Foreign Direct Investment Theories Research Articles

Implikasi Foreign Direct Investment Jepang melalui Toyota terhadap Perekonomian Indonesia Periode 2016-2022

This article focuses on cooperation between Japan and Indonesia through the development of a Toyota subsidiary in Indonesia as an instrument for Japanese Foreign Direct Investment. Japan is a country that has quite an important role in the international world because of its development in the economic sector, where currently Japan can dominate the international market through advances in automotive technology. The rapid development of the automotive industry has encouraged Japan to invest in Indonesia. This article aims to find out what the results of Indonesia-Japan FDI cooperation are through the development of Toyota in Indonesia in 2016-2022. In order to approach this problem, references to the theories of liberalism, bilateral cooperation and Foreign Direct Investment are used. Data was collected through secondary data as a data source, as well as using desk review and analyzed qualitatively. This study concludes that Japanese FDI through the Toyota company has enabled Indonesia to improve its economy through a high increase in the value of exports to several countries, expanding employment opportunities, as well as providing a positive impact on improving environmentally friendly technology.

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.

The pattern of foreign direct investment in the late 2010s and early 2020s: under international externalities

This article aims to discuss to determine the nature of foreign direct investment (FDI) flows in the late 2010s and early 2020s. International externalities affecting the FDI pattern at the global and regional levels. The research method is mainly qualitative through Document analysis. From theoretical and empirical evidence, this study shows that under the influence of international externalities, investors' motives change leading to a change in their investment strategy and thus a change in the direction of FDI inflows. Research results support the view that COVID-19 is not the only factor that changes the FDI pattern. Several key externalities have been identified such as the Sustainable Development Goals initiated by the United Nations, the New Industrial Revolution, the Policy towards Economic Nationalism, and the Coronavirus Prevention Policy as well as the post-pandemic economic recovery policies. Countries need to have strategies to attract external forces that are both consistent with the current pattern of FDI and coordinated with internal resources to develop the country. This study has contributed to the theory of FDI in modern times. Today, motivations such as exploiting factors of production, seeking strategic assets (tangible assets), and seeking efficiency in distant markets (offshoring) have gradually weakened. They are gradually being superseded by seeking efficiency in the near market (onshoring, nearshoring), and investments in service industries that will complement the autonomous motive.

Perceptive FDI in Relation to Ease of Business: An empirical Analysis of Asian Countries

This study examines the FDI perceptive in relation to ease of doing business an empirical analysis of Asian countries. This study was applied the economic integration and foreign direct investment theory in formulating hypotheses that guide the results analysis. In this study the independent variable is Foreign Direct Investment which is measured by GDP which are measured by sub variables. The present study has been used the econometrics analysis, to find the empirical relationships and key regions for trying to attract FDI net inflows, use the liner regression method. For the years 2010 through 2019, this study includes examines 34 Asian economies, including Pakistan, Afghanistan, Iran, India, Bangladesh, Sri Lanka, and many others. The main takeaway from this is that a better-rated business environment is much more likely to draw larger inflows of FDI. All indexes have inverse connections, according to the regression estimation, with the exception of trading across borders, receiving credit, and registering properties. Furthermore, all factors—aside from paying taxes, dealing with insolvency, or shutting down operations in the region—are most likely to have an impact on FDI inflows.

Attracting and retaining FDI: Africa gas and oil sector

‏For some time, African governments have been aiming to attract investors to their gas and oil sectors to boost their economy. This literature review aims to provide an analytical conceptual-framework to outline various factors that African governments can utilize to attract and retain foreign investors. We performed a systematic literature review of related articles and reports published over two decades (2001–2020). We applied the foreign direct investment (FDI) theory and Dunning’s (1979) Ownership, Location, Internalization (OLI) framework to capture the drivers of FDI in the African gas and oil industry. We then propose a conceptual framework that is centered on our analysis, comprising different barriers, drivers, mechanisms, and outcomes of FDI, which can be used by African governments to boost FDI inflows and scholars for further research. Finally, we suggest an empirical research idea for the future of African gas and oil sector.

A study on agricultural investment along the Belt and Road

On the basis of the theories of overseas foreign direct investment (OFDI) and New Economic Geography, the factors influencing the grain industry investment in the countries along the Belt and Road (herein after referred to as the “B&R countries”) were discussed, and the impacts of such investment in terms of the bilateral economic distance, institutional environments and the farmland resource levels of host countries were analyzed in depth in this study, thus expanding the theoretical analysis framework of OFDI. Empirically, the dependence on China's overseas investment was applied to measure the bilateral economic distance, and these two variables were incorporated into the empirical model along with the location characteristics of the institutional environments of host countries. The Zero-inflated Poisson Model was applied to analyze China and the B&R countries. A conclusion derived is as follows: the farmland resources of the B&R countries have a positive impact on China's overseas farmland investment, and the location characteristics of the B&R countries vary greatly. China should confer great importance to regional comparative advantages, conduct differentiated cooperation in farmland investment, strengthen the conservation of water and land resources and safeguard of farmers' livelihoods in the less developed regions, and guarantee the grain security in developing countries, while valuing the distribution and sales of agricultural products in developed regions and greatly enhance the ties between enterprises and local markets to ensure the sustainable development of grain industry investment projects in the B&R countries.

