Relationship Of Foreign Direct Investment Research Articles

Do FDI and foreign remittance inflows affect the unemployment rate? A new insight

This study aims to investigate the impact of FDI and foreign remittances on unemployment from 1991 to 2020 from Bangladesh's perspective. With the use of EViews 10 version, this study used the ARDL technique to capture the long-run and short-run estimations. The study utilized the unemployment rate as a dependent variable and foreign direct investment (FDI) and foreign remittances as independent factors. The remaining factors include exchange rate, GDP growth, exports, and inflation rate; these are controllable variables. The results of the research show that FDI and foreign remittance have a positive and statistically significant association with unemployment rate in Bangladesh, both in the long run and in the short term. Thus, according to the findings, FDI and foreign remittances are creating more unemployment in Bangladesh. Unlike the general economic theory, which states that the bidirectional relationship of FDI with the unemployment rate, as well as foreign remittances with the unemployment rate, is inverse, these research outcomes basically suggest that FDI and foreign remittance inflows are displacing domestic labor with, perhaps, a low-cost, highly skilled overseas workforce, and also indicate that there might be an increasing trend in the brown-field investment sector. For policy implications, this investigation lends support to the theory that Bangladesh should focus more and more on skilled development policies for domestic workers and create a sound environment for foreign investors in order to reduce the country's unemployment rate.

Foreign direct investment and environmental degradation: Can intellectual property rights help G20 countries achieve carbon neutrality?

The G20 comprises rich, industrialized, and powerful nations that advance the world economy through foreign direct investment (FDI). Nevertheless, these countries account for the largest share of global carbon dioxide emissions (CO2). Enforcing intellectual property rights (IPRs) has become a useful tool for stimulating clean technologies to mitigate climate change. This study examines how IPR enforcement moderated the inflow of FDI and carbon emissions in the G20 from 2001 to 2017. We applied the Driscoll-Kraay robust standard error technique, Fully Modified Ordinary Least Squares (FMOLS), Dynamic Ordinary Least Squares (DOLS), and Dumitrescu-Hurlin causality tests. The results show that FDI increases emissions, thus confirming the pollution haven effect. Long-term estimates suggest that the moderating role of IPRs in FDI significantly reduces environmental degradation. Causality analysis shows that FDI causes CO2 emissions in the long run, and carbon emissions enforce IPR regulations. Furthermore, we observed bidirectional causality between IPRs, FDI relationships, and carbon emissions. Based on these results, policymakers should enhance IPR policies and encourage clean technology through FDI among G20 members. In addition, governments should promote the clean-up of industrial processes, green finance, and the consumption of eco-friendly technologies, such as renewable energy, to achieve carbon neutrality.

Impact of Foreign Direct Investment on the Economic Growth of Nepal

The study investigates the factors influencing foreign direct investment (FDI) and its sectoral distribution in the Nepalese economy, specifically examining the relationship and impact of FDI on sectors such as minerals, manufacturing, construction, energy, and services over a ten-year period from 2011/12 to 2020/21. Descriptive and correlational research design was employed in the annual time series data. The major findings reveal a positive correlation (correlation co-efficient of 0.668) between FDI and Gross Domestic Product (GDP), signifying a significant relationship. The study concludes that FDI has a substantial impact on Nepal's GDP. Additionally, sectoral FDI investments, including minerals, construction, energy, manufacturing, and services, also positively influence the country's GDP. The study suggests that despite Nepal's untapped FDI potential, implementation challenges, lengthy approval processes, and a service sector bias among investors hinder optimal exploitation of investment opportunities in other sectors with higher productivity.

Uneven geographical distribution of R&D-related foreign direct investment in Latin America: Uncovering the paradox of national development

Uneven geographical distribution of R&D-related foreign direct investment in Latin America: Uncovering the paradox of national development

An Extremely Endogenous Relationship of Technology Gap With Foreign Direct Investment and Employment in India

This research article examines causal relationships between three most important factors of economic growth, i.e., foreign direct investment (FDI), technology gap, and employment in India. First, the study explores the relationship of FDI with technology gap. Consequently, the study strives to understand the effect of technology transfer through FDI on the level of employment and self-employment/entrepreneurship while considering the role of trade liberalization in the FDI–technology–employment relationship. The modified Wald test of Toda and Yamamoto (1995) has been applied for the study. The major finding of the study is that the state of technology in India is acting as a driving force behind FDI, which, in turn, is pushing the agenda of trade liberalization. Therefore, FDI and trade openness are becoming the key influencers for employment generation in industries and also inducing self-employment and entrepreneurship across various sectors of the economy. A direct two-way relationship has also been found between technology and employment (employment in industrial sector and the self-employed people/entrepreneurs) in India. This implies that technology is a motivating factor behind the present scenario of trade markets in India. This article provides good policy insights for developing strategies toward technology transfer, investments, and employment creation.

