphor of “China Inc.”, we compare the Chinese government to a socially responsible corporation that aims to balance the needs of its internal stakeholders with the demands from a resource-dependent world. We find that China's internal stakeholders have more power and legitimacy in the REE debate than the ROW and reconceptualise various possible mitigation strategies that could change current international policy and market dynamics. As such, we aim to reframe the perspectives that seem to govern the West and argue in favor of policy formation that explicitly acknowledges China's triple bottom line ambitions and encourages the ROW to engage with China in a more nuanced manner.

The US and Chinese Foreign Direct Investment in Africa

This paper compares the patterns of the US and Chinese outward foreign direct investment (FDI) in Africa. The main objective of the paper is to examine if the motives for FDI for these two countries differ. This is done first with a descriptive analysis and then with empirical research. It reveals that Africa attracts only a small fraction of FDI from both the US and China. However, compared to the US, China’s FDI outflow to Africa is rising rapidly. It was only 8% of the US outward FDI in 2006, but is about 20% in 2010. Based on the standard FDI literature, the paper then investigates the determinants of FDI for both the US and China empirically. Hypotheses are developed and tested using ordinary least squares regression methods. Data are annual averages for the period 2003-2010. They are gathered from various standard sources such as the World Bank, The United Nations Conference on Trade and Development (UNCTAD), and the Chinese government. The paper finds expected result for market size, resource endowment, corruption, and openness. Chinese investment in Africa is often viewed as their desire to control natural resources, but the paper finds that the US investment is no different in this regard. The paper’s finding contradicts with the popular perception that Chinese outward FDI ignores corruption or attracted to countries with higher level of corruption. With respect to political risk, the paper finds that Chinese FDI flow is not significantly different from the US FDI flow.

CAPITAL OUTFLOWS BY RUSSIAN MULTINATIONALS: EXPLANATION OF WIDER EUROPE’S DOMINANCE

Regulation of capital outflows has become an important task for the Russian economic policy. Such regulation needs the real picture of the Russian outward foreign direct investment (FDI) geography without distortions by official statistics with its data on indirect FDI via offshores. The article is based on new empirical FDI data collected by the author. This information shows the dominance of Wider Europe in the Russian outward FDI geography. The regional character of many Russian multinationals can be explained by several key factors, including the importance of market-seeking FDI motives, Russian oligarchs’ attempts at increasing their bargaining power and relatively comfortable business climate of neighboring countries in combination with the lack of experience and weak state support of Russian investors abroad. At the end of the article, some measures for regulation of FDI outflows are offered for diversification of the Russian outward FDI geography. Russian companies need information and institutional support which is a crucial type of incentives for initial stages of their investment projects abroad. Bilateral investment and double taxation treaties are main measures of institutional support. State insurance of investments is a key element of support for mature projects abroad.

Does foreign direct investment theory explain subsidiary performance? : a critical literature review

Theoretical models explaining foreign direct investment (FDI) have sought to address the "why" and "how" of the international expansion of firms. However, while it has been argued that performance is central to international business research, this is not entirely reflected by extant theory. This paper aims to critically analyse references that FDI theories make in regards to foreign subsidiary performance. An analytical framework is proposed and subsequently applied to evaluate extant empirical findings. Discussion points to the highly fragmentary character of FDI theories and the heterogeneity of empirical results, as well as an inadequate inclusion of FDI motives. The paper ends up with several recommendations for future empirical studies. (original abstract)

Unravelling the complex motivations behind China's outward FDI

This study empirically investigates the dynamics of motivations behind China's outward foreign direct investment (FDI). Based on a dataset of 75 host countries of China's outward FDI, we test the relative importance of outward FDI motives in different time periods. We account for endogeneity issues due to unobserved host country-specific factors and reverse causality using a dynamic panel estimation approach. We find that over time increasing foreign market commitment, exploiting global network linkages, and the seeking of external resources (natural resources and strategic assets) have become more important in driving outward FDI from China.

