Positive Effect Of Foreign Direct Investment Research Articles

FDI and import competition and domestic firm's capital structure: Evidence from Chinese firm-level data

This study explores how foreign competition impacts the capital structure of domestic firms. While existing literature reveals that import competition is associated with a decrease in domestic firms' leverage, we propose a novel perspective concerning the positive effect of inward foreign direct investment (FDI) on leverage. FDI competition can boost demand for debt via productivity spillover to domestic firms, and also increase supply of debt by inducing lenders to herd toward foreign investors. Using Chinese firm-level data, we find that the positive effects of industry inward FDI on domestic firms' leverage are more pronounced in high-tech industries, industries with higher productivity growth, and industries where foreign investors exhibit a higher degree of herding behavior. Our instrument variable approach, employing industry exchange rates and import tariffs, supports these findings. Additionally, we reveal that the positive effect of FDI on local firms' leverage is amplified when the firms have stronger absorptive capacities, receive foreign capital, and experience more human capital transfers from foreign rivals.

Effects of foreign direct investment in services on input imports of manufacturing firms: Evidence from China

AbstractThis study investigates the causal effects of foreign direct investment (FDI) in services on the input imports of manufacturing firms. We exploit a plausibly exogenous policy of FDI liberalization in services in China to construct an instrumental variable for FDI in services and address endogeneity concerns. The results demonstrate that FDI in services positively impacts both the value and sophistication of input imports for manufacturing firms. Mechanism analysis reveals that FDI in services enhances firms' input imports through reductions in production costs, relief from financial constraints, and decreased remote coordination costs. The positive effects of FDI in services are particularly pronounced for firms with lower initial productivity and higher levels of human capital.

Foreign direct investment, human capital and export diversification in Africa: A panel smooth transition regression (PSTR) model analysis

This paper investigates the role of local human capital in facilitating the export diversification improvement effect of foreign direct investment (FDI) in African countries. To this end, we use a panel smooth transition regression (PSTR) model which is able to deal with the heterogeneity issue associated with the cross-country data. Based on a sample of 30 African countries over the period 1996–2019, the results show that there is a minimum threshold of human capital beyond which the export diversification enhancing effect of FDI is unlocked in African countries. In other words, only countries located above a certain threshold of human capital benefit from the positive effect of FDI on export diversification. These results suggest that policymakers in African countries should focus on improving the conditions for acquiring local human capital (education and health) in order to extract economic gains from FDI.

Examining the Effect of Foreign Direct Investment and Economic Activities on Urban Land Expansion in Transitional Vietnam

Despite abundant literature studies on the economic impact of foreign direct investment (FDI) on developing countries, few studies have investigated the impact on spatial urbanization. This study explored the spatiotemporal distribution of FDI inflows and its impact on urban land expansion in Vietnam, a transition country in Southeast Asia. While previous research was limited to specific case studies due to data limitations, this study used panel data from provincial-level regions nationwide on FDI inflows and urban land change between 2000 and 2018. The study applied panel and spatial panel models to examine the direct and indirect impact of FDI on urban land growth in the host and neighboring provinces. FDI inflows in Vietnam were most prominent in the manufacturing and real estate sectors and spatially concentrated in the metropolitan regions and coastal areas. The estimated model revealed that an increase in FDI inflows positively affected urban land expansion in the host province and that regions had spatial autocorrelation and were spatially grouped. On the other hand, it negatively affected urban land expansion in neighboring provinces. The results showed that the positive effect of FDI was significant in provinces with high-rank FDI inflows compared to surrounding areas. However, in some provinces with relatively small inflows of FDI, the negative indirect effect is greater than the direct effect, and urban land expansion may decrease due to FDI into neighboring provinces. This result implies that FDI inflows have influenced deepening regional disparities in urban growth. It needs an institutional response for regional management of the economic and environmental spillover effects of FDI inflows.

What Drive Industrial Development in Low-Income Economies? Role of Foreign Direct Investment in Chinese Manufcturing

Industrial development (ID) or Industrialization is a must for low-income economies to become developed countries. How does foreign direct investment (FDI) affect ID? This paper aims to answer the question with evidence from a panel dataset of Chinese manufacturing at regional levels in 1990-2020. ID is measured by industrial capacity and industrial technology in both domestic and global markets. Estimate results suggest that (a) FDI fuels China’s industrialization; (b) FDI promotes ID through raising industrial capacity and technology; (c) The positive effects of FDI on seems to be larger on industrial capacity than technology, and larger on exports than domestic markets; and (d) gains from FDI depend significantly on China’s FDI absorptive capacity in terms of infrastructure, human capital, and R&D.

