Foreign Direct Investment Stock Research Articles

Interconnectivity disrupted by fading globalization: A network approach to recent international trade developments

Abstract The post-World War II decades experienced rapid growth in international trade, but recently a trend of weakening globalization has been consolidating. We construct an International Trade Network (ITN) using bilateral trade (2010 to 2022) to assess how interconnectedness has evolved in the face of recent developments. Our analysis reveals that while network connectivity initially improved, there was a shift towards a negative trend from 2018, coinciding with an increasingly unfavorable environment for international trade. We also document significant changes in the roles of countries within the ITN. While the USA remains the primary hub and China solidifies its second position, key countries like Germany, France, Great Britain, and Japan have notably lost relevance, whereas nations like India and the Republic of Korea are gaining prominence. Finally, employing an econometric model, we show that countries with large economies, significant manufacturing sector, lower inward foreign direct investment stock, and economic and geopolitical stability tend to occupy more central positions in the ITN.

Global bank linkages and foreign direct investment

This study explores the impact of bank networks on foreign direct investment (FDI) using data on country pairs. Global bank linkages are quantified by the number of connected bank pairs engaged in international lending between the source and host countries. The empirical analysis reveals a positive correlation between bank linkages and bilateral FDI stocks. We interpret this relationship as indicating that bank connections facilitate FDI by addressing information asymmetry stemming from factors such as uncertainty, global financial crises, or host country shocks. Our findings remain robust across various robustness checks. This research suggests that governments should promote cross-border bank investments to attract FDI.

The role of foreign direct investment in east and Southeast Asia: Evidence before and after 2009 global financial crisis

This research investigates the influence of Foreign Direct Investment (FDI), domestic physical stock, and the human capital index on labor productivity across 17 East and Southeast Asian economies. In the period from 1980 to 2009 (pre-global financial crisis), the study reveals that, initially, FDI stock independently contributes little to productivity. It underscores the necessity of specific human capital thresholds for FDI to enhance productivity by facilitating technology diffusion from source to host economies. While most economies in our sample surpass these thresholds, Cambodia, Laos, and Myanmar do not, indicating unexploited potential for productivity enhancement via FDI. In the post-2009 era, following the financial crisis, FDI emerges as the primary driver of labor productivity in these economies, rendering the previously mentioned human capital thresholds less critical across all 17 economies. The study also observes a significant, mutually intensifying crowding-out effect between FDI stock and domestic physical capital, which notably escalated around the 2009 financial crisis. Despite this, the influence of FDI stock on labor productivity substantially surpasses that of domestic physical capital, especially after 2009. These insights underscore the critical need for policymakers to strategically balance the influx of foreign investment with domestic capital investment to optimize economic growth in the aftermath of the 2009 crisis.

Foreign Investments and Stock Market: Evidence From Palestine

Purpose: This study aims to examine the association between the different forms of inbound foreign investments and the Palestine Exchange (PEX) index to shed light on the nature of that impact.
 
 Theoretical Framework: Several academic studies have examined stock market index factors. Chen, Roll, and Ross's (1986) seminal study on macroeconomic conditions and U.S. stock returns provides an example. Interest rate, inflation, industrial production, risk premium movements, and dividend yield positively explain expected stock return. Abusharbeh and Karim (2016) found that interest and consumer price index positively affect banking and investment firm profits on The Palestine Exchange (PEX). Shahbaz (2013) examined how foreign direct investment affects Pakistan's stock market. Results supported foreign direct investment's stock market complementarity.
 
 Design/Methodology/Approach: The market index and panel quarterly data for inward foreign investments are used in this study. From 2009 to 2022, end-of-quarter data were collected on total inward foreign investments, their sub-components (direct investments, stock portfolio investments, and currency and deposits in Palestine), and the market index (Al-Quds index) closing value. Fifty-six observations were gathered.
 
 Findings: The study found that the overall model integrating all three types of inward foreign investments significantly explains the market index. Foreign portfolio investments (FPI) are significantly associated with the stock market index. However, the results showed that inward foreign direct investments (FDI) and foreign deposits and currency investments (FCI) have no significant impact on the stock market index, indicating that they do not complement or substitute each other.
 
