Foreign Direct Investment Policy Research Articles

Foreign Investments and Energy Transition in the Netherlands

Affordability, competitiveness, security of supply, and sustainability are among the goals set for the field of the energy transition for 2030 through 2050. In order to meet these goals, the energy sector of the European Union (EU) will require a continuous inflow of capital, particularly Foreign Direct Investment (FDI). Unfortunately, FDI has raised severe national security concerns in EU Member States, leading to the need to adopt and subsequently revisit the FDI screening framework on the EU level. On a domestic level, several EU Member States, such as the Netherlands, have either strengthened or are considering strengthening their screening mechanisms. States have been screening FDI on national security grounds for decades, but the scope of new mechanisms has dramatically expanded to cover more sectors, transactions, and types of investors. In particular, FDIs that affect energy infrastructure, supply of energy, raw materials, dual-use items, and critical technologies necessary for the energy transition should be subjected to more rigid scrutiny. These regulatory and policy developments might hinder the flow of investments into the energy sector and the advancement of new technologies and thus have implications for the prospects and speed of the energy transition in Europe. This Article will discuss the overarching question of how states can organize their investment screening mechanisms in a way that balances their national security interests against the need for free flow of FDI to stimulate development of technologies that accelerate the energy transition. This includes a case study of the FDI policy of the Netherlands, one of the major destinations of global FDI. This Article initially distills the principles necessary to balancing competing security and economic interests of host states in the investment law context. Based on such principles, it further examines the extent to which existing regulatory mechanisms in the Netherlands are adequate in addressing security concerns posed by FDI while continuing to attract investments in the energy sector and related technologies. Specifically, this Article aims to identify trends in investment screening in the Netherlands, reflect on their coherence with overarching EU investment policy objectives and the multilateral guidance on a good policy design, and discuss the potential implications of recent regulatory developments for the future of the energy transition in Europe. More broadly, this Article contextualizes the case of the Netherlands within the global movement of tightening control over FDI and explores the relationship between the investment policy of a State, on the one hand, and its objectives to combat climate change and safeguard energy security, on the other.

Analysıs of Foreıgn Direct Investment Policies and of the Performance of FDI Flows into Türkiye

The purpose of this paper is to overview Foreign Direct Investment (FDI) policies and legal framework over the years in Türkiye and analyze the performance of FDI inflows to the country by using total and sectoral FDI data over the period 1970-2022. With the recognition of positive spillover effects of FDI in bringing foreign exchanges, as well as new technologies, managerial and marketing skills to domestic industries, Türkiye opened its economic activities to foreign capitals by adopting liberal FDI laws and regulations in 1980, 1989, 2003 and 2012. Our study shows that immediately after these years, both aggregate FDI inflows and their sectoral distributions in Türkiye has changed dramatically. For instance, after the implementation of the FDI law in 2003, the service sector attracted the most of total FDI inflows.

Construction of Mexico's geopolitical policy for strengthening the implementation of foreign direct investment in Mexico

Mexico has a long history of bilateral policies that impact each other. Geographically, it is in a strategic location bordering the USA. In addition, the establishment of various international cooperation frameworks has increased the flow of foreign capital into Mexico. This study aims to 1) examine the international framework of FDI policy in Mexico and 2) determine the effect of FDI on increasing economic growth in Mexico. The methodology used is a combination method that combines qualitative analysis to construct an analytical framework and quantitative analysis by looking directly at statistical data related to increased capital flows, economic growth, and other indicators. This research provides results showing that the increase in foreign capital inflows in Mexico is part of the response to the global situation of the prepared policy scenario. The results of this study provide a framework of international strategies and policies undertaken by Mexico in preparing a response to foreign direct investment (FDI) entering the country.