Trade liberalization, regional trade openness degree, and foreign direct investment:Evidence from China

This paper investigates the relationship among trade liberalization, the degree of trade openness (DTO) and regional foreign direct investment (FDI) using Chinese data for 2001–2018 by hand collection. We apply the fixed effect model and find that both trade liberalization and regional DTO have a significantly positive relationship with regional FDI. Furthermore, a variable coefficient model is used to prove that the effects of trade liberalization on regional FDI are heterogeneous across regions. Finally, we use the threshold model to prove the significant threshold effects of DTO on the relationship of trade liberalization and FDI. This paper provides theoretical and policy support for countries with obvious regional differences to attract FDI.

EXAMINING TAX RATES, TERRORISM, AND TRADE OPENNESS AS DETERMINANTS OF FOREIGN DIRECT INVESTMENT IN PAKISTAN: AN EMPIRICAL ASSESSMENT

Foreign direct investment is crucial for economic development, particularly in emerging economies. Recently, developing countries has seen a rise in the rate of foreign direct investment (FDI) inflows on an annual basis. Tax holidays, investment allowances, exemptions, deductions, and other tax breaks are some of the incentives that a number of countries are providing in an effort to attract more foreign direct investment (FDI). The purpose of this study is to investigate how decisions about foreign direct investment (FDI) are affected by Pakistan's tax system. Specifically, researchers analyzed the impact of the statutory corporation tax rate, the real effective exchange rate, terrorism, and trade openness on foreign direct investment, with GDP growth serving as the controlled variable. Data from time series covering the years 1986 to 2021 are used. The data was compiled using the World Development Indicator (WDI) and the Economic Survey of Pakistan. Researchers used the empirical methods of Auto-Regressive Distributed Lag (ARDL) and Error Correction Model (ECM). The findings indicated that low taxes encouraged long-term FDI relationships between Pakistan and international investors. The statutory corporate tax rate, the real effective exchange rate, and the threat of terrorism are all independent variables that have a negative and significant influence on foreign direct investment. In addition, the findings showed that a significant and favorable influence on foreign direct investment (FDI) was achieved by an increase in both trade openness and GDP growth. It is suggested that developing countries decision-makers implement measures that reduce taxes in order to attract foreign direct investment. In this context, the government must review its foreign direct investment formulation goals.

FDI or International-Trade-Driven Green Growth of 24 Korean Manufacturing Industries? Evidence from Heterogeneous Panel Based on Non-Causality Test

Manufacturing, as an energy-intensive industry, plays a major role in economic growth. Its green growth is the focus of national planning for sustainable development, especially for a country such as Korea, which has a scarcity of fossil energy of its own. While internationalization has brought Korea scarce energy, serious carbon emissions have become a pressing issue. It is still necessary to explore the relationship between globalization and green growth in manufacturing. Thus, our paper aims to observe their relationship by using 24 manufacturing industries from 2011 to 2019. Through the panel Granger non-causality test and the Dumitrescu–Hurlin test, we find that imports and inward foreign direct investment (FDI) causes green growth at the overall manufacturing level, but their causality relationships exist in different industries. The green-growth causality relationship of inward FDI mainly exists in capital-intensive and internationally competitive manufacturing industries (manufacture industries of basic metals; furniture; food products; coke, briquettes, and refined petroleum products; and chemicals and chemical products, except pharmaceuticals and medicinal chemicals). Furthermore, the green-growth causality relationship of imports primarily exists in the fossil-energy-consumption-intensive manufacturing industry (manufacture industries of motor vehicles, trailers, and semitrailers and coke, briquettes, and refined petroleum products). Furthermore, in our regression analysis, we find that only inward FDI robustly promotes the Korean manufacturing sector’s green growth; the positive effect is in the range from 0.005 to 0.009. Though the parameter estimates are positive and significant for FDI, they are close to zero, suggesting very limited positive effects that are close to almost zero. Conversely, imports have no significant impact, which we speculate is related to the import structure of Korea. Hence, the Korean manufacturing development model suggests that developing countries with similar country characteristics need to develop and guide the formation of capital-intensive and competitive industries. Additionally, it is imperative to decarbonize energy-intensive industries and to work on renewable energy development and diffusion. Finally, it is essential to introduce various green monitoring mechanisms to reduce carbon emissions. The government needs to strengthen its support for research and development of innovative technologies to reduce carbon emissions as well as promote the development of environmental and energy-saving related professional service enterprises.

