Outward Foreign Direct Investment Research Articles

Institutional quality, the level of development and Japanese outward foreign direct investment

This paper studies the determinants of Japanese direct investment worldwide and in different country groups. We derive our research hypotheses from the Knowledge-Capital Model and test them empirically using the PPML model and statistical data for 179 target countries between 1995 and 2019. We examine the role of a host’s institutional quality in affecting the cost of FDI. We show that institutional quality matters in attracting Japanese FDI for developed, developing, and transitioning economies. We find the effect of institutional quality to be more pronounced in the latter group of countries, especially concerning industries characterized by high asset-specificity.

Outward Foreign Direct Investment and Corporate Environmental Investment: Competition or Cooperation?

China is currently in a crucial phase of establishing a new domestic and international “dual circulation”, and a new model of sustainable development. OFDI and environmental investment play significant roles in both external and internal economic cycles. In this study, we constructed a multi-period difference-in-differences (DID) model, using data from listed companies in China from 2008 to 2022, to analyze how OFDI impacts domestic environmental investment and its underlying mechanism. The findings demonstrated that OFDI can significantly reduce the environmental investment made by domestic enterprises. There exists a capital competition relationship between these two activities due to financing constraints, although OFDI can mitigate environmental issues by reducing pollution emissions and promoting industrial structure upgrading within the home country, resulting in savings on environmental investments. Heterogeneity analysis revealed that the negative impact of OFDI on environmental investment is primarily observed in non-state-owned enterprises, firms investing in developed countries, and those subject to strict environmental requirements imposed by host governments. This study explains the internal logic of China’s environmental investment reduction from the perspective of OFDI, deepens the study of the environmental consequences of OFDI, broadens the applicable boundaries of the theory of OFDI’s impact on environmental investment, and provides insights for the government to establish a high-level opening-up pattern and address the dilemma of environmental governance.

Effect of Chinese outward FDI on youth unemployment in sub-Saharan Africa.

This paper investigates the effect of Chinese outward foreign direct investment (FDI) on youth unemployment in sub-Saharan Africa (SSA) by using a modified labour demand model to identify the investment sources that are helpful for reducing youth unemployment in the region. The model is applied to a panel of 42 countries for the period 2003-2021 using random-effect, and generalized method of moment (GMM) estimators for robustness check. Our results suggest that Chinese FDI has direct short-term reducing effect on youth unemployment in SSA. The direction of China's capital investment to infrastructure development and other labour-intensive activities leads to immediate reduction in youth unemployment. However, overtime, due to absence of linkages with domestic firms, and thus lack of demand effects, Chinese FDI becomes insignificant for employment creation. Our results also indicate that Other FDI does not lead to significant reduction in youth unemployment both currently and overtime. Our analysis gives partial support to the argument that the impact of Chinese FDI may differ from those of developed countries. Finally, we could not find evidence that the effect of FDI on employment depends on host country human capital and institutional quality. Several specifications of the empirical model are tested, and explanations are provided for the results. Policy implications are highlighted, especially the need to attract more job absorbing FDI and improve domestic absorptive capacity.

Can digitalisation balance the dual pressures of global integration and local response?

ABSTRACT As technological turbulence intensifies, multinational enterprises are facing dual pressures of global integration and local response (GI-LR) in terms of innovation and collaborative governance. However, the strategies and conditions for multinationals to cope with this situation are still uncertain. Through the outward foreign direct investment events of Chinese manufacturing listed companies in 2009–2019, the relationship between the digitalisation of multinational enterprises and balancing GI-LR pressure is empirically examined. Results show: (1) digitalisation has a positive impact on balancing GI-LR pressure through technology innovation and collaborative governance; (2) this relationship is moderated by organisational slack, industrial pressure attribute and the host country’s data policy restrictions; (3) digitalisation supports multinational enterprises to balance GI-LR pressure in a distant and unfamiliar institutional environment, and overcomes obstacles caused by lack of international experience. These findings enrich the understanding of the inner link between digital based business strategies and GI-LR based internationalisation strategies.

The impact of corporate climate risk perception on green outward foreign direct investment.