Investigating the Determinants of Macroeconomic Factors on Outward FDI of Vietnam: The Gravity Model Approach

Objective: The main purpose of this paper is to investigate the motivations of Vietnam’s outward FDI. Theoretical framework: We extend the gravity model proposed by by Tinbergen (1962) and developed by Ryan W. Tang et. al (2022); Correa da Cunha et. al (2022), Hui-Ching Hsieh et. al (2019) to evaluate the influence of macroeconomic factors of Vietnam and the host countries on the volume of Vietnam’s OFDI flow. Method: This paper intends to analyze the motivations of outward FDI pattern of Vietnam using the gravity theory and panel data of 15 main OFDI host economies during a 2007-2021 period. Results and discussion: The regression results confirm that the size of the economy, social index, common borderline and level of economic integration have positive influence on OFDI flows of Vietnam. Meanwhile, geographical distance has negative effect on OFDI flows Implications: As practical policy recommendations, it is suggested to implement measures aimed at enhancing trade relations and to introduce a new strategy regarding the policy for Foreign Direct Investment (FDI) in neighboring regions. Originality: To the best of author’s knowledge, there has not been any in-depth academic study focusing on the Vietnam’s outward FDI. In addition, robustness checks have been conducted to ensure the validation of empirical findings.

The effect of FDI regulatory barriers: evidence from OECD countries

ABSTRACT This study aims to analyse the impact of the OECD FDI Regulatory Restrictiveness Index on actual FDI (Foreign Direct Investment) flows into the 38 OECD member countries. Using PPML (Poisson Pseudo Maximum Likelihood), GLS (Generalized Least Squares method), and Heckman’s sample selection estimator, this paper undertakes to identify the impact of FDI Regulatory Restrictiveness Index on FDI inflows to all OECD member countries from 129 partner countries from 2006 to 2021. It finds that the overall level of restrictions, screening and approval measures, and other operational restrictions all have a statistically significant negative sign, except for equity restrictions (ER). This suggests that the higher the level of restrictions on FDI, the less direct investment flows into OECD countries. In other words, liberalizing or reforming FDI restrictions can lead to an increase in inward FDI. Moreover, results show that the impact of even small regulatory relaxations is not negligible. While previous studies have mainly analysed the determinants of FDI inflows based on theories from the investor (supplier) perspective, this study differs in that it provides a reference analysis of FDI policies and laws from the host country’s (demander) perspective, in which areas and to what extent they need to be liberalized.

Through the Justice and the Sovereignty Over Natural Resources: An Analysis of 100 % Foreign Direct Investor Ownership over Geothermal Sector Project

The enactment of the Job Creation Law and the Presidential Decree Number 10 of 2021 concerning the Investment Business Sector has make it possible for foreign investors to gain 100% ownership over geothermal sector projects. This policy then raises an important question, which is whether such policy violates the Sovereignty over Natural Resources doctrine, and if so, what kind of policy should be made. This study aims to analyze Indonesia’s geothermal foreign direct investment policy through the Sovereignty over Natural Resources doctrine and implementation of the fair efficiency principle, which also includes aspects of efficiency and justice. This study is normative legal research using statute approach and conceptual approach. The result of this study indicates that, although 100% foreign investor ownership over geothermal exploitation projects could be seen as an efficient policy to attract investors. However, it is still lacking the proper regulation to ensure said policy will not cause harm to the people.

The moderating role of institutions between FDI and GDP: evidence from China and India

Several research efforts were dedicated to analysing the effects of foreign direct investment (FDI) inflows on gross domestic product (GDP) and employment in the host economies. The variations in the conclusions signal that other variables influence and moderate the effects of FDI on GDP and employment. Institutional elements receive limited research attention, despite their influence on the host economies. This paper investigates the moderating role of institutional elements in the FDI-host economies on FDI’s effects on GDP and employment with China and India as case studies. The approach utilises three principal methodologies. The first methodology presents an in-depth analysis of China and India, highlighting selected institutional elements with the potential to influence FDI’s effects. The second methodology confirms the presence of a positive correlation between FDI and GDP and a negative correlation between FDI and employment-to-population ratio (EPR) in both China and India. The FDI, GDP purchasing power parity per capita, and EPR datasets are extracted from the World Bank – DataBank World Development Indicators to ensure the consistency of the data. The results of the quantitative analysis validate the qualitative analysis. The qualitative analysis confirms the moderating role of the selected institutional elements with variations in direction and strength. Significant variations in FDI’s effects on GDP and employment are strongly related to variations in the institutions of governance. The institutions of governance include the functionality of the state organs, the efficiency of the legal system and enforcement of the rule of law, and the quality of implementation of FDI-supportive policies. The findings aim to increase the absorption of the positive effects of FDI on GDP and employment in the respective countries. The research is a cornerstone of in-depth future research into the following areas: the role of selective FDI and constructive conditional FDI policies, the functionality of judicial authority controls, and FDI favourable exchange rates and interest rates policies. The novelty and contribution of the paper lie in its comprehensive exploration of the moderating role of institutional elements on the effects of FDI on GDP and employment in host economies, with a specific focus on China and India. The paper contributes significantly to the academic literature on FDI and economic development by emphasising the importance of institutional factors and providing actionable insights for policymakers and researchers.

