Outbound Foreign Direct Investment Research Articles

Chinese Strategic Hedge in Bangladesh through Investment

During the last decade, the surge in Chinese outbound foreign direct investment in Bangladesh has been met with anxiety, often invoking national security concerns. Most scholars explain China’s investment with the connection of economic interests and market expansion. Scholars have not paid enough attention to the geostrategic rationale behind China’s investment statecraft towards Bangladesh. This study centres on the question: What economic and non-economic (geostrategic) factors drive the growing Chinese investment footprint in Bangladesh? Following the qualitative research approach, this study argues that along with economic incentives, non-economic issues such as security and strategic competition with India are the significant determinants of the Chinese increasing investment footprint in Bangladesh, which is beyond the notion of win–win cooperation enhancing China’s regional status and leadership in South Asia. This study promises to contribute to the literature on the Chinese political economy, providing a theoretically nuanced treatment of Chinese investment statecraft concerning neoclassical realism.

The severity of foreign direct investment components on China's carbon productivity

Carbon dioxide emission reduction is one of the major pressures on China's current economic advancement, and the improvement of carbon productivity (CP) has become particularly relevant. Promoting sustainable foreign direct investment (FDI) can help improve carbon productivity. As a result, the need to assess the severity of FDI components on sustainable economic growth as the world economy interoperates and expands is imperative. Using 30 Chinese provinces, the study investigates the impact of FDI components on China's CP from 2006 to 2020. The spatial model is utilized in this study to assess the interactive influence of these components on CP. It was found that, while CP is significantly influenced by inbound FDI (IFDI), its spatial spillover impact is not significant. Conversely, outbound FDI (OFDI) negatively affects local CP, as well as significantly reduces CP through spatial spillover in nearby regions. Also, the developmental coordination of IFDI and OFDI significantly enhances the country's CP, primarily due to positive spatial spillover effects. There exists a regional heterogeneity exhibited by the influence of both IFDI and OFDI on CP. In the eastern region, the IFDI has a negative impact on CP. However, OFDI possesses a positive effect on CP in the eastern region and an adverse influence in the western, southern, and northern regions. These results together with the policy implications will provide great insights into encouraging green investment from foreign countries.

Study on the environmental effects of two-way foreign direct investment in China’s service industry

A mathematical model was built in this paper to divide the environmental effects of Foreign Direct Investment (FDI) in the service sector in terms of scale effect, structural effect and technical effect. Also, inbound FDI (IFDI) and outbound FDI (OFDI) were put under the same research framework, where the effects of two-way FDI on the emissions of SO2 and chemical oxygen demand (COD) were empirically tested with the 2004-2016 panel data of China’s service sector. The results show that IFDI in the service sector has significantly reduced China’s pollution emissions and improved environmental quality. This is mainly due to the positive technical and structural effects. OFDI in the service sector exhibits different responses to different pollution emission indexes. When there are both IFDI and OFDI in the service sector, SO2 emissions are suppressed to a certain extent, whereas COD emissions are not effectively controlled. In addition, the increased service output scale, per-capita capital stock and R&D input also have varying effects on environmental pollution in China.

A Legal Comparative Approach towards the Screening of Outbound FDI

After decades of investment liberalisation, the attitude towards foreign direct investment (FDI) has changed. FDI is nowadays perceived more and more as a threat to the national interests owing to the risks associated with it. In order to address and mitigate these risks, various countries have adjusted their existing FDI screening mechanisms and created new ones. While so far legislators and regulators have been focused mainly on inbound FDI, the US National Critical Capabilities and Defense Act (NCCDA), a bipartisan proposal, is meant to address the risks associated with outbound FDI. Taking into account the current geopolitical environment and the risks associated with it, it is necessary that the EU and its Member States also consider screening outbound FDI. In doing so, valuable lessons can be drawn from the US NCCDA proposal.