Drivers and Motives for Chinese Outward Foreign Direct Investments in Africa

The authors set out to empirically test the degree of Chinese investments in Africa by systematically examining the explanatory value of existing theoretical motivations for foreign direct investment (FDI) for the period of 2003–2009. All else equal, the authors find that African countries enjoy a higher likelihood of Chinese outward FDI than the rest of the world. Moreover, they find that Chinese firms invest in African markets for market-seeking, natural resource–seeking, and strategic asset–seeking motives; hence, the motives for Chinese FDI in Africa seem to match those of Western firms’ investments in global markets.

Motives for Outward FDI of Chinese Private Firms Firm Resources, Industry Dynamics, and Government Policies

Using recent survey data, this study examines the impact of firm resources, industry dynamics, and government policies on the outward foreign direct investment (FDI) motives of Chinese firms, based on the integrated ‘strategy tripod’ framework. The results suggest that supportive government policies are important motivators for both strategic asset-seeking and market-seeking outward FDI. Firms' technology-based competitive advantages and a high level of industry research and development (R&D) intensity tend to motivate strategic asset-seeking outward FDI, whereas firm's export experience and higher level of domestic industry competition tend to induce market-seeking outward FDI.

General equilibrium long-run determinants for Spanish FDI: a spatial panel data approach

While general equilibrium theories of trade stress the role of third-country effects, little work has been done in the empirical foreign direct investment (FDI) literature to test such spatial linkages. This paper aims to provide further insights into long-run determinants of Spanish FDI by considering not only bilateral but also spatially weighted third-country determinants. The few studies carried out so far have focused on FDI flows in a limited number of countries. However, Spanish FDI outflows have risen dramatically since 1995 and today account for a substantial part of global FDI. Therefore, we estimate recently developed spatial panel data models by maximum likelihood (ML) procedures for Spanish outflows (1993–2004) to top-50 host countries. After controlling for unobservable effects, we find that spatial interdependence matters and provide evidence consistent with new economic geography theories of agglomeration, mainly due to complex (vertical) FDI motivations. Spatial error models estimations also provide illuminating results regarding the transmission mechanism of shocks.

A Decomposition of Factors Influencing Horizontal and Vertical FDI: A Separate Analysis

While the literature has explored which factors determine the emergence of different multinational enterprise (MNE) structures (i.e., horizontal or vertical MNEs), little attention has been paid to differences within the same MNE type. This paper proposes an index to distinguish horizontal foreign direct investment (FDI) from vertical FDI and tries to identify different FDI motivations within the same MNE type. The analysis indicates that industry type, FDI destinations, and the interaction of the two play an important role in determining MNE structures. Our analysis uncovers interesting FDI patterns from data and obtains a more nuanced typology of the US multinational affiliate activities.

Letter from the Editor-in-Chief: Reverse knowledge transfers, culture clashes and going international

Reverse Knowledge Transfers Multinational enterprises (MNEs) are, sina qua non, the world’s most efficient and prolific producers of knowledge (process and product technology, management skills, intangible assets). Once produced, exploiting that knowledge is a primary motivation for foreign direct investment (FDI) as MNEs go abroad to earn rents on their knowledge-based assets created at home. Through the process of FDI, MNEs transfer knowledge and capital to their foreign affiliates in host countries. This picture – MNEs as creators, exploiters and transferrors of knowledge – suggests a one-way transfer from the parent firm in the home country out to foreign affiliates in host countries. However, this picture has been getting old for some time and is now close to obsolete. Most MNEs are now horizontally and vertically integrated networks where knowledge flows in all directions within the network, including the parent firm. MNEs from emerging economies in Asia and Latin America now engage in ‘‘springboard FDI’’, going abroad to explore for knowledge and bringing it home. Metanationals – MNEs ‘‘born in the wrong place’’ – depend on knowledge learned abroad that is transferred back to the parent firm. As a result, knowledge-seeking FDI now commands as much attention from scholars as knowledge-exploiting FDI did in the 1980s. IB scholars have increasingly focused their attention on inbound or reverse knowledge transfers – antecedents, processes and consequences. However, research on knowledge transfers within and by MNEs faces a high hurdle: how does one measure the direction, size and impact of knowledge transfers? The most popular approach has been to track patent data citations. Patent data have provided a relatively easy ‘‘trail’’ for mapping intrafirm and interfirm knowledge flows, both planned transfers and spillovers. Most scholars in this area have used patent data, building on the seminal works of Patel and Pavitt (1991) and Journal of International Business Studies (2009) 40, 177–180 & 2009 Academy of International Business All rights reserved 0047-2506

Understanding the main motives for foreign direct investment, an East‐West country contrast: is the host country legislation an important factor?