Analysis of Investment Policies in China and the U.S. and the Impact of FDI on China’s Economy

With the acceleration of the globalization process and the increase in international links, global trade and transnational investment are growing rapidly, and a clear and sound investment policy system can provide clear guidance and support to domestic enterprises and investors, while also influencing investment decisions and willingness to cooperate of other countries or regions. This paper presents a concise summary of the investment policies of China and the United States. It highlights that the United States’ investment policies primarily consist of outward foreign direct investment (OFDI) policy and the safeguarding of domestic industries and capital, while China’s focus remains on attracting foreign investment, with continuous OFDI policy improvement. This paper also analyzes the positive impacts and risk challenges of FDI on China’s economy. FDI generally promotes China’s economic growth, provides employment opportunities, improves the quality of labor, promotes technological progress, and enhances innovation, but it also faces a series of problems, especially the negative side of economic stability, market competition, and coordinated social development. Improvements in all these issues require timely adaptation and guidance from national investment policies.

Using bootstrap fourier granger causality test in quantiles to re-examine Pollution Haven/Halo hypotheses in China and G3 countries

We re-examine the Pollution Haven and Pollution Halo hypotheses (PHEH and PHALH) using a quantile-based Bootstrap Fourier Granger causality test, a method adept at identifying non-linear structural breaks. Our study encompasses data from China and the G3 countries (Japan, the UK, and the USA) spanning the period from 1980 to 2020. Our empirical findings reveal that data from the USA corroborates the PHEH, suggesting a trend where increased foreign direct investment (FDI) aligns with higher environmental degradation. In contrast, data from China affirms the PHALH, indicating that FDI contributes to improved environmental standards. However, data from Japan and the UK do not conclusively support either hypothesis. These results have significant implications for governmental policy formulation in China and the G3 countries, particularly in shaping FDI policies that align with environmental sustainability goals.

The role of foreign direct investment and green technologies in facilitating the transition toward green economies in Latin America

This study investigates the role of foreign direct investment (FDI) in facilitating the transition toward low carbon societies in Latin America from 1990 to 2022, in order to investigate the effects of FDI among the green transition process and contribute to the design of new ad hoc green FDI policies. Additionally, we introduce the Low Carbon Transition Curve hypothesis as a framework for understanding the relationship between income and the transition to green economies in the selected countries. Through the application of cointegration regression analysis, preceded by the examination of unit roots and cointegration, we uncover notable findings. Our results indicate that the impact of FDI on the consumption of renewable energy exhibits heterogeneity across Latin American countries, as evidenced by the lack of statistical significance in the renewable/fossil fuel mix consumption of energy. However, it is important to note that FDI has a positive and significant effect on the promotion of renewable energy consumption. Furthermore, our analysis confirms the statistical significance of the income-low carbon transition hypothesis across all regression models, suggesting that income per capita plays a pivotal role as a driving factor in countries' transition to green economies. In light of these findings, it is recommended that countries utilize FDI to reduce their dependency on fossil fuels by offering incentives for green FDI, which can contribute significantly to the transition process. These practical implications can guide decision-making processes and support the implementation of measures that contribute to a more sustainable and environmentally conscious energy sector in Latin America.