Bayesian model averaging approach of the determinants of foreign direct investment in Africa

The possibility of misinforming policy direction is undoubtedly high when factors determining foreign direct investment (FDI) are haphazardly selected owing to the diverse nature of the underlying FDI theories, thus leading to model uncertainty. To resolve the econometric and policy concerns, this study re-investigates the determinants of FDI for 53 African economies for which comprehensive data are available using the Bayesian Model Averaging (BMA) technique over the period, 1984–2018. Interestingly, unlike the previously conducted studies on FDI determinants, variables such as gross fixed capital formation, trade openness, exchange rate, secondary school education, democratic regime type and mobile subscriptions per 100 people take preeminent positions over other explanatory variables for the continent. However, government consumption expenditure, inflation, GDP per capita, capital openness and credits to the private sectors constitute the major deterring factors of FDI into the continent. These variables altogether remain the substantive predictors of FDI into African continent out of the 23 explanatory variables used. Similarly, differences are observed in the determinants of FDI across the regions of the continent. Thus, assuming the general policy framework to region specific concerns may not be efficient policy menu to attracting foreign capital flows. In light of the preceding, understanding the salient African-wide determinants as well as each region's idiosyncratic details regarding the determinants hold a promising path to tread in attracting foreign direct investment.

Host country’s financial condition and FDI inflow: evidence from China

PurposeThis paper investigates how the gap between the host country's actual and optimal financial conditions affects foreign direct investment (FDI) inflows through evidence from China.Design/methodology/approachThe authors first employ principal component analysis (PCA) to measure FDI target countries' actual financial conditions and use 30 OECD countries as a reference group to assess the optimal financial condition. The authors then estimate a two-way fixed effect model with panel data of China's outward FDI in 64 countries for the period 2003–2017 to get the regression results. The authors' results overcome endogeneity and are robust.FindingsResults show that (1) the gaps between host countries' actual and optimal financial conditions positively affect FDI inflows from China; (2) there is a heterogeneous effect between low-income and high-income countries. The gaps for high-income countries significantly increase FDI inflows from China, while the gaps are not significant for low-income countries.Research limitations/implicationsThe authors examine how the gap affects FDI inflows from China. An increase of 1% in the target country's gap promotes a 6.3% increase in FDI inflows. However, the authors do not explore what mechanisms are key to these results. The authors will explore these questions in the future.Originality/valueThis paper complements the influence factors of FDI and enriches theories of FDI. The gap between actual and optimal financial conditions plays an essential role in FDI flows across countries for policymakers.

Corporate governance and the outward foreign direct investment: Firm-level evidence from China

This paper investigates the role of corporate governance in China’s outward foreign direct investment (ODI) using a sample of Chinese public firms over the period 2009–2015. Different from previous studies, which mainly use country-level aggregate data to examine China’s ODI behavior, this study utilizes firm-level data to explore the impact of corporate governance on firms’ ODI decision making. Building on the integration of agency theory and foreign direct investment theories, the study finds that ownership concentration, share ownership, and executive compensation significantly influence China’s ODI flows in both full-sample and sub-sample estimations. The corporate governance has an essential effect on firms’ ODI flows in that the firms with better corporate governance are more interested in undertaking ODI projects. The results are robust across different sample periods and in both state-owned and non-state-owned firm sub-groups. The government may design some policies such as friendly tax regulations to stimulate private firms to invest overseas.

What robustly determines FDI in emerging markets and developing countries? A sensitivity analysis

What determines Foreign Direct Investment (FDI) inflows remains a primary concern of economists and policy makers; yet the uncertainty surrounding FDI theories and empirical approaches has created ambiguity regarding the determinants of FDI. This paper applies Leamer’s (1983, 1985) traditional Extreme Bounds Analysis (EBA) as well as the Sala-I-Martin modified form of EBA to identify the robust determinants of FDI using cross-sectional data (averaged for the period of 1985-2016) covering 103 emerging and developing countries. We consider 33 potential economic, political and institutional determinants. To address concerns about multicollinearity, the VIF restriction specifies that only estimates with VIF below five are reported. The results show that all variables of interest are fragile determinants of FDI when using traditional EBA. Yet, when applying the Sala-i-Martin EBA, nine robust variables are revealed. Some policy implications are discussed.

