Recipient Of Foreign Direct Investment Research Articles

Determinants of Foreign Direct Investment in Developing Countries

By bridging the gap between domestic savings and investment and bringing the latest technology and management know-how from developed countries, foreign direct investment (FDI) can play an important role in achieving rapid economic growth in developing countries. Developing countries have not been considered as favourable destinations for FDI as developed countries. Moreover, among the developing countries a few, such as China, India, Nigeria and Sudan, are the major recipients of FDI, with the rest vying for the scraps. Using panel data from 68 low-income and lower-middle income developing countries, this article strives to identify the factors that determine FDI inflow to developing countries. Based on a comparative discussion focussing on why some countries are successful in attracting FDI, the article demonstrates that countries with larger GDPs, higher GDP growth rates, higher proportion of international trade and a more business-friendly environment are more successful in attracting FDI.

Inter- and intra-industry linkages as a determinant of FDI in Central and Eastern Europe

This paper uses an unpublished dataset on disaggregated foreign direct investment (FDI) in Central and Eastern European countries (CEECs), and is rooted in new economic geography literature. A 10% increase in access to suppliers based in the FDI recipient country or access to the EU15 market for intermediate goods increases FDI by about 2% in Central European countries and by 1% in Eastern European countries. We argue that Central (core) European countries specialise in upstream industries and re-export goods toward FDI-origin countries, while Eastern (periphery) European countries are also involved in this production chain, but to a lesser extent.

A Study on the Changes of China's FDI Policies after WTO: Implications for Korean Firms

China has enacted many laws and regulations governing foreign direct investment (FDI) since its open-door policy was instituted in 1978. Such laws and rules have provided a basis for inward foreign investment. In 2002, China became the world's largest FDI recipient FDI has played an important role in contributing to the country's economic development and institutional reform. The regulatory environment for FDI has improved as a result of China's accession to the World Trade Organization (WTO) in 2001. This study analyzes the changes in China's FDI policy as a result of accession to the WTO and provides the strategic implications for Korean firms looking to invest in China.

China and Central and Eastern European Countries: Regional Networks, Global Supply Chain or International Competitors?

China has emerged as one of the top recipients of foreign direct investment in the world. Meanwhile, the successful transition experience of many Central and Eastern European countries has also allowed them to attract an increasing share of global foreign direct investment. In this paper, the authors use a panel data set to investigate whether foreign direct investment flows to these two regions are complements, substitutes, or independent of each other. Taking into account the role of host country characteristics - such as market size, degree of trade liberalization, and human capital - the authors find no evidence that foreign direct investment flows to one region are at the expense of those to the other. Instead, the results suggest that foreign direct investment flows are driven by distinct regional production networks (and thus are largely independent of each other) and the development of global supply chains (indicating that foreign direct investment flows are complementary).

An Analysis on Factors of Success for Chinese/European JVs in Culture Aspect

China is the largest recipient of foreign direct investment (FDI) among all developing countries (Tsang,1998). Nowadays, more and more worlds leading multi-national companies have set out on a joint venture with Chinese State owned enterprises. The main motive for many European companies in establishing the enterprise in China is to gain entry to its potentially large market (Strange,1998). A successful joint venture will offer the access to large market and the access to greater resources, including specialized staff and technology. It allows the firm to share the costs and risks with the partner. However, the potential problems of cooperating with a partner from a different national culture led to some unique risks. The cultural difference may also create ambiguities in the relationship, which may result in conflict and even dissolution of the enterprise (Barkerma, 1997). The principal reason why joint ventures fail is not because the contracts are poorly written but because the managers involved failed to make them work (Harrigan, 1986). This paper is a comparative study based on the Chinese culture environment and the international business environment literature. This paper focuses on the Chinese cultural environment and also compare with the European culture in order to find out the critical element for the success of the European/Chinese joint venture enterprise.

Foreign Firms and Chinese Employment

This paper examines the effect of foreign direct investment (FDI) on employment in the Chinese manufacturing sector. As one of the world's largest recipients of FDI, China has arguably benefited from foreign multinational enterprises in various respects. However, one of the main challenges for China, and other developing countries, is job creation, and the effect of FDI on employment is uncertain. The effect depends on the amount of jobs created within foreign firms as well as the effect of FDI on employment in domestic firms. We analyse FDI and employment in China using a large sample of manufacturing firms for the period 1998–2004. Our results show that FDI has positive effects on employment growth. The relatively high employment growth in foreign firms is associated with their firm characteristics and their high survival rate. Employment growth is also relatively high in private domestic Chinese firms. There also seems to be a positive indirect effect of FDI on employment in private domestically‐owned firms, presumably caused by spillovers.

