outward foreign direct investment

This paper uses the input–output analysis to investigate the impact of Japan’s outward foreign direct investment (FDI) on domestic production and employment in the manu- facturing industry. With the expansion of Japan’s overseas business, there is a fear that the production of overseas affiliates will replace parent country’s export and output. As a consequence, it will cause job losses in the home country, especially in labor- intensive manufacturing industry. On the other hand, outward FDI also has export promotion effect on domestic economy of the home country. Parent enterprises need to export capital and intermediate goods for the construction and production of affili- ates abroad in the early stage of outward FDI. This effect will enhance the export and employment of the home country. The results of this paper suggest that the nega- tive impact of export substitution effect and inverse import effect is greater than the positive impact of export promotion effect from 2000 to 2014, which means that the total effect of Japan’s outward FDI is negative and it causes the decrease in domestic production in Japan’s manufacturing industry. As a result, it leads to the unemploy- ment in Japan, which is called the “Hollowing-Out” effect. Also, this paper compares the calculation result of the period 2000–2014 with the period of 1990–1999 and finds that the “Hollowing-Out” of Japan has become more serious in recent years with the increase in Japan’s outward FDI. It is necessary to change the structure of economy in Japan to alleviate the unemployment problem caused by outward FDI.

Some studies have explored the role of institutional factors in attracting OFDI from emerging countries. For example, Duanmu and Guney (2009) analyze the locational determinants of Chinese and Indian outward foreign direct investment, and find that sound institutional environment in the host countries attracts more FDI from China but not from India. Chinese multinational corporations target countries with open economic regimes, depreciated host currencies, better institutional environment and English language. None of these factors appears to be vital for Indian MNCs. In contrast, De Beule (2010) reports that political stability and control of corruption do not seem to be prerequisites for either Chinese or Indian MNCs for overseas acquisitions from 2000 to 2008. Fung and Herrero (2012) show that Chinese MNCs invest in more corrupt economies while Indian firms invest in countries with less corruption and better law-and-order.

Emerging growth dynamism of Indian economy in rapidly globalising world is highly recognised and commented by a large body of researchers during the recent period. In fact, the Indian planning has made long concerted effort to develop strategic and competitive capabilities in the agents of production. During the recent periods, these capabilities have started paying. Such trends became more lucid with the strengthening of Indian capital especially abroad as the Indian capital has initiated collaborations and mergers with the global players. This study provides insights into such achievement of the Indian economy. Besides providing a review of theory and practice of emerging multinationals from developing countries, this paper examines India’s outward foreign direct investment in an evolutionary perspective. In its endeavor, the study besides tracing the emerging pattern of India’s outward foreign direct investment, hints at the facilitating role of state policy to encourage the outflow of foreign direct investment.

The role of foreign direct investment (FDI) in the economic development is very crucial as it creates new jobs, provides skilled technical and managerial labor and transfers the technology. FDI transfers the technology at international level (Caves, 1971) while multinational enterprises (MNEs) have been working as development agents in the world (Ozawa, 1992). Over the last three decades, industrialization has been much faster as compared to 1950s and 1960s due to active participation of MNEs at international level. Multinationals are vehicles for providing new technology, productive capacity, knowledge transfer, natural resources and managerial skills (UNCTAD, 2005b). They generate spillover effects that help the domestic enterprises to increase their ownership advantages. Such spillover effects could be in the form of allocative efficiency, technical efficiency and technology transfer (Caves, 1974).Although, much of the FDI has been taking place through MNEs of the developed countries that possess advance technology, abundance of capital, strong production, advertisement and distribution networks but emergence of the third world multinational enterprises (TWMNEs) at international level is a relatively new and captivating phenomenon. Indian firms are also amongst those that have been investing since many years but their immense growth at international level occurred especially after late 1990s (UNCTAD, 2004, 2005, 2006; Pradhan 2005, 2007b; Sauvant 2005). Indian outward foreign direct investment (OFDI) has accounted on average $ 1.1 billion annually during 2001-2003 (UNCTAD 2004; Kumar 2006).