 Research, Practical & Social Implications: This study can help the stock market, regulators, and policymakers create incentives and regulations to attract different forms of inward foreign investments. It also examines why foreign direct investments (FDI) and foreign deposits and currency investments do not complement or substitute stock market development.
 
 Originality/Value: This study provides empirical evidence on the impact of the different forms of foreign investment in Palestine on the stock market. Further research is recommended to explore additional variables that might be significant, such as market capitalization and market volume.

The impacts of foreign direct investment on total factor productivity: an empirical study of agricultural enterprises

PurposeThis paper aims to examine the impact of six possible foreign direct investment (FDI) spillover channels on the total factor productivity (TFP) of Chinese agricultural enterprises and investigate the moderating role of absorptive capacity (technological acumen) on TFP spillover effects.Design/methodology/approachBased on data from 118 agricultural and related Chinese industries, the authors employ a multithreshold regression model to empirically analyze the impact of FDI on the TFP of agricultural enterprises and the threshold effect of absorptive capacity. To overcome potential endogeneity problems, the authors select the FDI stock of corresponding USA industries and the industrial access policy index as instrumental variables and re-estimate the model.FindingsThe results suggest foreign-invested agricultural enterprises are more likely to benefit from FDI, while the “aggregate” FDI spillover effect is negative for domestic agricultural enterprises. However, once threshold effects are introduced, the authors find firms “close to” (“far from”) the technological frontier experience statistically significant positive (negative) spillover effects. Similar results are obtained for virtually all FDI spillover channels for firms in both upstream and downstream industries. FDI spillovers, when they occur, can be a two-edged sword – benefiting some firms at the expense of others.Originality/valueThe authors introduce six FDI spillover channels to examine the impact of FDI on the productivity of foreign-invested and domestic agricultural enterprises. Moreover, the authors analyze the threshold effect of firms' absorptive capacity. These findings can help formulate foreign investment introduction policies based on the characteristics of agricultural enterprises with different ownership structures. These results are also beneficial for agricultural enterprises to better exploit FDI spillover effects and improve their productivity.

The effect of geopolitical risks on TNC location decision from antagonizing countries in the Russian Federation in light of the Ukrainian crisis

The paper investigates the effect of geopolitical risks in the Russian Federation on foreign direct investment (FDI) from antagonizing countries in light of the Ukrainian crisis. Using the Geopolitical Risk Index (GPR), the empirical analysis works on panel data on inward FDI from 90 countries from 2007 to 2020. The estimation method of RWLS concluded that rising GPR deters flows and stocks of FDI coming from antagonizing countries, which confirms that interstate relations and geopolitical factors impact the location decision of transnational corporations. On a sectoral level, we found a negative effect in the secondary and tertiary sectors, with a greater effect in the secondary one, which indicates that vertical FDI is more sensitive to geopolitical risks than horizontal ones. However, the impact of GPR on inward FDI in the primary sector is positive, which indicates that antagonizing countries seek to control energy and mining sectors in the Russian federation during geopolitical tension.

The antecedents and outcome of foreign direct divestment for developing economies

PurposeThis paper aims to investigate the drivers of foreign direct divestment (FDD), how it relates to foreign direct investment (FDI) flows and stocks and its implications for developing countries. While divestment occurs for various reasons, it can be explained by reversing the propositions implied by FDI theories.Design/methodology/approachThe authors combine FDI data and FDI theories to provide theoretical explanations for FDD and what it means for developing countries. FDI stock and flow data are used to derive inferences on trends in FDD and examine the implications of FDI theories on FDD.FindingsChanges in the modes of global production and the rise of COVID-19 have reinforced the trend of stagnant or diminishing FDI flows observed since the global financial crisis, with implications for FDD. The authors demonstrate how the various FDI theories can be used to explain FDD, except for the currency areas hypothesis. By reviewing the costs and benefits of FDI, it is concluded that shrinking FDI flows and stocks may not be as detrimental for developing economies as it is typically portrayed.Originality/valueThe paper uses two original approaches to measure and explain the motives for FDD. The first is a reassessment of FDI theories in a way that makes them valid theories for FDD. The second original approach is to interpret data on FDI flows and stocks to imply the trends governing FDD, which is useful, as data on foreign divestment are not available on a country or regional basis.