Corruption, FDI, and Trade Freedom Relationship Between Turkey and Latin American Countries

Foreign Direct Investment (FDI) has been always associated with a high level of trade openness and freedom environment, and with a lower incidence of institutional corruption. Because it is assumed that a high level of international capital mobility makes foreign investors more cautious when there is a fluctuation in political stability and institutional transparency. Most American countries (except Canada and the USA) have been always related to a lack of transparency in their institutional and bureaucratic procedures, which conduct to important levels of corruption and in consequence, to other serious issues such as prominent level of violence, or even the inequality phenomena. This study investigates whether the variables of corruption indices, trade openness and inflation rates have positive or negative effects on FDI between Turkey and American countries. For analyzing this econometric model, it was gathered information from OECD, COMTRADE, TUIK, Heritage Foundation, UNCTAD, and the World Bank Database. The observed data correspond to a decade (2005-2014) and were only taken a sample of 14 American countries.The empirical results of the present study revealed that there is a positive correlation between the trade openness index and FDI; and, it was found a positive correlation between corruption index, inflation, and FDI. The increase in the corruption index causes a 41% increase in FDI inflow.

Exchange rates and foreign direct investment: Evidence from Chinese firm‐level data

AbstractThis study investigates the effect of the exchange rate on foreign direct investment (FDI). The exchange rate effect manifests itself theoretically but remains ambiguous empirically. In the literature, (a) FDI is treated predominantly as a continuous variable, while the discrete nature of FDI decisions is neglected; (b) FDI data are in aggregated form, masking the true firm‐level exchange‐rate–FDI relationship; and (c) regression models adopted are ill‐suited to analyse exchange rate and FDI data as both of these display different time‐series properties. To overcome these problems, we propose the use of (i) a discrete choice model with a mixed logit application to capture discrete investment decisions and firm heterogeneity; (ii) cross‐section dimension to reduce the problem arising from the time‐series dimension; and (iii) firm‐level location choice data and real exchange rate data reflecting international price level differences so that (i) and (ii) are implemented. With these new features, we perform an empirical analysis using firm‐level data on the location choice of Chinese outward FDI during 2005–2016. Our estimation results detect a significant exchange rate effect not accounted for previously, explaining why the evidence for the effect has been mixed across studies.

Globalization of innovation: the moderating role of project-level investment strategy and country type in location choice for R&D-related FDI

The current stage of globalization involves geographically dispersed research and development (R&D) investments that are not confined to advanced economies. These cross-border R&D investments are driven by multinational enterprises’ (MNEs’) strategies for exploring and/or exploiting foreign locations. In this paper, we analyse location choice and the moderating effect of project-level investment strategy (i.e. exploration or exploitation) and type of host economy (i.e. advanced or emerging) on the importance of the innovation framework and local innovation capabilities. Our analysis of 588 R&D-related foreign direct investment (FDI) projects in the pharmaceutical and biotech industries during the 2006–2016 period reveals that whereas a host country’s innovation framework and capability overall do affect the location decision, their ultimate effects are conditional on the combination of project-level investment strategy and type of economy. Our findings have policy implications for FDI policies aiming at enhancing linkages between MNEs and local actors and national science, technology, innovation and educational policies and programmes.