Firms from emerging economies have been expanding their businesses into overseas markets at an unprecedented pace in recent years, and this has attracted considerable research attention (Gaur et al. 2014). In 2017, for example, China became the third largest country in terms of outward foreign direct investment (OFDI) flows (UNCTAD 2018), while India has recorded a steady increase of OFDI for three decades, contri- buting to the country’s impressive growth in global competitiveness (Pradhan 2017). Extant studies have investigated the antecedents of emerging economies’ OFDI acti- vities by examining key elements such as the country effect (Stoian and Mohr 2016; Yamakawa et al. 2008), the industry factor (Lu et al. 2011), and firm-level performance (Ramasamy et al. 2012). There have been studies probing the impact of board struc- tures (Sanders and Carpenter 1998) and top executive compensation (Liu et al. 2014; Tihanyi et al. 2000) on international expansion, but so far the impact of top manage- ment team (TMT) heterogeneity, particularly the functional background and tenure heterogeneity, on emerging economy firms ’ OFDI is largely underexplored.

In this paper we study the effect of quality of institutions in the OECD and Asian host countries on outward foreign direct investment (FDI) stocks of source OECD countries using International Country Risk Guide governance indicators, for the period 1991 to 2001. We find that better institutions in the host countries have an overall positive and significant effect on source countries outward FDI stocks. The strength and impartiality of the legal system, popular observance of law, strength and quality of bureaucracy and government stability in host countries’ have direct effect on source countries outward FDI stocks. Interestingly, trade changes sign and losses significance in two stage least squares regressions compared to theoretical expectation. Furthermore skill proxied by labour abundance in source countries relative to host countries appears to be insignificant in determining source countries’ outward FDI stock.

Conversely, the over dependence of most African nations on foreign direct investment inflows without pursing outward foreign direct investment turn to give them less advantages on the other continent. Through FDI many developed economies turn to manipulate most African leaders. As a result of many FDI packages coming in the form of loans, these investing nations applied strict conditions attached, whereas most African leaders end up not being able to fulfil the terms and conditions involved. Considering the mining sector of Ghana, almost all the mining companies are foreign owned businesses. Ghana’s percentage share from gold mines is way lower than its supposed to enjoy as the ownership of these mineral resources and the same applies to the crude oil being drill on the Jubilee field. There is a notion that, many African leaders fear of not getting loans from the developed countries, China and India if they fail to comply and conform to their rules. According to Mr. Di Maio, “France is one of those countries that by printing money for 14 African states prevents their economic development and contributes to the fact that refugees leave and die in the sea or arrive on our coast” 2

The present paper tried to study the internationalization and outward foreign direct investment made by Turkey along with this paper also shed the light on the regional policy choices and the role FDI played in reducing the imbalances across the different regions of turkey. The emerging market of Turkey has received noteworthy amount of attention in the last two decades. The main reason to shift towards the liberal policies was the need for large scale domestic groups so as to create more surplus value by integrating with the world market. Its objective has been the integration of their emerging market into the global economy through the full membership of European commission. The economy of Turkey has been successful in moving its resources, mainly labor, towards higher productivity modern industry and tradable sector from traditional agriculture. While it has tried to make full utilization of certain opportunities but it was found that it did face certain challenges within the region and at the home. The oil crisis of the 1970s, caused significant changes especially on macroeconomic balances in turkey, it not only increased the inflation and input cost but also decreased the demand of non-oil product indicating the lower purchasing power.

This study is shifting from the norm to focus on the impact of trade and FDI on the Africa economies with particular reference to China and Africa economic relationship. Our study investigated the impact of China-Africa trade and outward foreign direct on the economic growth and performance of Africa economies for the period 2003-2015. Our study achieved the following objectives: examined the role of China-Africa trade, outward foreign direct investment on economic growth of the Sub-Saharan Africa economies for the study period. The main aim for such a comparative research is that the developing economies, the economic relationship between China and Africa countries have increased remarkably in recent years. China, therefore happens to be Africa largest investor and trading partner. The study used the recent econometric methods: Ordinary Least Square (OLS), Fully Modified Ordinary Least Square (FMOLS), Fixed effect, random effect and Generalized Method of Moments (GMM) for better, accurate and thorough analyses and discussions.