Impact of cultural trade on foreign direct investment: Evidence from China

Value of cultural goods varies across consumers with different backgrounds. Exchange of cultural goods may lead to better mutual understand and trust, which helps mitigate the entry obstacles in the investment targets. This paper studies how cultural trade affects Chinese firms' outbound foreign direct investment (OFDI). We find that both likelihood and total volume that a firm invests in a foreign country increase with the amount of bilateral cultural trade. We further show that cultural trade boosts the success rate of OFDI projects. These effects are intensified in targets with weaker institutional quality or a great cultural distance to China.

US Military Aid, Political Risk Insurance, and Foreign Direct Investment

How do national security interests influence outbound foreign direct investment (FDI)? FDI is a major part of the global economy, and a great deal of research has been devoted to understanding the economic and sociopolitical factors that make a country a more (or less) attractive recipient of FDI. However, less attention has been paid to the role of home-country interests, particularly in the realm of national security, in influencing such investment. Seeking to better understand the ways home-country interests and policies influence the locational decisions of their firms, in this study we examine the impact of two policy tools—military aid and state-sponsored political risk insurance—on outflows of US FDI to developing countries.

Dynamic association between socio-economic, environmental and logistic operations: Evidence from SSA BRI host countries

This study examines the connection among green logistic operations, countries-level economic, environmental, and social indicators in Sub-Saharan Africa (SSA) Belt and Road Countries. Using the system generalized method of moments (S-GMM) estimator, this study analyses annual data from 2008 to 2018 and offers three key findings. First, economic indicators China’s foreign direct investment (FDI), trade openness and economic output) are positively associated with green logistic operations. Second, logistics are positively correlated with renewable energy while inversely correlated with carbon emissions. Third, social indicators are also directly associated with green logistic operations measured through health expenditure and institutional quality. Lastly, information communication technology also spurs green logistic operations. Manifestly, Chinese outbound FDI in SSA substantially improved the quality of their logistics in terms of infrastructure, cost, time, customs services, tracking, and the consistency of international shipments. These findings show that green logistics provide adequate infrastructure, and supply chain partners share information more frequently, increasing trade volume, growth potential, and environmental sustainability. Similar results are also endorsed using a feasible generalized least square (FGLS) estimator and suggest that SSA should take effective measures to improve their logistics operation.

MNEs, Heterogeneity in Corporate Social Responsibility, and Subsidiary Employment in Host Countries

Building on the theories of CSR and MNEs, this study investigates the relationships between multinational enterprises’ (MNEs’) corporate social responsibility (CSR) commitment and subsidiary employment in host countries. This study theorizes that MNEs’ CSR impacts on overseas subsidiary employment vary by CSR types (social versus environmental); those impacts may be contingent on the MNEs’ firm-level motivations of outbound foreign direct investment (FDI), host country-specific institutions, and geographic orientations in the triad. The empirical findings from a sample of Japanese MNEs’ 11,086 subsidiary-year cases over the period of 2002–2013 are three-fold: (1) it supports the positive relationships between each of social and environmental commitment and subsidiary employment of Japanese MNEs in host countries; (2) the positive effect of social commitment on the subsidiary employment of Japanese MNEs becomes stronger in host countries governed by informal institutions or within the home region of the Japanese MNEs in the triad; and (3) the positive influence of environmental commitment on the subsidiary employment levels is elevated under the Japanese MNEs’ production-seeking outbound FDI motivation or in foreign countries governed by formal institutions. The study concludes with theoretical, empirical, and practical implications to the IB literature.

Behind China’s Overseas Food Investments: A Tale of Two Dairies

ABSTRACT China’s wave of outbound foreign direct investment (OFDI) in food production has created vast commercial opportunities for host countries but has also raised concerns about political dependence on the Chinese market, charges of commodity expropriation, and concerns over the loss of food brands and technologies. While most attention is focused on the political drivers behind Chinese investments in grain production, this article examines the dairy industry, a sector that answers both to policy, and to productive and consumer forces. Using records from the Shanghai Stock Exchange, this article examines the rise of OFDI by China’s dairy giants as the result of the consolidation of the domestic industry, the political promotion of agrarian globalisation, and the complex consumer appeal of foreign foods. Against this background, two contrasting case studies show how the aims and strategies of dairy investments have changed. Guangming’s disastrous 2014 purchase of a controlling stake in Israel’s Tnuva dairy cooperative capped off the initial rush for branded assets. In contrast, the China Animal Husbandry Group’s successful investment in the Mataura Valley Milk plant in New Zealand represents the subsequent trend towards greenfield investments in productive capacity.

