Outward Foreign Direct Investment Research Articles

Outward FDI, Profit Shifting, and Its Impact on the Tax Payments of the Parent Firm: A Case of Indian Manufacturing Firms

The study examines the links between India’s outward foreign direct investment (OFDI) and possible income-shifting activities by the parent firms. The exercise is undertaken by examining the impact of OFDI on parent firms’ tax payments, profitability, debt, and intangible assets. The study is driven by the observation that nearly 68% of India’s OFDI flows between 2008 and 2020 were directed to offshore financial centers (OFC). The study relies on the Reserve Bank of India’s (RBI) firm-level overseas direct investment data and the Prowess database. We employed the propensity score matching (PSM) technique in combination with the difference-in-difference method to investigate the post-investment effects. Results suggest that overseas investments have resulted in lower payment of corporate taxes, as well as indirect and direct taxes at home. Moderate negative effects were observed in the case of the profitability of the parent firm. On the contrary, OFDI resulted in higher debt levels, particularly for firms investing in OFC destinations. A positive impact on the firm’s intangible assets suggests that income shifting via relocation of intangible assets is not evident. The analysis calls for policies to counter the possible tax leakage at home due to firms investing overseas, especially in OFCs. JEL Classification F23, C14

Examining the Influence of the Belt and Road Initiative on Jiangsu’s Outward Foreign Direct Investment: Trends, Drivers and Challenges

The proposal of “One Belt, One Road” has led to friendly political and economic cooperation between China and the countries along the route, and the “One Belt, One Road” strategy has had a great impact on the outward foreign direct investment of China and the countries along the route. In the process of promoting the strategy, China has realized friendly economic exchanges and exchanges of talents and technologies with various countries and regions. This paper analyzes the OFDI data of Jiangsu Province in the past ten years to study the impact of the “Belt and Road” initiative on OFDI in Jiangsu Province. At the same time, through the analysis of the causes of OFDI and the current situation of OFDI in Jiangsu Province, this paper finds that the “Belt and Road” Initiative has promoted OFDI in Jiangsu Province, and puts forward corresponding countermeasures and suggestions for the further development of OFDI in Jiangsu Province. It also proposes corresponding countermeasures for the further development of OFDI in Jiangsu Province. The province will make reasonable use of government policies, talent introduction and financial mechanisms to optimize its industrial layout and enhance its economic strength.

Does Religion Matter When Investing in Africa? An Empirical Analysis of Moroccan FDI Location Choice in 27 African Countries During the Period 2007-2021

ABSTRACT In this study, we investigate the impact of four religious factors on Moroccan outward FDI in African countries: the religious freedom index, religious tension index, religious similarity, and religious diversity index. Using panel data from 27 African countries between 2007 and 2021, our findings show that religious factors significantly influence Moroccan FDI in Africa. A shared Islamic religion increases FDI likelihood, indicating cultural proximity facilitates multinational enterprise adaptation. Additionally, religious freedom and diversity positively affect FDI, supporting cultural adaptability. However, religious tension negatively impacts FDI. These findings highlight the importance of considering religious factors in FDI decision-making processes. Policy implications include promoting cultural understanding, encouraging religious freedom, fostering religious diversity, and reducing religious tensions to facilitate investment and enhance economic cooperation in African countries.

The determinants of Vietnam’s outward foreign direct investment: the push factors approach

In the context of integration, in addition to increasing foreign capital inflows, Vietnamese enterprises are becoming more and more interested in outward foreign direct investment activities. This research expands the Investment Development Path model to assess the influence of some macroeconomic factors (GNI per capita, the proportion of expenditure on science and technology, FDI flows, USD to VND exchange rate, total import-export turnover) on Vietnam's outward foreign direct investment (OFDI) flows. Using the 32-year dataset (1989-2020), the regression results depict that the proportion of expenditure on science and technology, the amount of FDI, GNI per capita had a positive impact on the capital OFDI of Vietnam. However, the growth rate of total import-export turnover harmed OFDI flows in the same period. Meanwhile, the difference variable of exchange rate USD to VND in the multiple regression model was not statistically significant. Based on regression model results combined with qualitative studies, the authors propose some policy implications to promote OFDI flows of Vietnam in the near future.