Foreign direct investment and pollution emissions: a perspective from heterogeneous environmental regulation

PurposeThe purpose of this study is to analyze the effect of foreign direct investment (FDI) on pollution emissions and how environmental regulation affects this relationship.Design/methodology/approachIn the empirical research, the authors selected panel data for 30 provinces in China from 2005 to 2019 as samples. First, the authors used the instrumental variable method to verify the existence of the above hypotheses in China. Then, the authors analyzed the moderating effect of different types of environmental regulations on the environmental effects of FDI. Next, in further discussion, the authors analyzed the difference between the environmental effect and the moderating effect in different time periods and regions, respectively. Finally, the authors discussed whether the different intensities of environmental regulations lead to the transfer effect of FDI in choosing investment destinations.FindingsThe result shows that FDI can help reduce pollution emissions and create a “pollution halo” effect, which is enhanced by command-and-control regulation but suppressed by market-based incentives. The heterogeneity analysis reveals that the 18th National Congress of the Communist Party has weakened the pollution halo effect of FDI, while the environmental effect of FDI in the eastern region is not significant, but in the middle and western regions, there is a significant pollution halo effect and a positive moderating effect of environmental regulations. Finally, further analysis reveals that FDI has a transfer effect under command-and-control environmental regulations.Research limitations/implicationsFirst, the main purpose of this paper is to study the relationship between FDI and pollution emissions from the perspective of heterogeneous environmental regulation. Therefore, there is no detailed discussion on their effect mechanism of them. Second, limited by data, the authors adopt the single index to measure the stringency index of command-and-control and market-based incentive environmental regulations in China. The single index may not be able to fully reflect the intensity of regional environmental regulation, so the construction of a composite indicator is necessary. These shortcomings are the focus of the authors' future research.Practical implicationsUnder the guidance of high-quality development, the conclusions above can provide reference for adjusting FDI policies and improving environmental regulation policies.Originality/valueThe innovations in this paper can be summarized as the following four dimensions: First, the authors use the instrumental variable (IV) method to address endogeneity in the relationship between FDI and pollution emission, which can further ensure the robustness of the research results and increases the credibility of the paper. Second, the authors distinguish between two types of environmental regulations to investigate their moderating effect on the environmental impact of FDI. Third, the authors consider the temporal and spatial heterogeneity of both the environmental effects of FDI and the moderating effect of regulation. Last, the authors analyze the spatial spillover of environmental regulation through the study of the transfer effect.

The Impact of FDI on High-Quality Development in the Yangtze River Economic Belt

This article utilizes the panel data of 31 cities in the Yangtze River Economic Belt from 2003-2018 to construct a panel model and empirically studies the impact of FDI on the high-quality development of the Yangtze River Economic Belt. The results show that FDI has a positive role in promoting high-quality development in the Yangtze River Economic Belt in the total sample regression. In subsample regressions, the role of FDI in promoting high-quality development in the upper, middle and lower reaches of the Yangtze River Economic Belt is not the same. Based on this, local governments in different regions should propose different foreign direct investment policies according to local conditions to promote economic transformation and upgrading.

A STUDY OF SOME OBSERVATIONS OF FDI RULES AND POLICY ON E‐COMMERCE IN INDIA

This research paper delves into the intricate relationship between Foreign Direct Investment (FDI) rules and policies and the rapidly evolving landscape of e-commerce in India. The study aims to analyze the impact of FDI regulations on the growth, competitiveness, and structure of the Indian e-commerce sector. By examining historical developments, policy shifts, and their consequences, this research contributes to a comprehensive understanding of the dynamics between FDI and e-commerce in the Indian context.

Export‐platform foreign direct investment and trade policy uncertainty: Evidence from brexit

AbstractThis paper analyses the effect of trade policy uncertainty in a customs union on export‐platform foreign direct investment (FDI). First, I develop a partial equilibrium framework with heterogeneous firms based on the proximity–concentration trade‐off that involves trade policy uncertainty about trade costs inside a customs union. Second, I derive an empirical equation that I test by exploiting the 2016 Brexit referendum as a natural experiment and using data on manufacturing greenfield FDI projects. The results show that trade policy uncertainty impacted negatively the decisions of firms to invest in export‐platform activities in the UK following the Brexit referendum. Moreover, I find that extra‐EU manufacturing firms preferred EU countries as opposed to the UK for new investments after the 2016 referendum.