Modelling spatio-temporal patterns of Chinese foreign direct investment under the Belt and Road Initiative

PurposeThis paper aims to explore the spatio-temporal patterns of Chinese foreign direct investment (FDI) since the inception of the Belt and Road Initiative (BRI) in 2013 as an extended version of geographically weighted regression.Design/methodology/approachThe panel data are used to examine spatial and temporal dynamics of the magnitude and the direction of China's outward FDI stock and its flow from 2011 to 2015 at a country level. Using the geographically and temporally weighted regression (GTWR), spatio-temporal distribution of FDI is explained through Logistic Performance Index, the size of gross domestic product (GDP), Shipping Linear Connectivity Index and Container Port Throughput.FindingsA comparative analysis between participating and non-participating countries in the BRI shows that the size of GDP and Container Port Throughput of the participating countries have a positive effect on the increases of China's outward FDI Stock to Asia especially after 2013, while non-participating countries, such as North America, Western Europe and Western Africa, have no significant effect on it before and after the implementation of the BRI.Research limitations/implicationsThe findings, however, will not necessarily provide insight into the needs of China's outward FDI in certain countries to develop their economy. The findings provide the evidence to inform policy making to help identify the winners and losers of the investment, scale and direction of investment and the key drivers that shape the distributive investment patterns globally.Practical implicationsThe study provides the empirical evidence to inform investment policy and strategic realignment by quantifying scale, direction and drivers that shape the spatio-temporal shifts of China's FDI.Social implicationsThe analysis also guides the Chinese government improve bilateral trade, build infrastructure and business partnerships with preferential countries participating in the BRI.Originality/valueThere is an urgent need to adopt a new perspective to unfold the spatial temporal complexity of FDI that incorporates space and time dependencies, and the drivers of the situated context to model their effects on FDI. The model is based on GTWR and an extended geographically weighted regression (GWR) allowing the simultaneous analysis of spatial and temporal decencies of exploratory variables.

Globalization, foreign direct investment, and child mortality: A cross-national analysis of less-developed countries, 1990–2019

Social scientists have long debated the impacts of foreign investment for developing countries. However, the relationship between foreign investment and child mortality is still heavily contested among comparative international social scientists despite decades of research. I bring new cross-national evidence to bear on this contested debate, where the competing arguments of neoclassical economic theory and foreign investment dependency theory are evaluated using fixed effects, dynamic, and two-stage least squares panel regression models. I find that inward foreign direct investment stock exerts a beneficial effect on child mortality in less-developed countries, net of relevant statistical controls. These results are also robust to a variety of regression diagnostics and alternative choices of econometric specification. These findings contribute to a growing body of literature finding that traditional sociological measures of foreign direct investment—in some cases—generate beneficial effects in less-developed countries.

Do Lower Tariff Rates Promote Global Value Chain Participation?

AbstractThe trade of intermediates now accounts for a growing share of global trade. In this highly fragmented global production system, any change in tariff rates can generate a higher impact than that of initial direct tariffs. To assess the impact of tariffs on global value chain participation, this study uses value-added trade statistics and cumulative tariff rates for 12 sectors from 168 countries for the years 1990–2015. The visual inspection suggests that initial tariffs result in higher tariff rates (almost 14%) due to a knock-on impact along with supply chains. The main empirical finding is that both faced and imposed tariff rates have significant negative impacts on sectoral global value chain participation. The effect is also persistent in the analysis if we employ cumulative tariff rates. Apart from these policy determinants, sector- and country-level endowments, such as higher relative length, capital intensity, foreign direct investment stock, and human capital appear to be the major drivers for higher total, forward, and backward global value chains participation. Even if our main results are robust, there are also some distinctions in the effects of tariff rates depending on the country- and sector-level heterogeneities. In a policy-related debate, given the cascading impacts of these liberalization initiatives, autonomous, regional, and global liberalization efforts are critical for all sectors to reap the benefits from the global production system.