Historic and Emergent Trends in Chinese Outward Direct Investment

A substantial body of literature has grown on the prominence of China as a recipient of foreign direct investment (FDI) and its consequences for national economic development and management practice (Branstetter and Lardy, 2006). By contrast, much less attention has been paid to China’s position as an FDI source. Given that China attracted an annual average FDI inflow of around US$29bn (or more than 7% of the world’s total) in the 1990s, but contributed less than US$2.5bn (around 0.6%) to global outflows, this is perhaps not surprising (UNCTAD, 2006). However, the sharp growth in Chinese outward direct investment (ODI) evident since 2002 (illustrated in Figure 7.1) combined with a number of recent high profile attempts by Chinese enterprises to acquire North American and European firms have brought into relief China’s rising status and potential as an investor nation. This potential is recognised in a recent UNCTAD survey of investment promotion agencies which predicts that China will become a ‘top three’source country for FDI before the end of 2008 (UNCTAD, 2005). It is also highlighted by the Director-General of UNIDO, Kandeh Yumkella, who suggests that annual flows of Chinese outbound investment are likely to reach US$60bn by 2010 (MOFCOM, 2006). If growth rates in Chinese ODI continue and these predictions are realised, China’s contribution to global FDI flows is likely to approximate current outflows of the leading industrialised countries.

Agglomeration Effects in Foreign Direct Investment and the Pollution Haven Hypothesis

Does environmental regulation impair international competitiveness of pollution-intensive industries to the extent that they relocate to countries with less stringent regulation, turning those countries into “pollution havens”? We test this hypothesis using panel data on outward foreign direct investment (FDI) flows of various industries in the German manufacturing sector and account for several econometric issues that have been ignored in previous studies. Most importantly, we demonstrate that externalities associated with FDI agglomeration can bias estimates away from finding a pollution haven effect if omitted from the analysis. We include the stock of inward FDI as a proxy for agglomeration and employ a GMM estimator to control for endogenous time-varying determinants of FDI flows. Furthermore, we propose a difference estimator based on the least polluting industry to break the possible correlation between environmental regulatory stringency and unobservable attributes of FDI recipients in the cross-section. When accounting for these issues we find robust evidence of a pollution haven effect for the chemical industry.

China and Central and Eastern European Countries: Regional Networks, Global Supply Chain or International Competitors?

China has emerged as one of the top recipients of foreign direct investment in the world. Meanwhile, the successful transition experience of many Central and Eastern European countries has also allowed them to attract an increasing share of global foreign direct investment. In this paper, the authors use a panel data set to investigate whether foreign direct investment flows to these two regions are complements, substitutes, or independent of each other. Taking into account the role of host country characteristics - such as market size, degree of trade liberalization, and human capital - the authors find no evidence that foreign direct investment flows to one region are at the expense of those to the other. Instead, the results suggest that foreign direct investment flows are driven by distinct regional production networks (and thus are largely independent of each other) and the development of global supply chains (indicating that foreign direct investment flows are complementary).

Which Country Will Be the World Economic Leader in the Next Generation: The United States or China? And the North Korean Factor