Artificial intelligence and outward foreign direct investment: Evidence from China

We investigate the impacts of robot adoption (a representative form of artificial intelligence) on outward foreign direct investment (OFDI) by firms in China. First, we construct a unique firm-level dataset of A-share listed firms and conduct empirical analysis by adopting a staggered difference-in-differences (DID) strategy. Second, we find that changes in robot adoption on both the extensive and intensive margins encourage firms to conduct more OFDIs. Specifically, robot adoption has positive effects on multidimensional categories of OFDI but has no significant impact on buying OFDI. Third, we explore the underlying mechanism to show that the rise in output and growth of total factor productivity (TFP) matter. Fourth, we conduct a series of empirical tests to check robustness and obtain consistent results. Finally, we analyze the heterogeneous effects and find that adoption firms with state-owned ownership or higher profit tend to send more OFDI projects, especially to the Organization for Economic Co-operation and Development (OECD)-rich countries. Our findings elucidate the impact of robot adoption on OFDI at the firm level in developing and transition countries.

Impact of corruption control, free information flow, and ICT infrastructure on China's outward foreign direct investment

ABSTRACT This study examines the interplay between corruption control, Information and Communication Technology (ICT) infrastructure, and free information flow, assessing their collective influence on China's Outward Foreign Direct Investment (OFDI). Based on unbalanced panel data on China's OFDI flows to 182 countries from 2005 to 2020, we find that improved corruption control measures and advanced ICT infrastructure in host countries significantly increase China's OFDI. Furthermore, a more robust information flow, facilitated by e-participation and a free press in the host country, enhances the positive influence of corruption control measures on attracting China's OFDI. Importantly, the beneficial effect of corruption control on China's OFDI is amplified when the host country has well-developed ICT infrastructure that supports e-participation. By elucidating the complex interplay between institutions, ICT, and international business activities, this study contributes novel insights into the understanding of ICT's role in socioeconomic development, particularly in the context of foreign investment.

Environmental regulation, outward foreign direct investment, and China’s green total factor productivity

AbstractIncreasing green total factor productivity (GTFP) is currently the primary goal of sustainable development worldwide. GTFP not only reflects the efficiency of economic expansion but also encompasses resource consumption and pollution. This research enhances the current understanding of GTFP by indicating that aside from reverse technology spillovers, labor mobility, and changes in industrial structure, additional factors, such as environmental regulations, exert a dynamic function in shaping the influence of outward foreign direct investment (OFDI) on the GTFP of the home nation. The empirical findings indicate that OFDI has a single threshold effect on GTFP, and the negative effect increases with the reinforcing of environmental control. The main impact comes from home country’s changes in green technology (GTC) rather than changes in green efficiency. Additionally, environmental regulation has a positive moderating effect on OFDI, the moderating effect of environmental regulation in western regions is more pronounced in promoting the home country’s GTC. It is imperative to take into account regional variations and devise distinct policies for eastern, central, and western regions.

The impact factors of China’s outward foreign direct investment in Singapore

The sudden outbreak of COVID-19 pandemic led to a global recession, but China's OFDI remained on a steady rise, attracting global attention. By the end of 2020, Singapore was the second most developed country after the US in terms of receiving outward foreign direct investment (OFDI) flows from China. The investment cooperation between China and Singapore played an important role in promoting the high-quality development of the Belt and Road Initiative and enhancing the economic cooperation between China and ASEAN after the COVID-19 pandemic. This study delves into the influencing factors of Chinese OFDI to Singapore: home country institutions, host country institutions, and investment motives. This study takes Singapore as the research object and uses the data of China’s OFDI to Singapore from 2001 to 2020 to conduct an empirical analysis through a modified regression model to analyze the development of China’s OFDI to Singapore, so as to make contributions to: (1) providing empirical evidence for studying OFDI from developing to developed countries; (2) providing reference for investment cooperation in the post COVID period between China and Singapore.