Much has been written about the positive impact of inward foreign direct investment (IFDI) on the innovation performance of host economies (Ben Hamida, 2013; Ben Hamida & Gugler, 2009; Buckley, et al., 2002; Dunning & Lundan, 2008; Fu, 2012; García, et al., 2013; Iwasaki & Tokunaga, 2014; Ouyang & Fu, 2012; Xu & Sheng, 2012). In contrast, very few studies have considered the impact of outward foreign direct investment (OFDI) on the innovation performance of home economies, especially in the context of investments made by multinational enterprises based in emerging economies (EMNEs) (Deng, 2007; Liu, et al., 2005; Xia, et al., 2014). Yet OFDI flows from emerging economies have risen considerably since the turn of the millennium, and now account for more than one third of global FDI flows (UNCTAD, 2014). Furthermore, there is an extensive literature suggesting that a reasonably large proportion of this OFDI is motivated by strategic asset-seeking (Gammeltoft, et al., 2010; Luo & Tung, 2007; Mathews, 2006), in which case it is reasonable to suppose that this OFDI may have a significant impact upon the innovation performance of the home regions in which EMNEs are based.

It is often argued, though mostly informally, that outward foreign direct investment (FDI) is a synonym for the export of employment and thus detrimental to the home economy. To see whether and under what conditions this intuition indeed holds true, we construct a model of unionized duopoly and examine welfare implications of outward FDI on the home country. It is found that the welfare effect of FDI is mostly non-monotonic: an asymmetric pattern of FDI, where only one firm undertakes FDI in the duopolistic case, is socially desirable for a wide range of parameter values in the presence of strong unions. This amounts to a critical policy implication that there are indeed such things as “excessive FDI” and any form of government intervention to encourage outward FDI can be beneficial only up to some point. We also show that, when FDI reduces welfare, this negative effect arises more at the expense of consumers rather than the unions: in fact, quite contrary to the popular belief, FDI may actually benefit the unions because it serves to soften price competition between them. The paper points out that welfare effects of outward FDI hinges crucially on the nature of domestic competition, and policymakers must carefully take this aspect into consideration.

China has been a capital-surplus economy for years but its outward investment has grown quickly in recent years. This phenomenon has generated many studies on the trends, motivations, and consequences of Chinese FDI. However, in early 2000s the majority of studies on China’s outward foreign direct investment (OFDI) were mainly descriptive research or some comprehensive case studies on several high-profile Chinese MNEs like H. Liu and Li (2002), and Warner, Sek Hong, and Xiaojun (2004). These studies present simple descriptive data on China’s OFDI and/or theoretical arguments. They argued that international direct investment of Chinese companies was initially motivated by the Chinese government’s open door policy from 1978. Chinese MNEs invested abroad so as to acquire advanced technology and global brands, gain access to raw materials, energy and cheap labour markets, overcome international trade barriers, increase foreign exchange earnings, and avoid domestic competition. They also noticed that Chinese government had a strong influence on China’s OFDI (Taylor (2002), Deng (2003), Wong and Chan (2003), Poncet (2010), and Salidjanova (2011)). In addition, Morck, Yeung, and Zhao (2008) claimed that China’s very high saving rate, the practice of its dominant state-controlled banks, and the institution structure generated outward FDI. The lack of empirical studies on China’s OFDI can be attributed to data unavailability and the relatively small size of China’s OFDI compared to the country size.