Does technology innovation matter for environmental pollution? Testing the pollution halo/haven hypothesis for Asian countries.

China's GDP grew 9% annually during the end of the twentieth century. This economic growth degrades China's ecology, making it the world's greatest polluter. This position forced China to invest in developing nations and to take advantage of low-cost labor and increased pollution quotas from the World Trade Organization (WTO) to meet sustainable development objectives without environmental harm. The significance of this study is, first, this study examines the influence of Chinese outward foreign direct investment, gross domestic product, trade openness, technological innovation, and energy consumption on carbon emissions in Asian countries (Turkey, Pakistan, the Philippines, Singapore, India, Indonesia, and Cambodia). Secondly, the panel autoregressive distributed lag cointegration (ARDL) technique was used on data from 2000 to 2020 to investigate the pollution halo/haven hypothesis and environmental Kuznets curve hypothesis for south Asian nations. This analysis demonstrated that Chinese outbound foreign direct investment increases carbon emissions and confirms the pollution halo concept. Except for India and Pakistan, these nations show a U-shaped link between Chinese foreign direct investment and carbon emissions. So, policy implications recommended by the results of this study are foreign direct investment inflows with modern and ecofriendly technological transfer and enhancement in labor, and conservational management practices will benefit emerging countries to attain their sustainable development goals.

Проблемы учета прямых иностранных инвестиций в международной и российской статистике

The paper discusses the approaches to statistical accounting of foreign direct investment (FDI) present in Russian and international practice, as well as alternative approaches to accounting of FDI using microdata. International practice shows that often the official statistics provided by national central banks according to the methodology of the International Monetary Fund (IMF) and the Organization for Economic Cooperation and Development, and alternative estimates of FDI at the enterprise level differ significantly. The purpose of this article is to identify the main problems of traditional methods of accounting FDI and assess the applicability of the microdata approach to address these problems. To this end, the paper analyzes the recommendations of the OECD and the IMF on accounting FDI in statistics, as well as the methodology of the Central Bank of the Russian Federation (CBR). According to the author, the methodologies of international organizations do not solve a number of problems in relation to the Russian ones. Thus, the present methodologies do not address the issue of offshore FDI, as well as the actual geographical distribution of FDI in the regions of the Russian Federation. The article demonstrates that a number of problems associated with traditional FDI statistics can be addressed with enterprise microdata. The article proves why traditional statistics can give a distorted picture due to unresolved issues of these and other issues, and shows how microdata can help in solving this problem. In particular, micro-level data helps to understand the structure of FDI at the regional level, as well as the role of offshore companies in the structure of inbound and outbound FDI.

ИНДИЯ – ТАИЛАНД: ИНВЕСТИЦИИ ПО-СОСЕДСКИ

Foreign direct investment (FDI) is important for India and Thailand. In 2020, India ranked 5th in the world in terms of incoming investments ($81.7 billion), as a global investor it is 18th (Thailand –15th). In 2017-2021, India's annual incoming investments exceeded the volume of outgoing investments by 4-8 times. In the same period in Thailand, the annual volume of outbound FDI exceeded the inflow of incoming by 1,3-2 times. To date, the mutual penetration of investments of India and Thailand does not exceed 0,5% of the annual volume of total direct investments of each of them, but both states are taking measures to increase it, including within the framework of the existing programs «Look East» and «Act East» in India and - «Look West», «Act West» – in Thailand.