Synergy effects of ICT diffusion and foreign direct investment on inclusive growth in Sub-Saharan Africa.

The present study critically examines the synergy effect of information communication technology (ICT) diffusion and foreign direct investment (FDI) on inclusive growth in Sub-Saharan African (SSA) countries using a modified system-generalized method of moments (GMM) model based on panel data covering the period 2005–2020. This study differs significantly from the previous studies in four ways: (i) this study uses a more comprehensive measure of ICT by computing a composite ICT index, which takes into account several ICT indicators; (ii) some existing study uses a narrow proxy of inclusive growth using the Gini index as a proxy, while others consider three patterns of economic growth dynamics (GDP growth, real, and per capita GDP). For robust analysis, we computed a composite inclusive growth index that takes into account several shared growth indicators; (iii) our model captures the heterogeneity effect of the interaction term of FDI and ICT diffusions on two groups of SSA countries, unlike the previous studies that estimated the joint impact of FDI and ICT on the whole group of countries; (iv) we contribute to the extant studies by determining the threshold level at which ICT diffusion may determine the effect of FDI on inclusive growth. Overall, empirical results show that the positive effect of FDI on inclusive growth could intensify when ICT diffusion is beyond a given threshold level, while inflation and vulnerable unemployment deteriorate inclusive growth, among others. We are of the opinion that ICTs should engage to cushion present and future environmental threats/natural catastrophes through improving geographical monitoring and concerted reaction coupled with other policy recommendations paying special attention to Sustainable Development Goals (SDGs) fifteen (15)—inclusive growth.Supplementary InformationThe online version contains supplementary material available at 10.1007/s11356-022-22689-3.

Investment Motives of MNES, FDI in Specific Sectors and Economic Growth

Drawing on mainstream theories on investment motives of multinational corporations (MNCs), known as eclectic paradigm (Dunning, 2000), and foreign direct investment (FDI)-growth nexus (Borensztein et al., 1998), this paper examines how different investment motives of MNCs affect the economic growth in host countries. It first constructs a theoretical framework in which different motives of MNCs drive FDI into different specific sectors and, in turn, affect host countries' long-term economic growth. The paper then tests the theoretical predictions on a panel of 16 least developed countries in Africa during the 2001-2017 period. Estimation results, obtained from the generalised method of moments, reveal significant and positive effects of FDI in manufacturing and FDI in agri-aquaculture but insignificant effects of FDI in utility supply and FDI in infrastructure construction on GDP growth. While the growth effect of FDI in extractive sectors is mostly negative, it is statistically insignificant. The results are robust across different regression specifications and proxies of FDI variables. They convey useful implications for research and public policy in FDI receiving countries.

Do Foreign Direct Investment and Migration Influence the Sustainable Development of Outward Foreign Direct Investment? From the Perspective of Intellectual Property Rights Protection

In the current complicated and volatile international situation, maintaining the sustainable development of OFDI is critical to the economic recovery and growth of all countries. This study aims to examine the influence of foreign direct investment (FDI) and migration on the sustainable development of outward foreign direct investment (OFDI), the moderating effects of intellectual property rights (IPR) protection on the relationship between FDI and OFDI, and the relationship between migration and OFDI. Using the panel data of 85 countries from 2006 to 2018, we find that, globally, FDI positively affects OFDI and that the positive effect of FDI on OFDI is strengthened by the improvement of IPR protection. Migration negatively affects OFDI, and the influence of IPR protection on the relationship between migration and OFDI is not statistically significant. The study shows that in high-income countries, FDI positively affects OFDI, and IPR protection positively moderates the relationship between FDI and OFDI. For upper-middle-income countries, FDI positively affects OFDI, and IPR protection negatively moderates the relationship between FDI and OFDI. For lower-middle and low-income countries, the influence of FDI on OFDI is not statistically significant. Moreover, the influence of migration on OFDI is not significant in high- or upper-middle-income countries. For lower-middle and low-income countries, migration negatively affects OFDI, and IPR protection positively moderates the relationship between migration and OFDI.

The impact of foreign direct investment (FDI) on renewable and non-renewable energy in Bangladesh: does the global climate change emergencies required?