A retrospective and agenda for future research on Chinese outward foreign direct investment BUCKLEY, Peter, CLEGG, Jeremy, CROSS, Adam, LIU, Xin, VOSS, Hinrich and ZHENG, Lucy Available [r]

With at least 18,521 parent companies, multinational companies (MNCs) based in the developing economies accounted for some 24 per cent of all parent companies of MNCs in the whole world, and their stock of outward foreign direct investment (FDI) at around $ 1.6 trillion represented almost 13 per cent of the worldwide stock as of 2006. 1 East and South-East Asia and Latin America have maintained their historical positions as the two most dominant home regions for FDI in the developing world, accounting for respectively 76 per cent and 15 per cent of the stock of outward FDI from developing economies excluding those of tax-haven economies, and around 9 per cent and 2 per cent of the worldwide stock of outward FDI in 2006. Despite their relatively low significance on a worldwide scale and geographical concentration, there are several remarkable features that draw attention to the high degree of multinationality of some developing economies and the importance of some of the largest MNCs based in developing economies in global competition: the substantial increase in the transnationality index of the top 50 non-financial MNCs from developing economies over the past decade; the sustained role of the four leading newly industrialized East Asian economies — Hong Kong (China), Republic of Korea, Singapore and Taiwan — as the most dynamic foreign investors in South- East Asia; the steady increase in the number of firms from developing economies in the list of the world’s top 100 non-financial MNCs from five in 2004 to seven in 2005; and the operation of the top 100 non-financial MNCs from developing economies in a broad range of manufacturing and service industries of varying degrees of R & D intensity or human capital intensity.

According to the institutional-based view, the national policy decides the rule of allocation of resources and the procedure of industry development. Thus, productivity can be boosted by national force. For example, in the research of Fleisher & Chen's observation (1997), because of the difference in regional development policy, the areas in China of coastal and non-coastal provinces' total factor productivity are diverse. Moreover, institutional theory can explain how a national force can boost productivity by policymaking (Scarpetta et al., 2002). Especially in mainland China, The economy was shaped by the Communist Party of China (CPC) through the full sessions of the Central Committee and national congresses. The party plays an important role in launching the foundations and principles of Chinese communism, planning strategies for economic development, setting growth targets, and beginning reforms. However, Policies and institutions may also have a role in shaping firm size (Scarpetta et al., 2002). Firms in China quiet feature an inheritance of governmental involvement in a business affair in spite of the development of the market system (Luo et al., 2010). Firms that get public support can grow in dramatically way. From the finding of Guellec & Van Pottelsberghe de la Potterie (2004), they show several factors determine the extent to which each source of knowledge contributes to productivity growth. These factors are the socioeconomic objectives of government support and the type of public institutions that perform R&D. Also, Government and university R&D has a direct effect on scientific, basic knowledge and on public missions.

However, these factors are guided by a series of policy liberalization towards OFDI and institutional changes. The evolution of Indian policy regime towards the OFDI can be categorized into three phases: 1969-92, 1992-2003 and 2004 onwards. 9 The first phase that was started with the formulation of General Guidelines on Indian joint ventures overseas in 1969 was characterized by restrictive policies. The basic features of the first phase was- only industrial ventures, investments only in the form of minority-owned joint ventures, no cash remittances were allowed, only capitalized exports for equity, only capital goods and technology as a means of financing equity etc. The second phase (1992-2003), which can be termed as permissive, was started with the introduction of automatic route for overseas investments up to $2 million. The basic features of the second phase was – allowed cash remittances for investment, removal of minority ownership restrictions, single window created in the Reserve Bank of India in 1995 and increased the limit of automatic approval to $4 million, which further increased to $50 million with the introduction of Foreign Exchange Management Act (FEMA) in 2000 and to $100 million in 2002. The third phase (2004 onwards) started with allowing the firms to invest up to 100% of their net worth under automatic route in 2004. This limit further increased to 200% of net worth in 2005, then 300% of net worth in 2007 and finally to 400% of net worth in 2008. These liberalization policies towards OFDI combined with the financial deregulation, which started in the early 1990s, gathered momentum and by the early 2000s provided Indian firms with significant enlarged access to domestic capital markets (Nayyar, 2008) and thus results in rapid expansion in the outward FDI and acquisition abroad.