The European Response to Chinese Outbound Foreign Direct Investment: Introducing a Dynamic Analytical Framework

ABSTRACTSince the turn of the 21st century, the emergence of Chinese outbound investment has been one of the most prominent features of globalization. Its trajectory has been notable both for its speed and scale and for its global dispersion. Since the early 2000s, Chinese outbound investment has grown rapidly from a very low base that predominately involved South–South flows, expanding into the global North. The idiosyncratic nature of Chinese investment has generated diverse responses over time from the countries of the developed world. The policy dilemmas that Chinese investment creates for the latter economies is manifest in their fragmented reactions and in the degree of contestation around policy responses. In the light of the recent increasing backlash towards investment by Chinese multinational corporations (MNCs) in much of the developed world, this article introduces a dynamic analytical framework that is able to assess the response to investment by Chinese MNCs in Europe, and examines the implications of that response for China and its corporations. By doing so, this article contributes to the debate on Chinese globalization and further elaborates on the so‐called ‘China anxiety’ issue.

Does FDI increase labour market volatility at home?

ABSTRACT This article examines the effect of outbound FDI on labour market volatility and, thereby, on economic insecurity in home countries of FDI distinguishing between greenfield FDI (GFDI) and cross-border mergers and acquisitions (M&A). Using the data up to 94 countries during the period 2003–2019, we find that outward GFDI stimulate economic insecurity by increasing volatility of employment. Cross-border M&A purchases, however, decrease the labour market volatility measured both in terms of volatility of employment and hours worked.

Predatory FDI during economic crises: insights from outbound FDI from China and host country responses

Purpose This paper aims to analyze outbound investments from China at the time of economic crisis caused due to the coronavirus (COVID-19) pandemic and how target valuation and the host country’s inbound investment policies influence the acquisition intents. As firms witness low valuations during an economic downturn, they become attractive targets for opportunistic buyers, who may be driven by motives beyond business and influenced by the home country’s political agenda. Such attempts are countered with the adoption of restrictive investment policies in host countries. Design/methodology/approach The study uses secondary data on cross-border acquisitions from China over the past year and compares the characteristics of these acquisitions with cross-border acquisitions of acquirers from other large developed and developing economies. Findings Statistical analyzes show that there are significant differences in the way acquirers from China pursue strategic asset seeking, creeping and control seeking acquisitions during the pandemic and the pre-pandemic period. This paper also observes that reduced valuation of the target, due to economic downturn or otherwise, result in greater propensity in strategic asset seeking acquisitions by Chinese acquirers. At the same time, adverse policies at host nations negatively influence the strategic asset seeking propensity of these acquirers. In addition, the premium in the valuation of target assets during the pandemic does not drop significantly when compared with that of the pre-pandemic period. Originality/value With the outbreak of COVID-19 and its concomitant economic impact across the globe, the study brings forwards insights on predatory foreign direct investment (FDI) and explores how policy responses in host countries can be comprehensive rather than disembedded and unilateral.

The impact of outbound foreign direct investment on export and private investment: Comparative analysis of emerging and developed countries

AbsractOutbound foreign direct investment (OFDI) was traditionally the realm of developed countries. However, recently OFDI originating from emerging countries has increased rapidly but hardly any study noticed its impact on the economic activities in emerging source countries. Therefore, this study explores the impact of OFDI on exports and private investment in emerging source countries by employing cross‐sectional dependence autoregressive distributed lag model. The findings in this paper suggest that OFDI contributes significantly to exports in the emerging countries both in the long and in the short run; however, OFDI contribution to private investment in emerging countries is limited to long run only. Moreover, the findings suggest that the positive impact of OFDI on exports and private investment in emerging countries requires quality institutions. The positive impact of OFDI on exports and private investment in emerging countries is low when compared with developed countries. However, the significant and high values of a dummy variable for the 2007–2008 financial crisis show that emerging countries are converging on developed countries in terms of gains from OFDI in post‐crisis era. We find that OFDI is an effective policy tool for emerging countries to diversify and kick start the local economy.