PurposeThe purpose of this study is to identify the effects of MNCs measured by the foreign direct investment (FDI) inflows on the promotion of renewable energy consumption and non-renewable energy in Bangladesh. It is an emergency issue these days and makes some policy suggestions.Design/methodology/approachBased on the literature review, the study sets a time series models to empirically test FDI degrades the environmental quality in Bangladesh, using the parametric (GMM, IV estimations) and non-parametric approaches (quantile regression).FindingsThe main findings drawn from the empirical analysis are as follows. First, the FDI inflows lead to more CO2 emissions in the Bangladeshi economy. In other words, the MNCs promote the usages of non-renewable energy which causes an increase in pollution. Second, the FDI inwards discourage renewable energy consumption and in terms of magnitude, the negative impacts of FDI on renewable energy are higher than the positive effect of FDI on CO2 emissions. This makes the situation worse.Research limitations/implicationsThis study is limited to Bangladesh and explores the total impact of FDI on the environment. For further investigation, it would be better to do a detailed investigation on the FDI-renewable and nonrenewable energy relationship. For instance, one could test which type of FDI promotes green energy consumption and which one is dirtier. So, the sectorial FDI effects on pollution.Originality/valueMost past studies parametric techniques and did not compare the effects of FDI on renewable and non-renewable energy consumption, Unlike the previous empirical studies, this paper uses GMM and IV estimations for the parametric approach and quantile regression (QR) as a robustness check. Also, it is the first study that approves the crowding-out effect of non-renewable using the FDI channel.

Doprinos stranih direktnih investicija ekonomskom rastu izabranih evropskih zemalja novih članica Evropske unije - dokaz zasnovan na modelu panel kointegracije

This paper is aimed at examining the fact whether foreign direct investment (FDI) and exports do contribute to economic growth in the thirteen European Union (EU) new member states (namely Bulgaria, Croatia, Cyprus, Czech, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Romania, Slovakia, Slovenia) during the period from 2005 to 2020 or not. Various statistical tests were performed in order to examine the relationship and causality among the three observed series, including unit-root tests, the Kao and Pedroni cointegration tests, and finally the modified causality test. The obtained results are mixed. Although cointegration was established between FDI, exports and growth, the estimation of the long-term coefficients varied to such an extent that only ambiguous conclusions about the effect of FDI and exports on the growth of the real gross domestic product (GDP) could be reached. The research results imply the fact that positive effects of FDI and exports are neither automatic nor equal in all the countries, but the same rather depend on the many factors and conditions that the governments of the selected states should consider when designing policy measures for attracting FDI and promoting exports.

Foreign Direct Investment and Trade—Between Complementarity and Substitution. Evidence from European Union Countries

This aim of this work is to study the relationship between foreign direct investment (FDI) and trade. FDI is a driving force for economic growth for host countries. The positive effects of FDI are seen in many aspects of the economy. However, the implications of FDI on foreign trade are questionable. Therefore, this study uses a Granger causality technique to test whether the relationship between FDI and foreign trade is complementary or substitutive. The findings of this study indicate that this relationship appears to be complementary, and FDI investment does cause an increase in trade flow in the countries that are taken into consideration. This research aims to make a comparison between the relations of FDI flows of three groups of countries from the European Union (EU)—Romania and Bulgaria, the Visegrád Group and the Euro area—for the period of 2005 to 2019. However, the results indicate that this link between the variables is not yet found for the three group of countries, and further research is required in this aspect. This leads to the conclusion that the FDI impact on foreign trade of the host country depends on the type of investment and absorptive capacity of the receiver, the economic development of host and home countries, and not every type of FDI leads to more trade.

Discussing on The Need of Examining the Effect of FDI on Western China

Western China, where the over-all economic performance is the most lagged-behind in the country, exhibits significant differences in status of FDI (Foreign Direct Investment) and factors attracting FDI compared with its Eastern counterparty. The positive effects of FDI on economy has been proven in the East during decades of rapid development, while the interaction of FDI with local economy in the West has not been sufficiently studied.

How Industrialization Stage Moderates the Impact of China’s Low-Carbon Pilot Policy?