In China, for example, the government uses a single corporate income tax po- licy to avoid double taxation, the credit support from Chinese EXIM Bank – credit found have low lending rates, fast approval processes and extensible terms. Chi- nese companies can also get discounted bank loans. They can also count on direct support for costs. Support for costs can be either for pre-investment expenditures or operating costs, although many companies qualify only for pre-investment ex- penses. They apply for costs for obtaining third party legal, technical or business consulting services, surveys, project feasibility studies, purchase or translation of documents or specifications. Those subsidies were available for companies that in- vested in agriculture, forestry or fisheries, labor services or high technology R&D. Chinese EXIM Bank offers short-term export credit insurance and also medium- and long-term insurance, credit and guarantee programs [Freeman, 2008, p. 7; Luo et al., 2009, p. 8].

Another crucial pathway is environment, which relates to the surrounding conditions that have an impact on internationalisation. In business, these environmental factors are constantly changing and should be considered in internationalisation (O’Farrell & Wood, 1994). Constructs of this pathway are suggested to be ecology, country risk, market, competition, and operations. Ecology relates to the nature of the host and home country with regard to national culture, societal values, and perceptions (Kogut & Singh, 1988; Hofstede, 2001). It has been argued that how an investor analyses the ecology of a home or host country influences internationalisation decisions and will determine the direction of foreign investment (Chandler, 1962; Young, 1987). Country risk relates to the general security risk, operational, ownership, and currency transfer risk, risk attitudes, and risk mitigation (Root, 1987). Firms are interested in the security of their resources and also require some level of certainty before investment confidence can be developed. The level of perceived risk about a country is a factor that is accessed during the internationalisation process based on the potential impact of risk to foreign operations. The market is an important construct in internationalisation and is concerned with, among other things, market size, growth, and regulatory impacts (Davidson, 1980; Agarwal & Ramaswami, 1992; Boojihawon & Acholonu, 2013; Adeleye et al., 2015). Large markets with significant growth opportunities are crucial to firms undertaking the internationalisation process (Lim, 2001; Chung & Enderwick, 2011; Amal & Tomio, 2012). For a firm operating from a large home market, it will develop capabilities that will be useful if it decides to operate abroad. Additionally, a host country with a large market is attractive to investors due to the potential for exploiting sales opportunities there (Lee & Slater, 2007; Read, 2008; Singh et al., 2011; Ibrahim et al., 2012). Furthermore, the level of regulation in the market is also crucial, since overregulated or underregulated markets have different strategic attractions for foreign investors (Luiz & Stephan, 2011).

Capital round-tripping is closely linked with the Russian OFDI. The fol- lowing two statistical observations support this conclusion: 1) Russia’s out- ward FDI stock has been growing hand in hand with the country’s inward FDI stock; and 2) a small and less prosperous Cyprus is Russia’s largest outward FDI target and the country’s largest inward FDI source. Capital round-tripping occurs for various reasons; some Russian firms use it to avoid taxes or potential risks on the home market, whereas others utilize it to raise less expensive loans from Western financial institutions to finance own op- erations at the home market.

Most of the existing studies contend that organizational experience has a positive linear relationship with FDI. Contrary to the established argument, the relationship between host country experience and performance may be non-linear (Mitchell, Shaver, & Yeung, 1994; Shaver et al., 1997). In other words, the effect of organizational experience on FDI may be strong during the early stage of international expansion process because country-specific knowledge gained in the early stage may offset the costs of operations (Zaheer, 1995). However, the positive effect of experience on performance decreases in the later stage because the number of foreign firms increases in a foreign market, overcrowding occurs, and competition becomes much more intense over time (Luo & Peng, 1999; Mitchell et al., 1994; Shaver et al., 1997), reducing the likelihood of further investment by foreign firms over time. We accept and attempt to test this emerging argument and in turn to provide empirical evidence. Hence, we postulate that there is a curvilinear relationship between experience and the amount of foreign investment, given the decreasing effect of country-specific experience.