Impact of Exports and Foreign Direct Investment on Gross Domestic Product in Sub-Sahara Africa

ABSTRACTBhagwati developed a hypothesis that expected economic growth (EG) enhancing impact of exports (EXP) and foreign direct investment (FDI) interaction. This paper checks the validity of the Bhagwati hypothesis by examining the moderation and mediation effect of EXP in the relationship between FDI and Gross domestic product for Sub Sahara Africa countries (SSA) during 2018 period. To achieve the article purpose, normality test, robust regression, and causal analysis using bootstrapping procedure were performed using R programming environment. The correlation results revealed a strong correlation between FDI-EXP-GDP. The coefficient of the robust regression of the interaction term of EXP and FDI was found positive, and statistically significant. The result of the mediation analysis showed that indirect relationship of FDI was found positive and significant whereas direct relationship was not significant. The results are consistent with the previous studies, theory, and Bhagwati hypothesis. Theorical and practical implications were presented.

Foreign direct investment and entrepreneurship: Does the role of institutions matter?

Development economics, international business, and entrepreneurship literature suggest that foreign direct investment (FDI) has significant positive spillover effects for entrepreneurial activities of host economies. However, the findings of past research are mixed, and they do not always confirm this suggestion. We argue that the reason for conflicting findings may be because of an incomplete understanding of the factors that influence the FDI-entrepreneurship nexus in different contexts. Previous studies have carried out only limited exploration of the contingencies in the FDI and domestic entrepreneurship relationship that may depend on the host country’s institutional capacity. We argue that not all countries can reap the rewards from FDI equally. Rather, we hypothesize that countries need to have a sufficient degree of institutional capacity relevant to specific conditions and appropriate threshold levels to successfully capture the positive spillover effects of FDI on domestic entrepreneurship. Utilizing panel data from 2006 to 2016 for 97 emerging markets, developing and developed countries (at different income levels), and a System Generalized Method of Moments (SGMM) estimator that controls for instrument proliferation in dealing with endogeneity problems, we test this hypothesis. We find that FDI has a negative (crowding-out) effect on domestic entrepreneurship at below-threshold levels of institutional capacity, and a positive (crowding-in) effect at above-threshold levels of institutional capacity. The crowding-out effect diminishes as the institutional capacity changes or improves to meet mutating economic environment conditions. Our findings are robust across a wide range of aggregate and disaggregate measures of different types of institutions and alternative empirical strategies.

EIB Working Papers 2020/02 - Impact of FDI on economic growth : The role of country income levels and institutional strength (Volume 2020/2)

Foreign direct investment (FDI) is generally considered a driving factor to economic growth. Nevertheless, empirical evidence is rather mixed, reporting a positive, neutral, or even negative relationship of FDI with growth. Our investigation concentrates on the impact of FDI inflows on growth and their effect mediated by income levels and the quality of the institutional environment. Specifically, we focus the interaction between country income levels - including low-, middle- and high-income countries - and FDI. This was not analysed thoroughly in earlier studies. Moreover, we deploy a new perspective to look into the FDI effects on growth mediated by institutional quality whereby we make use of country income levels as the key elements to peer-reference countries. Our study is based on 111 countries, stretching from developed economies to developing and emerging markets starting in 1980. Our estimations make use of panel GMM techniques robust to sample size, instrument proliferation and endogeneity concerns. We find that FDI benefits do not accrue mechanically and evenly across countries. We detect an inverted-U shaped relationship between countries' income levels and the size of FDI impact on growth. Moving from low to middle-income countries the effect gets larger. On the other hand, it diminishes again transitioning to high income countries. Finally yet importantly, we find that absorptive capacity matters in channelling FDI effects. Institutional factors have a mediating positive effect on FDI within country income groups, whereby countries with better-developed institutions relative to their income group peers show a positive impact of FDI on growth.

Complex dependence in foreign direct investment: network theory and empirical analysis

AbstractWe develop a theoretical framework that accounts for complex dependence in foreign direct investment (FDI) relationships. Conventional theories of FDI focus on firm-, industry-, country-, or dyad-level characteristics to account for cross-border capital movements. Yet, today's globalized economy is characterized by the increasing fragmentation and dispersion of production processes, which gives rise to complex dependence among production relationships. Consequently, FDI flows should be represented and theorized as a network. Specifically, we argue that FDI relationships are reciprocal and transitive. We test these hypotheses along with conventional covariate determinants of FDI using an exponential random graph model (ERGM) for weighted networks. We find that FDI networks exhibit strong reciprocity and transitivity. Our network approach to studying FDI provides new insights into cross-border investment flows and their political and economic consequences, and more generally the dynamics of globalization. In addition to our substantive findings, we offer a broad methodological contribution by introducing the ERGM for count-weighted networks in political science.