How Saying Goodbye to a Foreign Owner Affects Performance for Divested Affiliates?

I investigate the consequences of foreign divestment for divested affiliates sold to local firms. Extending the insights from the literature on MNE firm-specific advantages and the liability of foreignness, I identify the circumstances that affect post-divestment performance for divested affiliates. Using data of foreign affiliates in Korea, I combine the difference-in-differences approach with propensity-score matching to create an appropriate control group of ongoing foreign affiliates. The results show that, while the overall effect of foreign divestment is not entirely clear, well-performing foreign affiliates are more likely to experience performance degradation with the termination of foreign ownership than poorly-performing foreign affiliates. This relationship, however, is negatively moderated by a characteristic of new local owners, business group affiliation. I also find foreign affiliates with sister affiliates owned by the same MNE in a given host country are less likely to experience performance degradation than sole affiliates. The findings imply that well-established theories of foreign direct investment may provide a theoretical basis to explain the consequences of foreign divestment, and that the role of local firms should not be overlooked in such research.

The effect of COVID-19 on foreign direct investment inflows: stylised facts and some explanations

The COVID-19 pandemic has impacted every aspect of our lives. The economic effects include the adverse consequences for economic growth, international trade, and foreign direct investment. This paper presents stylised facts about the fall and rebound of FDI inflows as a result of the pandemic. The effects of COVID-19 are considered from three angles: macroeconomic shocks to the economy, theories of foreign direct investment, and studies of the economic effects of disasters and crises. The change of heart away from globalisation and deindustrialisation may discourage FDI flows, which have already been undermined by other factors such as the digitisation of the economy and the emergence of Industry 4.0.

Unraveling the role of China's OFDI, institutional difference and B&R policy on energy efficiency: a meta-frontier super-SBM approach.

Under the Belt and Road initiative, the cooperative network between Chinese firms and participating countries has evolved rapidly to seek new markets for foreign investment. Foreign investment is one of the most effective ways of improving environmental energy efficiency through technology spillover. Therefore, first, this article applies the foreign direct investment theory with an interactive effect of institutional difference on energy efficiency. We employed the meta-frontier super-slacks-based measure approach to find the sampled countries' environmental energy efficiency. We also divided the study sample into six regions to consider group heterogeneity and the variation in energy efficiency performance in various Belt and Road regions. For the empirical investigation, we applied the generalized method of moments approach. The impact of China's outward foreign direct investment on energy efficiency is positive in the full sample. Nevertheless, the region-wise study found mixed results regarding China's outward foreign direct investment to promote energy efficiency and the Belt and Road region. In addition, the study further infers that institutional distance can be the greater impediment to promoting host countries' efficient energy-based investment.

Developing Tendencies of Foreign Direct Investments

The formation process of foreign direct investment theories began in the second half of the twentieth century, it was period that the importance of foreign direct investment (FDI) in international capital movement increased, and this period was characterized by the rapid growth of multinational enterprises, which, in turn, is a major source of FDI. Scientific and technological progress has become the basis for decisions of transnational companies to invest capital in to different parts of the world and to coordinate and control its many branches from one country. During this period scientists actively began to develop theories and mathematical models of foreign direct investments, which meant studying the genesis of FDI, as well as analyzing their impact on the economy of both the host and the issuer countries. The analysis of foreign direct investment theories is closely related to the study of the activities of multinational corporations. Among them are some paradigms containing interesting discoveries that view the foreign direct investment as a contributing factor for the economic growth of the host country and its industrial development. In this article, the author consider the key theories and models of foreign direct investment: 1. The Product Life Cycle Theory, which is developed by Vernon; 2. Transnational companies and monopolistic computation theory, which is developed by Hymer; 3. Generalized theory of economic development, which is developed by Akamatsu; 4.The competitive advantage of nation’s theory, which is developed by Porter; 5.The eclectic paradigm and country's investment development theory, which is developed by Dunning; 6.Differential model of capital distribution between countries by Leontiev. The theories and models provide a basic range of motives of investors' behavior in the world market. It also makes it possible to analyze what impact foreign direct investment has on the economy of the recipient country and what forecast the recipient country's economy will have. Keywords: Globalization, Foreign Direct Investment, Economic Growth, Multinational Corporations, Analysis of Basic Theories and models;

The Interactive Effect of Resource Seeking Foreign Direct Investments (RS-FDI) and Economic Growth in Nigeria: Evidence from Niger Delta