Does fintech facilitate enterprise outward foreign direct investment? Evidence from China

We examine whether and how fintech affects OFDI decision making by using data on listed Chinese companies. We find that the development of regional fintech stimulates OFDI. This effect is more pronounced for firms without political connections, in the eastern region, with production-oriented OFDI and that are nonstate-owned. Fintech supports firms in carrying out OFDI through the mitigation of financing constraints and the promotion of technological innovation. We emphasize the role of technology-enabled financial innovation in the behavior of enterprise internationalization.

Do Institutional Quality and Natural Resources Affect the Outward Foreign Direct Investment of India?

The institutional quality and natural resources of the host country are among the essential determinants of outward foreign direct investment (OFDI). The present study is performed to examine the role of the host country’s institutional quality and natural resources on Indian OFDI for the panel of 15 countries concerning the period from 2001 to 2020. The study uses the fixed-effect panel regression model and found that host nations’ political stability, voice and accountability, absence of violence or terrorism, rule of law, and control of corruption attract FDI from India. Further, the government’s efficacy and regulatory quality do not have a considerable impact on Indian OFDI. The study also found that the natural resources of the host nation play an important role in the international diversification of investments made by Indian investors. It is recommended to the government of host nations to strengthen their institutional quality as good-quality institutions add to the growth of entrepreneurship, encourage investment, and therefore stimulate the economic growth of the economy.

A COP28 Perspective: Does Chinese Investment and Fintech Help to Achieve the SDGs of African Economies?

Scientific consensus affirms human activity, particularly carbon emissions from market participants, drives global warming. Foreign investment, crucial for sustainability in developing nations, now faces scrutiny regarding its impact on environmental quality in emerging economies. This study examines the influence of Chinese Outward Foreign Direct Investment (OFDI) and fintech on environmental conditions in the top five Chinese-invested African economies, alongside factors such as energy consumption, economic performance, and unemployment affecting CO2 pollution. Quarterly data from 2006–2021 confirm cointegration among variables via panel unit root and cointegration tests. Panel ARDL method estimates coefficients for short and long-run effects. Our findings reveal: (1) A 1% increase in Chinese investment leads to a 0.56% decrease in CO2 emissions, supporting its positive environmental impact. (2) Fintech adoption also demonstrates a beneficial effect, with a 1% increase associated with a 0.18% reduction in CO2 levels. (3) Total energy consumption, as expected, has a detrimental impact, causing a 0.92% increase in CO2 emissions with a 1% rise. (4) Interestingly, economic growth fosters environmental sustainability, while unemployment correlates negatively with it. These findings suggest that targeted Chinese investments and fintech adoption can aid in mitigating CO2 pollution in African economies while balancing economic considerations.

How business environment of countries along the Belt and Road impacts China’s OFDI efficiency: a stochastic frontier gravity model approach

The Belt and Road Initiative (BRI) provides a new opportunity for the continued deepening of economic and trade cooperation between China and countries along the BRI route. However, different business environments among countries have led to the problem of a low and uneven distribution of China’s overall trade and investment efficiency in the countries along the route. Using the stochastic frontier gravity model, this study evaluates the efficiency of China’s outward foreign direct investment (OFDI) based on the data of 47 countries along the Belt and Road route from 2013 to 2019. The empirical results indicate that the efficiency level of China’s OFDI in countries located along the Belt and Road route is 43.39%, which suggests a regional imbalance. In terms of business environment factors, regulatory governance, civic discourse, government accountability, and regulatory quality in host countries have a positive impact on China’s OFDI. The positive effects of the BRI have enabled Chinese enterprises to better face factors such as political instability, corruption and imperfections in the legal system when investing abroad. The findings and suggestions could help the governments and enterprises of the countries along the route improve the business environment in a more targeted manner, enhance the space for economic and trade cooperation, and promote the common development of the countries along the route.