Some Recent Trends and Implications of Foreign Direct Investment in Bangladesh

ABSTRACT: This study was carried out to evaluate the recent trends and implications of foreign direct investment (FDI) in Bangladesh. Due to its cost-effective workforce, potential market, rapidly growing economy, advantageous geographical location, and other pertinent factors Bangladesh has become one of the most enticing developing countries for foreign direct investment (FDI). Both quantitative and qualitative analyses were used. The trends and implication of FDI was assessed through different variables such as Net FDI inflow in Bangladesh, FDI inflows as percentage of GDP of Bangladesh, sectoral FDI inflow in Bangladesh, net FDI inflows from top 10 countries and by sectors, net FDI flow by EPZ and non-EPZ areas, no. of employment by FDI, FDI inflow by components, GDP, export, import, balance of payment, foreign exchange rate, inflation and corporate tax rate, which were then analyzed using different statistical measures, such as growth percentage, trend equations, the square of the correlation coefficient and correlation matrix. Thirteen trend equations and R-squared were tested for different relevant variables of FDI. To estimate the implication of FDI in Bangladesh, seven hypotheses has also been tested. Among them, the trend values were positive for eleven variables. The square of correlation coefficient (R-squared) of most of the equations is more than 0.7, indicating well fitted trend equations. According to the results of this analysis, FDI has positive correlation between GDP growth, exports, imports, employment in EPZs, and exchange rates. However, there is a significant negative correlation between corporate tax rate and inflation rate. By introducing beneficial FDI policies, providing substantial investment incentives, streamlining pertinent regulations, minimizing bureaucratic procedures, and through better infrastructure Bangladesh must act swiftly to entice more foreign investors. Despite adopting lenient FDI regulations, the government musthave to ensure facilities like more export processing zones, easy access to IT facilities, maintaining stable foreign exchange rates, encourage FDI from leading nations, an attracting new foreign investment source. By implementing these policies into practice, Bangladesh can boost up economic growth and may attract more FDI. This study proves that there is room for FDI to increase in the future and supporting economic growth of Bangladesh.

MICRO SMALL AND MEDIUM ENTERPRISES MULTILATERAL ENTERPRISES FOREIGN DIRECT INVESTMENT AND FINANCING FOR ACHIEVING SUSTAINABLE DEVELOPMENT GOALS AND THE UNITED NATIONS 2030 AGENDA

The research paper entitled “Micro Small and Medium Enterprises, Multilateral Enterprises, Foreign Direct Investment and Financing for Achieving Sustainable Development Goals and the United Nations 2030 Agenda” reflects the global issues pertaining to the role of Micro, Small and Medium Enterprises (MSMEs), Multilateral Enterprises, Foreign Direct Investment policies and financing for achieving the Sustainable Development Goals (SDGs) and the United Nations 2030 Agenda. It dwells into the study of various macro issues and aspects such as relevance, role and contribution of MSMEs to the global economies and the SDGs, background and definition of MSMEs, inter-linkages between the MSMEs and the SDGs, Multilateral Enterprises and the United Nations Sustainable Development Goals (SDGs), FDI Policies for Improving the Sustainable Development Impacts of Investment, need of international and national actions to scale up SDG financing, need for scaling up investment in the SDGs and climate action, enhancing international financial architecture.

Individual preferences toward inward foreign direct investment: A survey experiment

In democratic societies, public attitudes toward foreign direct investment (FDI) can influence FDI policy as in other policy areas but have been largely ignored in FDI literature. To bridge this gap, we investigate individual preferences toward inward FDI. We employ a conjoint (vignette) survey experiment and analyze the determinants of preferences toward acquisitions by foreign firms. Conjoint survey experiments allow us to simultaneously estimate the effects of various attributes of foreign acquisitions, enabling us to analyze the complex causal relationships between various attributes of an acquisition project and people’s antipathy toward it. The results of the experiment show that the nationality of the foreign firm, reciprocity, and the economic conditions of the location of the firm being acquired are important factors. The subgroup analysis shows that older respondents and women are more negative about inward FDI. We also employ the gravity equation and confirm that our survey results are in line with the actual pattern of inward FDI stock.