How to address climate risks and achieve green transformation has become a critical issue that businesses urgently need to consider. We apply growth option theory and prospect theory to examine the impact of corporate climate risk perceptions on green outward foreign direct investment (GFDI) using a research sample of heavily polluting listed companies in China from 2009 to 2022. Our findings reveal that companies with higher perceived climate risks tend to increase their inclination towards GFDI, and the informal hierarchy of boards reinforces the positive effect of both. Supplementary analyses indicate that through GFDI, corporations can exert positive effects on their own environmental performance and future green innovations. The positive impact is notably more visible in nonstate-owned companies and sample units from provinces along the Belt and Road. These findings extend the economic consequences of climate risk at the firm level from the perspective of international business research and provide empirical references for firms to promote their own green transformation from a practical perspective.

Sectoral Composition of Outward FDI and its Impact on Export Diversification in Saudi Arabia

This research explores the relationship between outward foreign direct investment (FDI) and export diversification in emerging economies, with a focus on the case study of Saudi Arabia. Utilizing a multi-equation model and vector autoregression analysis, the study investigates various factors such as the level and sectoral composition of outward FDI, income levels, institutional factors, and regional trade agreements. The findings suggest that while outward FDI can influence export diversification, its impact varies based on factors such as the sectoral distribution of investments, income levels, and institutional quality. Additionally, cointegration and vector error correction models reveal long-term relationships among key variables, highlighting the complex interplay between economic development, governance, and investment patterns. Impulse response analysis sheds light on the dynamic nature of shocks and their effects on the economy over time, emphasizing the interconnectedness of variables. Variance decomposition analysis further elucidates the significance of shocks in explaining fluctuations in model variables, underscoring the systemic interdependencies at play. Overall, the study provides valuable insights into the mechanisms through which outward FDI influences export diversification and economic development in emerging economies like Saudi Arabia and institutional reforms are essential; strengthening institutions and improving regulatory frameworks can amplify the positive effects of outward FDI on export diversification.

Research on the Quality of China's Outward Foreign Direct Investment on Economic Growth under the "Belt and Road" Initiative

Research on the Quality of China's Outward Foreign Direct Investment on Economic Growth under the "Belt and Road" Initiative

Belt and road initiative and export sophistication: The role of China’s outward foreign direct investment

We investigate the impact of China’s outward foreign direct investment (OFDI) on the export sophistication of countries participating in the Belt and Road Initiative (BRI). Through an examination of data spanning from 2010 to 2015, our findings reveal that China’s OFDI significantly enhances export sophistication in host countries, with a more pronounced effect observed in relatively poor BRI nations. However, the positive correlation between China’s OFDI and export sophistication diminishes in host countries characterized by elevated productivity levels. Utilizing a structural equation model, we identify host country productivity as a crucial mediating factor. The indirect technology spillover effects of China’s OFDI, facilitated through increased productivity, account for approximately 39% of their overall impact on export sophistication. Furthermore, we delineate threshold effects of productivity for China’s OFDI, demonstrating substantial positive effects in host countries with a GDP per capita below the first threshold (approximately US$1,141) or within the range of the first and second thresholds (around US$7,115). Upon consideration of these thresholds, distinctions in the effects of China’s OFDI between BRI and non-BRI host countries diminish. Our analysis underscores that the favorable influence of China’s OFDI extends beyond the BRI, providing benefits to low and middle-income countries globally.

Chinese SOEs’ technological upgrading through OFDI: The impact of political ties and subnational institutions. A survey of literature

This paper presents a systematic literature review on the relationship between outward foreign direct investment (OFDI) and technological upgrading in Chinese state-owned enterprises (SOEs), emphasizing the moderating role of political ties and subnational institutions. Analyzing 51 core papers from 2011 to 2022, the study synthesizes key theories on how political ties influence Chinese SOEs’ technological upgrading through OFDI. It also finds that political ties affect motivations and resources of SOEs with various types of state ownership and thus affect their OFDI strategies and innovation capabilities. This research further explores the impact of subnational institutions and their interactions with political ties. The findings underscore the perspective that subnational institutions shape a firm’s learning capability, and their impact is moderated by SOEs’ political ties. Finally, the study identifies key issues in SOEs’ technological upgrading through OFDI and offers valuable insights for policymakers and SOE managers. Future research directions are outlined to understand the impact of OFDI on the technological upgrading of Chinese SOEs.