The oil and gas sector, which is governed by the source of income, receives the majority of foreign direct investment (FDI) inflows in Nigeria. This study established that natural resources are the driving force behind MNEs' internalisation efforts in the country. As a result, the impact of resource-seeking foreign direct investments (RSFDIs) in the Niger Delta on Nigeria's economic growth was critically analysed in this study. To achieve the research goal, the study looked into how RSFDIs affect economic growth. The data for the study include RSFDI and GPD growth which was obtained from important stakeholders in the oil and gas industry in the Niger Delta. The Central Bank of Nigeria, the National Bureau of Statistics, and the World Bank provided additional important statistics. The research variables were estimated using Ordinary Least Square (multiple) regression approaches. The findings reveal that RSFDI, and GDP have a positive correlation. The connection, though, is negligible. The conclusion drawn in the research is that RSFDI has not been an effective contributor to economic growth in the Niger Delta due to profit repatriations. Keywords: Resource Seeking FDI, Economic growth, Niger Delta , Employment and trade Theory DOI: 10.7176/JESD/12-18-04 Publication date: September 30 th 2021

‘Many Chinas?’ Provincial internationalization and Chinese foreign direct investment in Africa

ABSTRACT Chinese provincial firms are a major and growing source of foreign direct investment (FDI) in Africa, yet there has thus far been little systematic analysis of their motives and behaviour. Based on statistical analysis of a panel of mainland China’s 31 provinces from 2000 to 2015 and a study of three diverse provincial cases, and modifying the classic Organization-Location-Internalization theory of FDI, this article uncovers a three-stage ‘inverted-U’ shaped pathway linking home province internationalization and investment in Africa. Firms from provinces with very low levels of integration in the global economy lack the experience needed to invest in Africa, while those in highly globalized provinces face fewer push factors driving them to (comparatively risky) countries of the developing world. These findings suggest that Chinese provincial FDI in Africa may be driven by a ‘logic of escapism’ alongside conventional FDI motives.

Portrait of a native senior manager of foreign enterprise from the perspective of employees

Foreign direct investment (FDI) is expected not only to bring capital, technology, know-how and management skills but also to contribute to GDP and create jobs for host countries. In this study, the jobs mentioned are not general positions in a company, but positions that are counted on the fingers – top executive. This study aims to provide the image of a native senior manager based on the expectations of subordinates. This research approaches quantitative methods through survey questionnaires for managers and employees at 25 foreign enterprises in the South of Vietnam. The results of the regression analysis from 135 responses indicate that work experience and leadership are qualities for local staff to become senior managers. This study contributes to the FDI theory. This result inspires native staff to strive to become managers. At the same time, employers need to build job requirements of the top executive positions close to the aspirations of employees.

Bank Foreign Direct Investment in Indian Economy: A Theoretical Review

The study's primary objective is to understand the evolution of foreign direct investment theories (FDI) and identify the application theories in bank FDI from the literature. Based on the pattern of investment, FDI can be classified as greenfield and brownfield investment. Both types of investments yield profits, so the study attempted to answer why greenfield FDI, i.e., foreign banks invest by opening their branches and offices in the host economy. The study reviewed literature focused on bank FDI determinants in host economies and discussed it in the Indian context. The study found that primary reasons for greenfield FDI are India's locational advantages, such as profit opportunity and already present home clients in India.

Asymmetric cultural proximity and greenfield foreign direct investment

AbstractThis paper studies bilateral cultural preferences as an asymmetric dimension of cultural proximity and estimates their effect on greenfield foreign direct investment (FDI). We derive a gravity equation of FDI and test simultaneously the impact of both (a) the preferences of investing countries for recipients' culture and (b) recipients' preferences for the culture in the investing economies. While the role of investors' preferences can be rationalised with existing supply‐side gravity theories of FDI, we propose new mechanisms to explain why recipients' preferences might matter as well. We use exports and imports of cultural goods to proxy for the two directions of cultural preferences. Our results reveal a stronger investment effect of the recipients' preferences, a channel so far understudied.

Can Existing Theories Explain China’s Outward Foreign Direct Investment in Belt and Road Countries

This study examines the extent to which existing foreign direct investment (FDI) theories apply to Chinese investment in the Belt and Road Initiative (BRI) countries. This is important because existing explanations of Chinese outward FDI (OFDI) generally make scant reference to these theories. By using OFDI data for BRI countries between 2003 and 2017, we tested hypothesizes applicable to existing theories by using both pooled ordinary least squares (PLOS) and stochastic frontier analysis (SFA) methods. The results show that a large part of the existing theories apply to Chinese OFDI. Chinese OFDI is likely to choose countries with big market size, abundant natural resources, cheap unskilled labor, stable politics, good infrastructure, high trade cost and high investment cost. These positive findings notwithstanding, they do not invalidate the alternative factors cited by commentators which have not been subject to direct testing, which may require the use of qualitative analytical approaches.