The goal of China’s low-carbon pilot policy (LCP) is not only to solve the problem of climate change but, more importantly, to achieve the low-carbon transformation of cities. This paper analyzes the industrialization stage’s moderating effect on LCP policy implementation using the difference-in-difference model (DID) with the Low Carbon Development Index (LCDI) as the explained variable. We find that for the low-carbon pilot cities (LCPCs) at the later stage of industrialization, the LCP policy has a positive impact on LCDI, gradually increasing with the study period’s extension. The marginal impact reaches its maximum in the second year after its implementation. For the LCPCs at the middle stage of industrialization, the LCP policy has a weakly negative impact on LCDI. The marginal impact does not change to positive until the fourth year after its implementation. In terms of mechanism analysis, the LCP policy enhances LCDI by slowing down the industrialization process and boosting innovation; the industrialization stage does not constrain the effect. In contrast, the LCP policy’s impact on LCDI by facilitating FDI (Foreign Direct Investment)inflows is strongly influenced by the industrialization stage. For the LCPCs at the later stage of industrialization, the LCP policy can enhance LCDI through FDI. For the LCPCs at the middle stage of industrialization, the LCP policy reduces the inflow of FDI, and the positive effect of FDI on LCDI does not pass the significance test. Thus, this paper argues that a one-size-fits-all strategy to policy implementation should be avoided. Instead, the industrialization stage should be considered a criterion for city classification, and a differentiated target responsibility assessment mechanism should be adopted according to local conditions.

Does foreign direct investment affect growth in MENA countries? A semi-parametric fixed-effects approach

ABSTRACTIt is often asserted with confidence that foreign direct investment (FDI) is beneficial for economic growth, especially in the host developing economy. Nevertheless, there is no empirical consensus on a positive effect of FDI on host-country growth, nor on the direction of causation. One of the reasons behind the lack of consensus is likely the presence of nonlinearities in the FDI and growth relationship. Most of the previous studies either used the linear empirical growth model or tried to bypass the nonlinearity issue by using ad hoc procedures. However, it is also true that growth theory provides little guidance about the exact nature of nonlinearity. Consequently, it is almost impossible to determine the exact form of nonlinear specification that would be appropriate for all data sets and data ranges. The paper investigates this challenging question in empirical growth literature that is the impact of FDI in promoting economic growth in developing economies without adopting any ad hoc procedure to capture the nonlinearity in the FDI–growth relationship. Based on a dualistic growth framework and a partial linear regression approach, it is possible to separate measures for sector externality and factor productivity effects between the two sectors (exports and non-exports sector). Sectoral externality is defined as a function of real FDI stocks per capita. Thereby, the adopted theoretical framework allows capturing both direct and indirect effects of FDI on economic growth across eight MENA countries during the period 1990–2016.

Does foreign direct investment and environmental degradation matter for poverty? Evidence from developing countries

This paper stains to investigate the causality between Foreign Direct Investment (FDI), Carbon dioxide emission (CO2) and poverty using simultaneous-equations models (SEM's) for a global panel of 98 developing countries over the period 1995–2017. We also implement these empirical models for three regions sub-panels: Asia, Africa and Latin America. Global panel results showed that there is a bi-directional causal relationship between FDI and poverty as well as CO2 emission and poverty. However, there is unidirectional causal relationship that runs from FDI to CO2 emission. Findings showed also a significant negative relationship between FDI and poverty for all groups of countries with the exception of the African panel. Other important results showed a negative impact of FDI on CO2 emission in African countries, an inverted U-shaped relationship between the two variables for Asian economies and a positive effect of FDI on environmental quality in Latin America.

Foreign direct investment and wage dispersion: Evidence from French employer-employee data

This article investigates to what extent outward foreign direct investment (FDI) affects domestic wages. Results reveal that multinational companies pay a wage premium to their employees and the wage premium is increasing within the wage distribution. In a second step, we use a fixed effect and match effect model to analyze the effect of outward FDI within job spells. Results suggest that outward FDI raises manager wages by 0.077% and reduces wages for workers performing offshorable tasks by 0.34%. The positive effect of FDI on manager wages is mainly driven by the intensive margin of outward FDI. This result is observed even after controlling for endogenous worker mobility. Finally, we observe that the increase of outward foreign direct investment cause wages to be higher, and this effect is due to both multinational companies paying a wage premium and to changes in the market value of unobservable worker skills.