An Analysis of Mean Spillover Effects of US-China Trade War on Sub-Saharan Africa

Since 2018, the United States of America increased import tariffs especially to trading partners like China. This was in response to a huge trade deficit leading to escalating the US–China trade war. The spillover effects of the US–China trade war on some leading Sub-Saharan African countries namely Nigeria and South Africa is worthy of consideration. Using the (1) autoregressive distributive lag methodology and (2) formulated four trade models for current account balance, trade balance, tariff rates and foreign direct investment (FDI) in the US–China–Africa saga provide this perspective. They show strong spillover effects on the current account balance model, tariff rates, and FDI relationships. Consideration of trade balance as an indicator showed insignificant results. The result is an endorsement of open trade because it contributes to economic success in so many ways.

The influence factors of the national roles in the FDI network: A combined methods of complex networks and Panel Data Analysis

This paper examines the influence factors of Foreign Direct Investment (FDI) and focuses on the two main questions to be answered: (1) How do the foreign direct investment (FDI) network form and (2) what factors affect the formation of foreign direct investment (FDI) Network. First, we identify the basic FDI relationship in the homogeneous complex network of nations from 2001 to 2012. Then, we use the network indicators such as FDI relationships, independence, information control ability, FDI inflows and FDI outflows in FDI relations to construct the panel regression model to analyze the influence factors for Foreign Direct Investment. The results indicate that (1) The number of the nations with FDI relationships is increasing for 2001 to 2012, which highlight the importance of FDI relationship; (2) The nations in the FDI relationship network are getting closer and closer and the information of the network is controlled by few nations; (3) National competitiveness and inflows of FDI are directly related to each other; (4) Depreciation of exchange rate against USD increase FDI. This paper can help policymakers to better understand the features of FDI and thereby provides new insight for attracting FDI to promote economic growth.

Does Foreign Direct Investment Impact Energy Intensity? Evidence from Developing Countries

The paper presents the results of a study that attempts to investigate the impact of foreign direct investment (FDI) on energy intensity by constructing panel regression model and panel smooth transition regression (PSTR) model. Based on panel data from 1990 to 2014, this study contributes to conduct the impact of FDI on energy intensity from the perspective of emerging country, including BRICS and non-BRICS countries, and investigates the channels of influence of FDI on energy intensity. Besides that, we intend to employ the PSTR model to reveal the nonlinear mechanism of FDI on energy intensity. Our findings reveal several key conclusions: first, FDI exerts insignificant impact on energy intensity in the emerging countries. Second, the impact of FDI on energy intensity is heterogeneous between BRICS and non-BRICS countries. Third, innovation capacity plays various moderating effects on the relationship of FDI and energy intensity among different types of emerging countries. Furthermore, the nonlinear mechanism of FDI on energy intensity is realized with industrial structure as the transition variable, which plays a different effect on the impact of FDI on energy intensity between different samples.

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.

Impact of Foreign Direct Investment on Economic Growth of Nepal

This paper aims to investigate the impact of Foreign Direct Investment (FDI) on the economic growth of Nepal for the period 2008/09 to 2017/18 A.D. yearly data. It evaluated the Gross Domestic Product (GDP) performance and the trends of FDI and Gross Fix Capital Formation (GFCF) in Nepal. To demonstrate the relationship between Nepalese Gross Domestic Product (GDP) and Foreign Direct Investment (FDI) and Gross Fix Capital Formation (GFCF) Multiple-Regression-Model has been applied along with various econometrics techniques such as Unit-Root Test, Granger-Causality Test and Ordinary Least Square (OLS). GDP in this model is used as dependent variable whereas FDI and GFCF are measured as independent variables. According to the results, Unit Root Test indicated that all the variables included in the model were not stationary at level except FDI, whereas GDP and GFCF are stationary at first difference. The model is overall significant with the positive and significant relationship of GDP, FDI and GFCF. Result also indicate a good fit for the model with R2=86%. The Granger Causality Test revealed that there was no causality between the variables since all p-value obtained are more than 5%. Based on the empirical result of this paper, policy recommendation proposed that for Nepal to generate more foreign direct investment, hard work should be made at solving problems of government involvement in business; relative closed economy; corruption; weak public institutions; and poor external image, and political instability.