Is There Another Wave of American Decline?The collapse of the Soviet Union in 1991, along with the unusually strong performance of both the U.S. economy and its stock market during the 1990s, elevated the United States to an unsurpassed level of economic, military, and cultural power. However, in the early 2000s, the United States has faced its sixth wave of decline since the 1950s, a phenomenon largely triggered by its external economic problems and the September 11, 2001, attacks against the World Trade Center in New York and the Pentagon in Washington, D.C. The first wave occurred in 1957 and 1958, when the Soviet Union launched the Sputnik, the first manned satellite. The second wave came at the end of the 1960s, when President Nixon began to prepare Americans for a multipolar world because American decline economically and militarily was inevitable. The third wave followed immediately after the OPEC oil embargo in 1973 and the dramatic increase in oil prices. The fourth wave took place in the later 1970s, because of the Vietnam War, the Watergate scandal, the continued development of Soviet nuclear forces, and the expansion of Soviet power in a half-dozen countries, such as Angola. The fifth wave happened in the late 1980s, largely due to U.S. foreign debt as well as financial threats from Japan.Every single empire and great nation of history has been destroyed or greatly diminished in world influence. Why should we assume that the United States, today's great nation, could defeat the pattern of history? If we assume an American decline for a moment, China seems likely to emerge as a great power, which might end the dominance of the United States in the game of influence on world affairs. We can base the current wave of decline on three bodies of evidence: (1) mounting U.S. budget and trade deficits, (2) economic and military threats from China, and (3) a growing world resistance to American unilateral actions. Let us examine, however, these three bodies of evidence, along with other arguments, before we willingly accept such a gloomy conclusion.Fading America and Emerging ChinaWorld economies strongly affect international politics. At present, about 200 economies interact on the world political and economic stages. This interaction raises important questions. Will the United States maintain not only military superiority but also its economic dominance in the world? Will any country challenge the United States as the superpower? If we assume an American decline for a moment, no other economic leader, with the possible exception of China, seems likely to emerge in the next generation. The question, however, is whether China can actually fulfill that potential. The Chinese leaders have long aspired to a great China- a country with a world-class economy, a strong military, and the restoration of full sovereignty over Taiwan and other disputed islands within its claimed territorial boundaries.Is the United States really passing its baton in the race for world economic leadership to China? Is there anything special about China? Oded Shenkar3 argues that the rise of China in the early 21st century is distinctive and has more in common with the rise of the United States in the 20th century than with the advance of other countries such as Japan. We can find several compelling arguments that such a switch is already under way. For in almost every dimension-population, the numbers of engineers and scientists, trade, international reserves, investment, gross national product, and many other areas-China's activity will challenge that of the United States. At present, China has the world's largest population, graduates the world's largest number of engineers and scientists every year, enjoys the world's largest current account surplus, has the world's largest reserves of foreign exchange and gold, is the world's largest recipient of foreign direct investment, has the largest standing army in the world, and commands the world's second-largest economy in purchasing power parity. …

AUSTRALIA'S DIRECT INVESTMENT IN CHINA: TRENDS AND DETERMINANTS

China has been the largest foreign direct investment recipient among developing countries, and Australia's direct investment in China is also growing steadily. This article investigates the trends and determinants of Australia's direct investment in China. Evidence presented in this paper indicates that Australia's direct investment in China is above the equilibrium level and that its regional distribution is correlated with economic and policy factors.

Growth of the Spanish Multinational in Latin America During the 1990s

ABSTRACT During the 1990s, Spain changed from a net recipient of foreign direct investment (FDI) to one of the most important investors in Latin America. Fieldwork in this article identifies trends and directions of Spanish acquisitions, with an emphasis on the 1990 to 2001 period. An overview of the emergence of the Spanish MNC is followed by a statistical analysis of its competitive (i.e., ownership) advantage as measured by the relative strength of market size, wage differentials and cultural affinity. This analysis helps in explaining the link between strategic decisions of Spanish MNCs and their choice of geography and industrial sector. The empirical analysis finds Spanish MNCs responded to privatisation opportunities to gain access to specific foreign markets rather than to attempt to create global export platforms. RESUMEN. Durante los años 90, España se transformó de un país recipiente neto de las inversiones extranjeras directas (IFD) en uno de los más importantes inversores en América Latina. En este artíiAculo, el trabajo de campo identificó las tendencias y orientaciones de las adquisiciones españolas, enfatizando especialmente el período 1990 a 2001. Una perspectiva general de la emergencia de la Empresa Multinacional española también ofrece un análisis estadístico de su ventaja competitiva (Ej.: propiedad) medida por una fuerza relativa del tamaño del mercado, diferenciales en los sueldos y afinidad cultural. Este análisis ayuda a explicar el eslabón que existe entre la toma de decisiones estratégicas de las Empresas Multinacionales españolas y su decisión cuanto a la posición geográfica y sector industrial de su interés. El hallazgo del análisis empírico muestra que, para ganar acceso a los mercados extranjeros específicos, las empresas multinacionales españnTolas responden a las oportunidades de privatización en vez de tratar de crear plataformas de exportación globales. RESUMO. Durante a década de 1990, a Espanha mudou de receptora líquida de investimentos estrangeiros diretos para um dos investidores mais importantes na América Latina. O trabalho de campo neste artigo identifica tendências e direções das aquisições espanholas, com ênfase no período de 1990 a 2001. Uma visão geral da emergência das multinacionais espanholas é seguida por uma análise estatística de sua vantagem competitiva (ou seja, de propriedade) medida pela força relativa do tamanho do mercado, diferenciais de salário e afinidade cultural. Esta análise ajuda a explicar o vínculo entre as decisões estratégicas das multinacionais espanholas e sua opção de geografia e setor industrial. A análise empírica constata que as multinacionais espanholas respondera a oportunidades de privatizaşão para ganhar acesso a mercados estrangeiros específicos, em vez de tentar criar plataformas de exportação globais.