The Effect of Inward and Outward FDI on the Unemployment Rate of Developing Countries

Purpose - This study empirically analyzes the relationship between inward and outward FDI and unemployment. Specifically, we examine the effects of foreign direct investment (FDI) inflows and outf lows on the unemployment rate using panel data from 68 developing countries from 2012 to 2021. Design/Methodology - Using a dataset of 68 developing countries from 2012 to 2021 which was analyzed by the system GMM method. Findings - The results show that inward FDI is positively related to the unemployment rate, while outward FDI is negatively related to it. We further examined the effect of inward and outward FDI on the unemployment rate by education level. By dividing the unemployment rate by the education level, the relationship between FDI and unemployment was closely analyzed. Originality/value - This finding of this study highlights the significance of considering the educational level of workers when analyzing the relationship between both inward and outward FDI and unemployment rate in developing countries.

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Property rights protection and outward foreign direct investment: Evidence from China

To explain the remarkable increase in the amount of outward foreign direct investment (OFDI) from China, we utilize firm-level OFDI data and employ a difference-in-differences design to identify the causal effect of the Property Law enacted in 2007 on firms’ OFDI decisions. The results reveal that, first, the enactment of the Property Law increases the likelihood and the frequency of OFDI. Second, financial constraints are the main driving force motivating firms’ OFDI. Third, the enactment of the Property Law has heterogeneous effects. Firms located in regions with a low degree of financial marketization or a high degree of government intervention experience a more pronounced effect. This suggests that the quality of the institutions is important. Overall, we present a novel explanation for the sharp increase in the amount of OFDI from China after 2007 and provide new empirical evidence on the effect of security interest system reform.

Sister cities and outward foreign direct investment: evidence from the Chinese listed firms

ABSTRACT In the current volatile international geopolitical landscape, fostering firm internationalization is crucial for enhancing economic cooperation and boosting economic growth among countries. This study aims to examine the impact of establishing sister cities, as a formal diplomatic institution between countries, on firms’ outward foreign direct investment (OFDI). Using panel data of Chinese listed firms with high-dimensional fixed effect regression models, we find that sister cities can significantly increase firms’ OFDI. Adopting a bilateral institutional perspective, we further investigate how institutions in both the home and host country influence this relationship. Our findings reveal that the positive effect of sister cities on firms’ OFDI is stronger when marketization in home countries is less developed, while it is amplified in host countries with better governance quality. The heterogeneous analysis indicates that sister cities promote OFDI for private-owner enterprises (POEs) more than state-owner enterprises (SOEs); firms located in the middle and western regions are more incentivized by sister cities in promoting OFDI compared to those in the eastern regions; sister cities have a more pronounced impact on promoting OFDI for firms in the mining and construction industries. These findings offer valuable implications for firm internationalization strategies and policy makers in emerging markets.

Managers’ country-specific experience and outward foreign direct investment: China and cross-countries’ evidence

Managers’ country-specific experience and outward foreign direct investment: China and cross-countries’ evidence

The relationship between foreign direct investment and trade openness: Evidence from six developed economies

Abstract Subject and purpose of work In recent years, the competition for economic dominance globally has led developed economies increasingly to focus on outward foreign direct investment (FDI) and exports to other developing nations. However, there has been a notable research gap, with most studies concentrating on assessing the significance of FDI and trade openness in developing countries, while less attention has been paid to developed countries. This study explores the relationship between FDI and trade openness with economic growth in six developed economies. Material and methods Utilising annual data spanning from 1990 to 2022 from the World Bank, the study employs the panel Autoregressive Distributed Lag (ARDL) method for analysis. Results The estimated results indicate a negative long-run relationship and a positive short-run effect of FDI in the selected economies. Furthermore, the findings reveal a positive long-run association and a negative short-run impact of trade openness. The causality test indicated a bidirectional relationship between trade openness and economic growth. Conclusions The study suggests that various governments should enhance their investment environments to leverage the benefits of FDI inflows.