Growth drivers in emerging capitalist economies: building blocks for a post-Keynesian analysis and an empirical exploration of the years before and after the Global Financial Crisis

This paper contributes to the growth models debate by expanding the concept of growth drivers to emerging capitalist economies (ECEs). Conceptually, the paper synthesizes growth drivers with a growth model operationalization based on GDP growth contributions and financial sector balances. Drawing on post-Keynesian and structuralist economics, as well as, empirical studies, seven growth drivers for ECEs are reviewed: income distribution, price and non-price competitiveness, commodity prices, private debt, foreign direct investment (FDI) and fiscal policy. Descriptive data for these drivers are presented for 19 regionally grouped ECEs between 2000 and 2019. On average, Asian ECEs exhibit higher growth rates, stable real exchange rates, high and increasing non-price competitiveness and high private debt levels. Latin American countries show comparatively lower growth rates, high but decreasing income inequality, unstable exchange rates and relatively expansionary fiscal policy after the Global Financial Crisis (GFC). Central and Eastern European countries generally display medium to high growth rates, lower income inequality, high non-price competitiveness, a substantial FDI stock and, after the GFC, real depreciations and contractionary fiscal policy. The assessment of cross-country growth drivers via bivariate coefficients reveals limited robust results, except for non-price competitiveness, which emerges as a significant driver. Additionally, we find indications that private debt and expansionary fiscal policy became more important for growth in ECEs after the GFC. This is in line with the emergence of domestic demand- and private debt-led growth models in ECEs following the GFC in the course of private deleveraging and austerity policies in developed capitalist economies.

Foreign Direct Investment and Economic Development: Evidence from Central and Eastern Europe

This paper aims to investigate the role of foreign direct investment (FDI) on economic development in transition countries of Central and Eastern Europe. Statistical analysis is applied to investigate the relationship between FDI indicators and some explanatory variables. Findings show that FDI stock and especially labor productivity significantly stimulate exports. Moreover, the ratio of FDI stock to GDP is found to be the most powerful driver of employment. Outcomes depend however on FDI policies. Therefore, policy-makers need to carefully consider the side effects of the measures they design, to avoid negative effects.

The cost of foreign ownership: Voluntary sustainability reporting and financial performance in an emerging economy

PurposeMany emerging economy firms are under foreign owners' pressure to embrace the challenges of addressing corporate social responsibility (CSR) and consider adopting sustainability initiatives. However, it is not clear how foreign ownership plays a role to enable or inhibit these emerging economy firms from translating sustainability initiatives into improved financial performance. Utilizing neo-institutional theory, the authors argue that emerging economy firms that voluntarily report sustainability gain legitimacy in the eyes of shareholders and improve stock market performance. However, emerging economy firms may not have the resources to reconcile the internal stakeholders' various legitimacy requirements to promote sustainability practices, resulting in a negative association with accounting performance. Foreign ownership attenuates the relationship between sustainability reporting and firm performance due to the different legitimacy requirements in foreign markets.Design/methodology/approachTo test the study’s hypotheses, the authors collected and analyzed a large sample of publicly listed firms between 2010 and 2016 in Taiwan where the types of foreign ownership include foreign trust funds, foreign financial institutions and other foreign legal entities. Regression analyses were conducted to investigate whether the firms that report their sustainable practices have better financial performance, including stock market performance and accounting performance. Additionally, a three-step procedure was employed to address the endogeneity issue with a binary explanatory variable.FindingsThe positive stock market reaction to the emerging economy firms' voluntary sustainability reporting supports legitimacy gained among investors. By contrast, sustainability reporting has a negative association with accounting performance due to the difficulty of reconciling different legitimacy requirements among various stakeholders in emerging economies. Further, foreign ownership, particularly the trust fund, exhibits a negative moderating effect on the relationship between sustainability reporting in aligning corporate practices with sustainable development goals (SDGs) and the company's stock market performance.Originality/valueBy examining the less tested contingent role played by foreign ownership in the emerging economy firms' sustainability reporting, the authors provide insights into the influence exerted by different types of foreign ownership on firms' financial performances beyond previous studies that focus on family ownership, state ownership, or managerial ownership in emerging economies. The findings shed light on corporate sustainability strategy and foreign direct investment policies for an emerging economy.