Motivation of chinese investment in vietnam

China attracted a record of US$52.7×109 in foreign direct investment (FDI) in the year 2002, surpassing the United States to become the world’s largest FDI recipient. China’s success in attracting FDI has received significant attention from academics. Several theoretical approaches have been developed to explain the determinants of FDI in China. However, it seems to be ignored that China has also become a growing provider of significant FDI to the rest the world. According to United Nations Conference on Trade and Development (UNCTAD)’s 2004 report, as a developing country, replacing Japan, China has made the list of the expected top five home countries worldwide for the first time in terms of geographical coverage (2004–2005). Vietnam is second largest market and another emerging transition tiger in Southeast Asia. Both China and Vietnam were and are experiencing transitions from centrally planned economy to free market economy. This paper, therefore, attempts to explore the development of Chinese investment in Vietnam, analysing the main motives for, and characteristics of, Chinese Multinational Enterprises’ (MNEs) investment in Vietnam.

Managing Functional Diversity to Improve the Performance of International Joint Ventures

International Joint Ventures (IJVs) have become one of the most important ways for companies to expand their activities and exploit business opportunities abroad. In China, for example, which has become the world's largest recipient of Foreign Direct Investment, IJVs with local companies are the most important way of doing business. However, many companies have learnt that the performance of their joint ventures in China does not meet their expectations. This study focuses on functional diversity - differences in business practices between foreign and local companies - and its influence on IJV performance. We investigate the influence of this functional diversity on the performance of IJVs and discuss how companies can moderate this influence through adaptation, trust, commitment and communication. Hypotheses are formulated and empirically tested using data gathered through a questionnaire survey of managers of German-Chinese IJVs. The results show that although functional diversity has a negative impact on IJV performance, managers can influence the magnitude of this impact. We use insights from interviews with managers of German-Chinese IJVs in China to supplement our discussion and provide some indication of best practice.

FDI Flows to Latin America, East and Southeast Asia and China: Substitutes or Complements?

China in recent years has emerged as the largest recipient of foreign direct investment (FDI) in the world. Many analysts and government officials in the developing world have increasingly expressed concerns that they are losing competitiveness to China. Is China diverting FDI from other developing countries? Theoretically, a growing China can add to other countries' direct investment by creating more opportunities for production networking and raising the need for raw materials and resources. At the same time, the extremely low Chinese labor costs may lure multinationals away from sites in other developing countries when the foreign corporations consider alternative locations for low-cost export platforms. In this paper, we explore this important research and policy issue empirically. We focus our studies on East and Southeast Asia as well as Latin America. For Asia, we use data for eight Asian economies (Hong Kong, Taiwan, Republic of Korea, Singapore, Malaysia, Philippines, Indonesia and Thailand) for 1985-2002 while for Latin America, we use data for sixteen Latin American economies (Argentina, Bolivia, Brazil, Chile, Columbia, Costa Rica, Ecuador, El Salvador, Guatemala, Mexico, Nicaragua, Panama, Paraguay, Peru, Uruguay and Venezuela) for 1990-2002. We control for the standard determinants of their inward direct investment. We then add China's inward foreign direct investment as an indicator of the China Effect. Estimation of the coefficient associated with the China Effect proxy gives us indications about the existence of the China Effect. We have three results: (1) The level of China's foreign direct investment is positively related to the levels of inward direct investments of economies in East and Southeast Asia, while the China Effect is mostly insignificant for Latin American nations; (2) the level of China's foreign direct investment is negatively related to the direct investment of these economies as shares of total foreign direct investments in the developing countries; (3) The China Effect is generally not the most important determinant of the inward direct investments of these economies. Market sizes and policy variables such as openness and corporate tax rates tend to be more important.

Why does so much FDI from Hong Kong and Taiwan go to Mainland China?