The Impact of Formal and Informal Institutional Distances on the Strategic Asset Seeking Motives of Chinese Multinational Enterprises: An Analysis of Patent and Trademark Acquisitions

This study was to examine the influence of specific contributory variables within formal versus informal institutional distances on the sub-motives of emerging-market multinational enterprises’ (EMNEs) strategic-asset seeking (SAS), in order to gain insights into the behaviours and motivations of increasing outward foreign direct investment (OFDI) from emerging economies like China. From a multinomial logistic regression analysis of both firm and macro-level data, it was found that private business groups (PBGs) were more likely to target and acquire firms with patents and trademarks. The findings also suggest that the informal cultural distance was significantly associated solely with the EMNEs’ motive for seeking companies with trademarks but no patents. The association between formal institutional distance with EMNEs’ SAS behaviours was not significant. The findings also revealed that certain sub-dimensions of formal and informal cross-national distance had significant effects on overseas specific SAS behaviours. These findings inform further exploration of determinants of EMNEs’ SAS behaviours and provide a more comprehensive understanding of EMNEs’ internationalization trends. This research contributes to the current literature on EMNEs and provides practical and managerial implications for EMNE decision-makers while investing abroad.

Outward foreign investment performance, digital transformation, and ESG performance: Evidence from China

This study examines the impact of outward foreign direct investment performance (OFDI/OFIP) on digital transformation (DT) and determines how environmental, social, and governance (ESG) performance mediates this relationship. For this purpose, we employ a panel regression model, mediation effect tests (the Sobel test, a bootstrap test, and variable replacement test), and endogeneity analyses (2SLS and GMM method). We also evaluate China's accelerated depreciation of fixed assets policy (ADP) by using a difference-in-difference (DID) model, parallel trend test, propensity score matching (PSM)-DID model, quantile DID model, and bootstrap test. We use the CSMAR database for Chinese OFIP, and perform text and word frequency analysis to obtain the DT score and the Huazheng ESG ratings index for the ESG Performance during the period 2010–2020. (1) Based on the results, OFIP has a significant positive impact on firms' DT, with ESG performance strengthening this relationship. (2) Meanwhile, the ADP restrains the DT and OFIP of high-tech firms in China. These findings provide practical implications for companies aiming to improve their long-term sustainability and competitiveness and obtain a better understanding of the relationship between OFIP, DT, and ESG performance. It is hoped that the findings will be used as a reference for expanding firms' overseas investments, driving DT, and enhancing ESG performance in emerging economies.

The impact of outward foreign direct investment on carbon productivity: internal mechanisms and China’s experience

ABSTRACT In the context of the expanding scale of China’s outward foreign direct investment (OFDI), it is crucial to study the economic and environmental benefits of OFDI in the home country. Given the lack of in-depth research on this topic in the previous literature, this paper attempts to fill this gap. Based on the panel data of 30 Chinese provinces from 2006 to 2020, this paper conducts an in-depth study on the relationship between OFDI and carbon productivity and its influence mechanism from the home country’s perspective. The results show that there is a significant positive correlation between OFDI and domestic carbon productivity, indicating that OFDI can reduce CO2 emissions while driving economic growth. OFDI has an indirect impact on carbon productivity in the home country through the paths of industrial structure upgrading, green technology innovation and energy utilization efficiency. The financial development scale has a single threshold effect on OFDI’s influence on domestic carbon productivity. Additionally, foreign direct investment (FDI) positively regulates the relationship between OFDI and domestic carbon productivity. Based on the above results, relevant policy suggestions are put forward to provide useful reference for China to achieve low-carbon development.