Purpose – The purpose of this paper is to show that foreign investment continues to play an important role in business activity across the globe. Understanding the main trends and reasons behind this increased activity is necessary in order to make effective business decisions on how to best engage in further global expansion. The positive benefits on employment and enterprise resulting from FDI will also be considered. A contrast will be made between Eastern and Western countries through an analysis of the main determinants of activities in these countries. The importance of country‐specific legislation on the decision‐making process will also be considered.Design/methodology/approach – The paper utilises a business history perspective, draws on theories of internationalism and uses investment data in order to explain investment behaviour. The paper then considers future possible trends in light of these recent developments.Findings – The evidence suggests that both Eastern and Western countries are now ...

The Determinants of Foreign Direct Investments in Latin American Forestry and Forest Industry

ABSTRACT The paper examines the relationships between the inflow of foreign direct investment (FDI) in the forestry and forest products industry and host-country-specific factors that affect the spatial distribution of FDI. Data on Brazil and Chile are used to analyze the impact of market size, roundwood supply, and exports on FDI. The results indicate that the main motivation for FDI is market-seeking and resource-seeking, highlighting the role of domestic demand and sufficient supply of roundwood in multinational forestry companies' investment decisions. The results further imply that governments can use policies related to these factors to attract foreign investment into the forest sector in Brazil and Chile.

Motives for Foreign Direct Investment in the Manufacturing Sector in FYR Macedonia

The aim of this article is to provide clear insight into the key FDI motives in the manufacturing sector in FYR Macedonia and suggest recommendations that might be applied in attracting FDI. Based on questionnaire data on 79 manufacturing companies, the manufacturing sector was found to perceive the low cost of unskilled labour as the strongest FDI driving force, followed by ownership advantages and geographical proximity. Contrary to the prevailing consensus in the literature, market factors seem to exert very limited influence in attracting investment, except for investment targeting the local market. One major lesson that can be drawn is that generalised investment promotion policies and strategies might not work equally well for all manufacturing industries and might have no impact in attracting FDI in particular cases. Instead, policies should employ a tailor-made approach, taking account of specific features of the targeted industries, companies and countries of origin.

Linking FDI motivation and host economy productivity effects: conceptual and empirical analysis

We develop a taxonomy that relates foreign direct investment (FDI) motivation (technology- and cost-based) to its anticipated effects on host countries’ domestic productivity. We then empirically examine the effects of FDI into the United Kingdom on domestic productivity, and find that different types of FDI have markedly different productivity spillover effects, which are consistent with the conceptual analysis. The UK gains substantially only from inward FDI motivated by a strong technology-based ownership advantage. As theory predicts, inward FDI motivated by technology-sourcing considerations leads to no productivity spillovers.

Comment on “International Production and Distribution Networks in East Asia: Eighteen Facts, Mechanics, and Policy Implications”

Comment on “International Production and Distribution Networks in East Asia: Eighteen Facts, Mechanics, and Policy Implications”

Foreign direct investment and civil liberties: A new perspective

The conjecture that democracy discourages foreign direct investment (FDI) has been widely refuted in empirical studies. However, we find support of this view. We distinguish between civil and political liberties and propose that multinational firms tend to invest in countries with low civil but with high political liberties. We show that the negative relationship between civil liberties and FDI is hump-shaped. A threshold level of civil liberties exists, below which repression of civil liberties is associated with more FDI. The results are explained by different economic motives for FDI in different groups of countries.