While the European Union, the US, and Japan (the Triad) supply 90% of global foreign direct investment (FDI) and China is the second largest FDI recipient in the world, most FDI into China did not come from the Triad but from Hong Kong and Taiwan (HKT). Evidence presented in the paper reveals that the unusually large amount of Hong Kong–Taiwan direct investment (HKTDI) cannot be fully appreciated without understanding China's location characteristics and differences between HKTDI and the Triad FDI. Four determinants of the dominant HKTDI in China are identified: China's export-promotion FDI strategy, its large pool of cheap labor, HKT's specific advantages in export-oriented FDI, and their unique links with China (the Chinese connections). Empirical results suggest that HKTDI was primarily motivated by low labor costs while FDI from the Triad was market-oriented. As China's domestic markets become more open to foreign investors, the share of HKTDI may shrink and the importance of FDI from the Triad may rise.

Foreign direct investment in the UK: evidence from a disaggregated panel of the UK food sector

Most empirical studies of foreign direct investment (FDI) typically use either a cross-sectional (capturing ownership-specific and industry determinants) or time-series (capturing the determinants of FDI over time) approach. Panel data techniques, however, have the advantage of combining both aspects of the data. Using disaggregated panel data for the UK food sector – a leading recipient of FDI in the UK – the results in this paper highlight the predominance of ownership-specific and industry characteristics in determining the presence of foreign-owned firms in this sector while macro-economic factors have a more marginal effect.

Regional Integration and Benefits from Foreign Direct Investment in ASEAN Economies: The Case of Viet Nam

In recent years Viet Nam has been pursuing the twin goals of promoting inward foreign direct investment (FDI) and regional development in the context of the Association of Southeast Asian Nations (ASEAN). The paper surveys transnational corporations (TNCs) with operations in ASEAN, and finds that Viet Nam has now largely achieved its initial objective of being a major FDI recipient. The regional aspect is especially manifest in consumer electronics, although most subsidiaries in Viet Nam still perform assembly-type operations oriented toward the local market. This has to change if Viet Nam is to maintain its development momentum. Under the threat of international competition and in order to maximize the dynamic gains from FDI, Viet Nam has to reorient its policies and emphasize a shift toward targeting efficiency-seeking investments and developing more advanced links with TNC regional and global value chains. This new approach would benefit from a full-scale development of the ASEAN Free Trade Area (providing access to a regional market) and the ASEAN Investment Area (securing capabilities in Viet Nam and other ASEAN countries), as well as other regional trade and investment initiatives.

Rise and Fall of Foreign Direct Investment in Vietnam and its Impact on Local Manufacturing Upgrading

The doi moi reforms in 1986 initiated private sector development and opened the economy to foreign direct investment (FDI). In relative terms, Vietnam became a large recipient of FDI by the middle of the 1990s. However, FDI seemed to peak in 1997 and has since been fluctuating at a much lower level. This article questions what the impact has been of the internal and external changes on the flow and composition of the FDI to Vietnam and further asks how the inflow of FDIs has affected the development of the private manufacturing sector. Other sectors than manufacturing have attracted large shares of FDI. Within manufacturing, much has gone to highly protected import-substitution industries. At least some of the wanted effects appear not to have materialised, particularly when one looks for linkages and transfer of technology. On the other hand, FDI's contribution to exports has developed fast. Policy changes are still taking place and are also needed. Although more FDI is now going into manufacturing, it still appears uncertain whether Vietnam by the means of FDI will be able to follow in the footsteps of the neighbouring second generation newly industrialising countries.

Foreign Direct Investment and Economic Growth: The Importance of Institutions and Urbanization

where g denotes the equilibrium rate of growth, s denotes the capital-formation rate, and b is the productivity of capital. Foreign direct investment (FDI) adds gross capital formation and, hence, raises s. The FDI also raises the productivity of capital, b, through improved competition, positive technological externalities, and accelerated spillover effects. Therefore, many developing countries have been aggressive in their efforts to attract FDI. However, most theories of FDI determination are developed from the perspective of a multinational corporation. This article argues that, in addition to the standard factors affecting the cost-benefit analysis of an investment project, there are intangibles, such as bureaucracy, degree of openness, stability of the institutions, and urbanization, and that these are just as important in attracting FDI. We use a panel data of 23 developing countries from 1976 through 1997 to analyze factors determining foreign direct investment. We also provide a statistical analysis of the relationship between economic growth and the inflow of FDI. Moreover, China, since its opening up in the late 1970s, has been the greatest recipient of FDI among developing countries (US$346.703 billion received from 1979 to 2000) and has stood as the second largest recipient of FDI in the world, next to the United States. However, FDI distribution in China has also been extremely uneven (see table 1). During the 1985–91 period, 89.49% of actually used FDI was absorbed by nine coastal provinces