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.

Investment effect of regional trade agreements: an analysis from the perspective of heterogeneous agreement provisions

Global regional trade agreements (RTAs) are experiencing unprecedented rapid development in terms of number and content of provisions, and China’s RTAs are no exception. With the increase in the depth of RTA provisions, as an important form of economic and trade relations between countries, investment is bound to be affected. Taking the RTAs signed by China as the research object and using the bilateral foreign direct investment (FDI) data provided by the International Monetary Fund CDIS database and the relevant data from the World Bank RTA text depth database, this paper constructs various indexes to measure the depth of RTA provisions and analyzes the effects of changes in the depth of RTA provisions on inward FDI stocks to China. The study finds that the improvement of all four depth indexes, namely, total depth, core depth, depth of WTO+ provisions, and depth of WTO-X provisions, significantly promotes China’s inward FDI stocks. This conclusion still holds after a series of endogenous problem analysis and robustness tests. Further analysis shows that the improvement of the depth of RTA provisions has a relatively greater effect on FDI stocks from developing countries and countries along the “Belt and Road”. At the same time, there exists significant heterogeneity in the effects of different RTA provisions on the FDI stocks. The insights that we obtain in this paper enable us to provide policy recommendations for the construction of China’s global high-standard free trade agreement (FTA) network.

Foreign Direct Investment Hosts and Violent Government Repression of Protests

AbstractThere has been a brewing argument on the effects of economic globalization on the repression of human rights. My argument in this article joins the optimistic perspective on the relationship between the globalizing economy and state repression. I argue that governments consider backlash from investors in their decisions about whether to use repression. Investors, motivated by international human rights norms and a fear of violent conflict, would prefer that governments not introduce brute force into a nonviolent protest. Thus, governments in countries that depend more on foreign direct investment (FDI) should be less likely to use violence against protesters than those that are less dependent on FDI. Using data analysis of protest events and inward FDI stock, I test this argument and find a negative relationship between these two variables.

Estimation of Matrix Exponential Unbalanced Panel Data Models with Fixed Effects: An Application to US Outward FDI Stock

In this article, we consider a matrix exponential unbalanced panel data model that allows for (i) spillover effects using matrix exponential terms, (ii) unobserved heterogeneity across entities and time, and (iii) potential heteroscedasticity in the error terms across entities and time. We adopt a likelihood based direct estimation approach in which we jointly estimate the common parameters and fixed effects. To ensure that our estimator has the standard large sample properties, we show how the score functions should be suitably adjusted under both homoscedasticity and heteroscedasticity. We define our suggested estimator as the root of the adjusted score functions, and therefore our approach can be called the M-estimation approach. For inference, we suggest an analytical bias correction approach involving the sample counterpart and plug-in methods to consistently estimate the variance-covariance matrix of the suggested M-estimator. Through an extensive Monte Carlo study, we show that the suggested M-estimator has good finite sample properties. In an empirical application, we use our model to investigate the third country effects on the U.S. outward foreign direct investment (FDI) stock at the industry level.

Financial development, FDI, and CO2 emissions: does carbon pricing matter?

ABSTRACT This study investigates the impact of financial development and foreign direct investment (FDI) on CO2 emissions, with a special focus on carbon pricing (emissions trading and taxing) in 57 developed and developing economies between 2000 and 2017. Using an eight-fold financial development construct for the first time, we find that financial depth in institutions negatively (positively) affects the CO2 intensity of developed (developing) economies, while financial access to institutions has a negative impact in both types of economies. Financial depth (stability) in markets negatively affects developing (developed) economies’ CO2 intensity, while financial access to markets increases (decreases) CO2 intensity in developed (developing) economies. Moreover, inward FDI stock quality (a net FDI position) increases (reduces) CO2 intensity in developing (developed) economies. Finally, we document that carbon pricing in developed economies helps reverse the positive effect of inward FDI quality on CO2 intensity, implying that a such policy helps those economies attract climate-friendly FDI. Our study reveals the implications of the reduction of CO2 emissions placing the focus on both financial development and FDI fully and together for the first time.