Assessing the effect of trade and FDI on growth-unemployment nexus

Research background: Unemployment is a huge topic for policymakers, scholars, and, in general, society. Historically, there have always been a lot of discussions about this phenomenon. It is already acknowledged that unemployment is closely related to economic activity: when the economy is growing, more people are employed, and when economic activity is low, employment decreases, and unemployment rises. This relation is well-researched in the framework of Okun’s law. However, it is far less known how this relationship holds if international economic relations are introduced. Thus, the motivation for the research was to examine the role of international trade and foreign direct investment (FDI) on the growth-unemployment nexus. Purpose of the article: To assess how trade and FDI affect growth and gender-, age-, and educational attainment level-specific unemployment relationship and on what scale this effect varies over different business cycle phases. Methods: Scientific literature review, comparative analysis, and panel regression. Findings & value added: Given the lack of research examining what effect FDI and trade have on the growth-unemployment nexus, this paper estimates modified Okun’s equation on the European Union (EU) countries (EU–28, by the composition of the EU until 31/01/2020) for the period from 2000 to 2019 while incorporating international aspects that can have an impact on this nexus. Also, this study develops a specification that can be useful to monitor the potentially different effects of FDI and trade on the growth-unemployment nexus during different business cycle phases. The estimations of the panel regression for unemployment disaggregated by age, gender and education level has showed that import, export, inward FDI, and outward FDI have a negative effect on the growth-unemployment nexus. It means that with an increase in the intensity of international economic relations, the influence of gross domestic product (GDP) growth on unemployment becomes less significant. Thus, the effectiveness of expansionary fiscal policy to reduce unemployment becomes less effective in more open economies, which in the case of the EU are the smallest member states with relatively small domestic markets.

The influence of digitalization on SMEs’ OFDI in emerging countries

The role of digitalization has been understudied in the literature on small and medium-sized enterprises’ (SMEs) outward foreign direct investment (OFDI) in emerging countries. Building on the internalization and dynamic capabilities theories, this paper examines how digitalization facilitates OFDI by SMEs in emerging countries. Using a dataset of 562 Chinese SMEs from 2011 to 2020, we find that SMEs’ digitalization has a positive impact on their OFDI levels, measured using both the number of overseas subsidiaries and the number of host countries. This effect is mediated by a firm’s dynamic capability and moderated by top managers’ international experience and industry competitive intensity. This paper contributes to the literature by revealing the mechanisms by which digitalization affects SMEs’ OFDI and the boundary conditions that may moderate this relationship.

Foreign bank entry and the outward foreign direct investment of companies: evidence from China

Foreign bank entry and the outward foreign direct investment of companies: evidence from China

Does Moroccan Diaspora play a role in the location of Moroccan FDI? An empirical investigation on outward FDI into 46 host countries

The paper investigates the impact of the Moroccan diaspora in host countries on attracting foreign direct investment from Moroccan Multinational Enterprises. Utilizing cross-sectional data encompassing outward FDI to 46 countries hosting Moroccan migrants, the Robust Weighted Least Squares estimation method reveals a positive association between the size of the Moroccan diaspora and outward FDI. These results affirm the central hypothesis, highlighting the significant role of social networks, such as diaspora, in fostering connectivity between the MNE and its subsidiaries, mitigating foreignness liabilities and psychic distance. Moreover, the study unveils a nuanced perspective: technological capabilities and institutional quality act as negative moderators, shaping a multifaceted relationship. These findings enrich our comprehension of diaspora-driven FDI dynamics, providing fresh insights into the moderating influences of technological capabilities and institutional quality in the realm of outward FDI from Morocco.

Spillover effects of government subsidies on outward foreign direct investment: Evidence from China

AbstractWe examine the effect of government subsidies on outward foreign direct investment (OFDI) by Chinese listed firms. Based on a panel dataset covering Chinese listed firms from 2009 to 2021, our findings indicate that government subsidies can promote OFDI by enhancing the production efficiency, innovation capability, and social performance of Chinese listed firms. Furthermore, the heterogeneous analyses show that non‐tax‐based subsidies significantly promote OFDI by Chinese listed firms, and government subsidies do not result in a discernible preference for greenfield investments or mergers and acquisitions. In addition, government subsidies can significantly contribute to promoting OFDI for non‐SOEs, older firms, firms in globally emerging sectors and domestically catching‐up sectors, as well as firms located in eastern China.