Digital Transformation and Foreign Direct Investment of Enterprises:Evidence from Listed Companies in China

The rapid development of the digital economy has been instrumental in driving corporate digital transformation, exerting profound effects on enterprises' outward foreign direct investment (OFDI). Concurrently, advancements in digital technologies have led to qualitative and quantitative leaps in the quality and scale of trade and investment. Based on theoretical analysis, this paper focuses on A-share listed companies on the Shanghai and Shenzhen Stock Exchanges between 2011 and 2021, examining how digital transformation promotes enterprises' outward OFDI and its underlying mechanisms. The research reveals that corporate digital transformation significantly enhances their engagement in outward foreign direct investment, and this conclusion remains robust after being subjected to various robustness checks, including indicator substitution, interaction fixed effects, double clustering robust standard errors, and panel quantile regressions.Moreover, upon conducting endogeneity tests using the mean value of a digital transformation index grouped by year and industry as an instrumental variable, the findings still hold firm. This study enriches the body of knowledge on the economic consequences of digital transformation for tangible businesses and the factors influencing corporate outward foreign direct investment. It provides valuable insights to guide enterprises in more effectively expanding into overseas markets.

Evaluating the impact and heterogeneity of China's OFDI on total-factor carbon emission performance in Belt and Road Initiative countries

Studying how China's outward foreign direct investment (OFDI) affect total-factor carbon emission performance (TFCEP) of the Belt and Road Initiative (BRI) countries is essential. It helps evaluate the effectiveness of China's BRI and improves China's future investment decisions. This study evaluates the TFCEP of 65 BRI countries between 2005 and 2020, and explores how China's OFDI influences TFCEP in BRI countries by a spatial difference-in-differences model. The results reveal a notable improvement in TFCEP among BRI countries following BRI implementation, with technological advancement having a crucial influence on this enhancement. China's OFDI are shown to have raised income levels and optimised industrial structures in BRI countries but have not substantially increased renewable energy generation. The primary contributions of China's OFDI to TFCEP improvements in BRI countries are through industrial structure optimization and technology advancement effects. The impact of China's OFDI on TFCEP varies geographically, being most significant in Southeast Asian countries, followed by Central Asia, Western Asia, Europe, and Africa. However, its effect is minimal in countries like Syria, Tunisia, and Algeria. The study suggests that the Chinese government should devise investment strategies tailored to the unique needs of BRI countries, emphasizing green development.

Digital transformation and enterprise outward foreign direct investment

This research empirically investigates the influence of digital transformation on firms' outward foreign direct investment (OFDI), utilizing data from A-share listed companies in Shanghai and Shenzhen from 2009 to 2022. The results indicate that digital transformation notably enhances OFDI. Robustness tests further confirm the dependability and relevance of the study's findings. This effect is particularly evident in state-owned enterprises, companies operating in fiercely competitive industries, and executives with international backgrounds. Mechanism analysis suggests that digital transformation drives OFDI by reducing overseas operational costs and enhancing technological innovation capabilities.

The Spatial Spillover Effect of OFDI on Energy Efficiency

The article uses the spatial Durbin model to examine the spatial spillover effect and mechanism of outward foreign direct investment (OFDI) on China’s green total factor energy efficiency. The study found that, from an overall perspective, outward direct investment negatively impacts local green total factor energy efficiency and has a negative spatial spillover effect on green total factor energy efficiency in geographically related regions. From a regional perspective, the impact of outward direct investment on regional green total factor energy efficiency shows significant regional heterogeneity. In contrast, outward direct investment in the eastern region only promotes improving local green total factor energy efficiency. Mechanism analysis found that outward direct investment negatively impacts the region’s green total factor energy efficiency by inhibiting green technology innovation and industrial structure upgrading. These research conclusions can provide important references for other countries to optimize their foreign investment policies and achieve sustainable development.

Study on the Impact and Mechanism of the Quality of Host Country Institutions on China's OFDI

In recent years, the scale of China's Outward foreign direct investment (OFDI) has grown rapidly, but with the increasingly complex and changeable international environment, China's OFDI is facing great pressure. Taking 159 countries as samples, this paper selects 10 secondary indicators from the three dimensions of politics, economy, and law to construct the evaluation system of host country institutional quality, and measures the host country institutional quality from 2011 to 2021, studies the influence of host country institutional quality on China's OFDI and the intermediary mechanism, and conducts heterogeneity test. The conclusion shows that the improvement of host country's institutional quality significantly promotes the inflow of China's OFDI, and at the same time, the improvement of host country's institutional quality can improve the country's scientific and technological innovation ability and infrastructure construction level, and ultimately promote the increase of China's OFDI. This promoting effect is more obvious in low-middle-income countries and countries that have signed the Belt and Road agreements. Finally, suggestions are put forward based on the conclusions.