An Investigation of the Dynamic Effect of Foreign Direct Investment (FDI) and Interest Rates on GDP in South Africa

Economic growth in South Africa has been in the “doldrums” for the past decade. If well managed, foreign direct investment (FDI) and repo rate (interest rate) could have a positive impact and assist in rapid economic growth so urgently needed in South Africa. FDI has been a driving force for growth in many developing economies. Not enough has been done to attract FDI in South Africa. The country has enormous ability and capacity to attract FDI inflows and to have the advantages from it. A quantitative research approach was used to analyse the association amongst the variables which include FDI, GDP and repo rate in the South African economy. The South African Reserve Bank database was used and the period analysed is from 2000 to 2016. Statistical and econometric methods such as correlation analysis, unit root tests, ARDL Bounds test for cointegration, an error correction model (ECM), and the Granger causality tests were used. Subsequently, after the econometric model was estimated, findings indicated the existence of a long-run relationship between the three variables. While, a significant positive relationship exists between FDI and GDP, a negative long-run relationship was found between GDP and repo rate and interestingly a nonsignificant relationship between repo rate and FDI. In the short run, the positive effect of FDI on GDP is minimal whilst a significant and positive relationship exists between GDP and repo rate. The results did also show some limitations in the results, with regards to FDI and repo rate that there is no significant relationship between the variables, meaning that repo rate does not have an impact on FDIs. Although some long-run evidence was found of FDI playing a role in economic growth in South Africa, such impact is limited. Also very interesting is that the repo rate and FDI do not have a statistically significant relationship. This could be due to the rising risks associated with investments in the country. In conclusion, there are many variables which could have a positive impact on the attraction of FDIs and such factors will be explored further in future studies.

THE IMPACT OF FOREIGN CAPITAL ON MACROECONOMIC PERFORMANCE IN CENTRAL ASIA

ABSTRACTThis paper investigates the short‐run impact of shocks in international capital flows channeled through foreign direct investment (FDI) and foreign aid on national output and export performance in five Central Asian economies under a dynamic multivariate structural vector autoregressive (SVAR) framework. The identification of structural shocks is implemented by AB model based on IS‐LM‐BP postulates. The main message is that external capital shocks are persistent and small open economies are weak to absorb them. Overall, the aid shocks reduce national outputs, while FDI increase it, on average. The expansion of global demand (G20) leads to an increase in domestic GDPs, notably in Kazakhstan, Kyrgyzstan and Uzbekistan. The impact is augmented by a positive effect of FDI on export channel (and net exports) that shift the IS curve upwards. We cannot find any significant aid‐FDI nexus in the region, except in Kazakhstan. The structural variance decomposition (SFEVD) results suggest that external flows and foreign demand together explain the bigger part of variability in domestic GDP and exports. Finally, variations in foreign capital, aid and FDI, are mainly explained by series themselves. The role of domestic activities is found to be weaker for aid and greater for FDI. The results could be attributed to rigid exchange rates, high trade dependence, and necessity for foreign capital to explore natural resources in Central Asian region. Our results provide some valuable suggestions to improve an investment climate for boosting economic growth.

Foreign direct investment and regional economic development in Russia: an econometric assessment

In this paper, we estimate the effect of foreign direct investment (FDI) on total factor productivity (TFP) in Russian regions, paying special attention to the country’s investment boom and the remarkable regional gaps in terms of cumulative direct investments in and after 2003. We also examine possible synergistic effects between FDI and local R&D potential to test the absorptive capacity hypothesis. Our estimation results strongly suggest the remarkable role of FDI in the regional economic development in Russia. In addition, we found that the positive effect of FDI on TFP may increase in the regions that received larger amounts of foreign capital. Furthermore, we detected a surprisingly robust and positive synergistic effect between FDI and local R&D potential, indicating that the absorptive capability is essential for linking FDI and regional economic development in Russia.

Investissement direct à l'étranger et performance à l'exportation

Cet article étudie la relation entre le stock d’IDE sortants et les flux de commerce bilatéraux des trois principaux exportateurs de la zone euro. A partir d’un modèle en panel dynamique estimé par la méthode des moments généralisés (GMM) en système, nous montrons qu’il existe une forte relation de complémentarité entre IDE et commerce pour l’Allemagne, en particulier avec les pays émergents. Les résultats concernant la France sont moins prononcés et indiquent uniquement une faible relation de complémentarité entre IDE et commerce avec les pays émergents. Enfin, une relation significative de substitution est trouvée dans le cas des flux commerciaux italiens en direction des pays les plus riches de notre échantillon.