Assessing the inward foreign direct investment and their impact on gross domestic product growth in Central and Eastern Europe countries

The article is focused on researching the development of foreign direct investment (FDI) in Central and Eastern Europe countries (CEE) from 2010 to 2020. For FDI, we monitor two indicators - inward flows (as % of GDP) and inward flows (as % of world total) from two points of view (time period and individual countries). We also selected the indicator which considers the size of the country. It is the FDI stocks (as % of GDP), and we follow it in the year 2020. We work with descriptive geographic, demographic and socio-economic characteristics of the studied countries in 2020. Development of FDI from 2010 to 2020, comparison between years and countries as well as the influence of FDI on Gross Domestic Product (GDP) to find out if there is a relationship between its level and inward FDI are our research targets. The database for our research is freely available data from the World Bank and the United Nations Conference on Trade and Development. In the discussion section, we evaluate each indicator for each country separately. We apply the coefficient of variation to measure regional differences between CEE countries in the analyzed indicators. The main result shows that there is a strong direct connection between GDP and inward FDI (flows and stocks) at the beginning, in the middle, and at the end and of the monitored period in the analyzed countries.

The Role of FDI in the Sustainable Development of the European Union

This paper aims to examine the role of international business behavior in the sustainable development of the European Union (EU) and to answer two questions: (1) To what degree could international business contribute to the development of a “green economy” under the uncertainty caused by the COVID–19 pandemic?; (2) In what way could host countries attract “green” and socially responsible foreign direct investment (FDI)?
 The statistical analysis of international business involvement in environmentally harmful sectors/industries of the EU economy indicates that the share of such investments in most member states did not exceed 20% of the total FDI stocks between 2015 and 2020. The structure of investments changed in half of the analyzed countries towards sectors/industries that were less harmful to the environment. These changes and high requirements for domestic and foreign companies within the framework of the EU’s environmental policy allow us to conclude that international business contributed to the ecological transformation of the EU.
 On the other hand, changes in the structure of FDI stocks located abroad by the EU Member States in environmentally harmful sectors/industries were multidirectional. Six of the EU states remained net exporters of direct investment in these sectors/industries. The involvement of foreign direct investors in the new EU Member States in sectors that are important for implementing the Sustainable Development Goals (SDGs) of the 2030 Agenda was not very high. It was characterized by high volatility and did not play a significant role in their economies. Attracting “green FDI” and socially responsible investments requires changes in policy towards foreign investors. They should include facilitating foreign investment, including investments aimed at sustainable development, incentives for investors to engage in “green investments”, and making investment agreements more flexible to combat climate change.

Determinants of FDI Stock in Some Central European Countries

Given the importance of foreign direct investment (FDI) in the economy, the purpose of this study is to identify and investigate the economic indicators that can explain the development of FDI in the economies of Central and Eastern European countries such as the Czech Republic, Poland, Hungary, and Slovenia throughout the period 1995–2020. When developing multiple linear regression models, the following explanatory variables were considered: exports, imports, import concentration and diversification indices, the balance of trade, the balance of payments, and different components of the economic freedom index. Therefore, it was shown that a rise in exports and imports has a beneficial impact on enhancing the flow of foreign direct investment (FDI) in each of the nations examined for this study. Furthermore, an increase in the value of the import diversification index is shown to have a beneficial effect on the levels of foreign direct investment (FDI) in the Czech Republic, Hungary, and Slovenia, as determined by this study. On the other hand, the import concentration index has been shown to benefit foreign direct investment in Poland. Furthermore, it was discovered that the balance of payments was a positive factor in the Hungarian economy. In contrast, the trade balance was shown to be a positive element in Poland and Slovenia. Both indicators have positively impacted foreign direct investment (FDI) flow.