THE IMPACT OF THE BELT AND ROAD INITIATIVE ON FIRMS’ EMPLOYMENT STRUCTURE AND WAGE — EVIDENCE FROM CHINA’S PUBLIC LISTED FIRMS

In this paper, we use the Belt and Road Initiative (B&R) as a semi-natural experiment and apply a difference-in-difference analysis together with the propensity score matching approach to estimate the impact of the B&R on China’s A-Share listed firms with outbound FDI to the B&R countries during 2011–2017. We find that China’s firms investing in B&R countries, compared to those investing elsewhere in the world, tend to reduce their total employment, increase the share of skilled labor, and increase wages. Various tests show that the key results of B&R impacts remain robust. We also find that the adjustment after investing in B&R countries is mainly found in non-SOEs, the firms in key provinces that enjoy pilot B&R policies. Both vertical and horizontal FDI firms are found to significantly adjust their employment, skill structure, and wage payment, with the former as more responsive.

The Impact of OFDI and Institutional Quality on Domestic Capital Formation at the Disaggregated Level: Evidence for Developed and Emerging Countries

In this study, we investigate whether outbound foreign direct investment (OFDI) either augments or impedes domestic public and private investment, incorporating the role of institutional quality into the context of developed and emerging countries. To this end, we apply a cross-sectional-autoregressive-distributed lag (CS-ARDL) approach to analyze panel data from the period 1996–2017. Our empirical findings suggest that OFDI augments private capital formation for developed countries. Institutional quality (IQ) is found to be a driving factor that promotes private capital formation in the established economies of developed countries. However, OFDI has a negative association with the public capital formation in the established economies of developed countries, while IQ has a positive association with it. In the context of emerging economies, OFDI is found to be too insignificant to have an effect on private and public capital formation. Interestingly, IQ has a detrimental effect on both private and public capital formation in emerging economies. Our findings are robust. The empirical findings of this study imply that institutional quality should continue to be improved in developed countries, while it should surpass a certain threshold for emerging economies to promote domestic capital formation.

The effect of non-conventional outbound foreign direct investment (FDI) on the domestic employment of multinational enterprises (MNEs)

Using a sample of 787 Japanese MNEs operating in 60 countries from 1996 to 2010, this study examines the impacts of MNEs’ three most commonly observed forms of non-conventional outbound FDI (i.e., as a means to counter trade barriers, to achieve a financial hedge, or to obtain tax breaks) on domestic employment levels of MNEs at home. We build on a conceptual classification of ‘motivation-activity’ of MNEs as a theoretical framework, and evaluate the impacts of MNEs’ non-conventional outbound FDI on their domestic employment levels in relation to the MNEs’ specific combination of ‘motivation’ and ‘activity’ as they conduct outbound FDI in host countries. The 3SLS regression results show strong evidence that non-conventional outbound FDI in core business activities reduces MNEs’ domestic employment levels when the investment is primarily for responding to country-specific conditions, such as circumventing host country restrictions (e.g., FDI to counter trade barriers) or escaping from home country restrictions (e.g., FDI for tax incentive packages), while FDI in non-core business activities (e.g., FDI for financial hedging or FDI in tax havens) has either a positive or insignificant effect on MNEs’ domestic employment levels depending on whether it aims to develop FSAs or not. We conclude the study with public policy implications from these findings.

The lure of Chinese state capitalism in Latin America and the Caribbean

ABSTRACT This paper examines the attractiveness of contemporary China's state-directed economic system beyond China's borders. It considers the political and economic affinities between China and Latin America and the Caribbean (LAC) in order to understand the allure of Chinese state capitalism in the region. Employing six broad governance variables, this project develops an empirically grounded tool – the Neoliberal–Dirigiste Continuum – to estimate the allure of Chinese state capitalism in 25 countries within the region. Drawing on data from the Varieties of Democracy database, the Database of Political Institutions, the United Nations Comtrade database, the Academic Network of Latin America and the Caribbean on China Monitor (RED ALC-China), and the Inter-American Dialogue's China–Latin America Finance Database, this paper examines the relationship between LAC countries’ political and economic organization and trade, Chinese outbound foreign direct investment, and the issuance of Chinese policy bank loans to LAC countries from 2005 to 2017. While the allure of Chinese state capitalism and its spread across the Global South over the last three decades is not specific to any one world region, examining the China–LAC political economic relationship in this context is useful because it represents a blending of the global and the contextual.