How Does Foreign Direct Investment Affect the Export Decisions of Firms in Ghana?

Abstract: Foreign direct investment (FDI) has been identified to promote exports of host countries by augmenting domestic capital for exports, helping to transfer technology and new products for exports, facilitating access to new and large foreign markets, providing training for the local workforce, and upgrading technical and management skills. However, little is known on the role of FDI in the export behaviour of firms in developing countries. The main questions raised in this study are: how does FDI affect the export decisions of firms? How does FDI affect export performance of firms? This study examined the export‐decision and export performance within the Ghanaian manufacturing sector on a panel of plants from 1991 to 2002. Using a probit model, the results show that FDI has a positive effect on firms' decision to export. The random effect results also reveal a positive relationship between FDI and export performance. Clearly, the results of this study indicate that FDI is very relevant in influencing the export decisions and export performance of Ghanaian firms. The findings have significant implications for policy in terms of promoting initiatives to encourage more FDI inflows in the country.     

Trade regimes and spillover effects of FDI: Evidence from Uruguay

Trade Regimes and Spillover Effects of FDI: Evidence from Uruguay. — This paper examines differences in the character and impact of FDI entering Uruguay during import substitution, pursued until 1973, and the subsequent more outwardoriented trade regime. Regression analysis shows that the labor productivity of local firms is positively related to the presence of older import-substituting MNCs in their industry. The presence of foreign affiliates established after 1973 has no apparent impact on local productivity, but seems to raise the likelihood that local firms engage in exporting. This may be a sign of export spillovers, indicating that local firms may pick up some exportrelated skills from the operations of outward-oriented foreign MNCs.     

Foreign outward direct investment and exports in Austrian manufacturing: Substitutes or complements?

Foreign Outward Direct Investment and Exports in Austrian Manufacturing: Substitutes or Complements? — The relationship between foreign outward direct investment and exports is crucial for assessing the impact of increased internationalization by foreign outward direct investment on a country’s welfare. Three models of trade and FDI are reviewed to generate hypotheses on their direct relationship over time as well as on common determinants. The propositions are empirically examined with time-series cross-section data for Austrian manufacturing. The results indicate a significant complementary relationship between FDI and exports in the eighties and early nineties. Moreover, long-run multipliers of exogenously increased FDI and exports are calculated. They are found to be positive but small in magnitude.     

Heterogeneity of FDI Export Spillovers and Its Policy Implications: The Experience of China

This paper explores the magnitude and heterogeneity of foreign direct investment (FDI) export spillovers in China. Using a Heckman sample selection model estimated over a rich firm‐level dataset in China's manufacturing sector from 2000 to 2003, we find that FDI exerts significant impacts on the exporting behavior of domestic firms, and such impacts are heterogeneous in that some firms receive positive impacts while others receive negative impacts. The heterogeneity of FDI spillovers has significant policy implications as it indicates that government policies need to be more specific and targeted in order for the benefits of FDI to be reaped.     

Demonstration or congestion? Export spillovers in Sweden

A key feature of the Swedish economy over the last two decades has been the rapid internationalisation of its economy, both through FDI and exports. In this paper we consider their inter-relationship, examining whether there have been spillovers from foreign firms to the export performance of domestic firms. We also contribute to the empirical modelling of export spillovers. We do this by exploiting information on whether foreign MNE sales are intra-firm or inter-firm, and by allowing for heterogeneity in the characteristics of the sender and receiver of spillovers. Our results indicate that foreign MNEs had positive effects on Swedish exports.     

The role of FDI in domestic exporting: Evidence from China

This paper investigates the impact of FDI on domestic exporting firms. We show that domestic firms respond to an increase in the presence of FDI by increasing their exports even though the increase in foreign presence can drive up production costs and make the domestic market more profitable. Our test case for this hypothesis is China, where we confirm the significant positive impact of FDI on domestic firms’ exports. This finding sheds light on the massive exports and rapid inflow of foreign investment that have been observed in China in the past three decades.     

The role of foreign direct investment in Indonesia's manufacturing exports

This article examines whether foreign direct investment (FDI) has contributed to the changing structure of Indonesia's manufacturing exports. It uses industry-level data from 1990 to 2008, classified by factor intensity. Our analysis reveals that FDI promotes exports in most panel observations, especially exports from physical-capital-intensive (PCI), human-capital-intensive (HCI) and technology-intensive (TI) industries. Yet by applying a differentiated cross-section-effect model, we determine that the export-generating potential of FDI is stronger in PCI, HCI and TI industries than in natural-resource-intensive or unskilled-labour-intensive industries, in which Indonesia has a comparative advantage. We also assess the influence of other determinants of export performance – namely, private domestic capital investment, GDP growth and exchange rates. Our findings have implications for policymakers seeking to sustain Indonesia's export performance.     

FDI and Innovation: An Investigation into Intra- and Inter-industry Effects

It is often believed that transfer of technology and know-how resulting from foreign direct investment (FDI) goes beyond the actual projects undertaken by foreign investors and, spills over to domestic firms affecting their knowledge base and productivity. This paper is an endeavour to investigate the existence of spillovers and their impact on the innovative performance of domestic firms active in the manufacturing sector of India. By employing data on FDI by industry and merging it with information on time-variant buyer–supplier linkages obtained from a series of national input–outputs tables, the study develops intra-industry and inter-industry measures to capture the effects of FDI on innovation performance of the incumbent firms’ active in the same sector as the MNC and in upstream and downstream sectors. The econometric analysis after accounting for endogeneity issues reveals that FDI has a moderate impact on innovative performance of firms residing in identical industries. However, impact on the innovative performance of firms in supplying sectors appears to be statistically strong.     

Export-oriented FDI in the UK

It is well known that the performance of foreign firms comparedto domestic companies is superior with respect to employment,wages, and productivity. In this paper we detail the exportbehaviour of foreign affiliates in the United Kingdom relativeto indigenous firms. Our findings show that foreign firms aremore likely to export, and when they do so they are more exportintensive and overall contribute disproportionately to totalmanufacturing exports from the UK. While firm-level advantagesexplain some of these differences in export behaviour, strategicconsiderations dominate, where these include the differentialin costs, productivity, and market size between the UK and foreigncountries. That is, both horizontal and vertical motives canbe found for the use of the UK as an export platform by foreignfirms.     

FOREIGN NETWORKS AND EXPORTS: RESULTS FROM INDONESIAN PANEL DATA

Most firms and plants in developing countries produce only for the domestic market and few are able to export. One plausible hypothesis is that foreign networks decrease export costs and that plants with large amounts of such networks will be relatively likely to start exporting. We focus on two types of foreign networks: foreign ownership and imports of intermediate products. Our results suggest that plants in Indonesian manufacturing with any foreign ownership are substantially more likely to start exporting than wholly domestically owned plants. The results remain robust to alternative model specifications and after controlling for other plant characteristics. There is no effect on exports of imports of intermediate products.     

Foreign direct investment and productivity spillovers: Evidence from the Spanish experience

Foreign Direct Investment and Productivity Spillovers: Evidence from the Spanish Experience. — The aim of this paper is to analyse the impact of foreign direct investment (FDI) on firms’ productivity using a panel of Spanish manufacturing firms for the period 1990–1998. Firstly, we show that for countries, like Spain, that are undergoing significant structural changes over the period in question it is important to control for both time-invariant as well as time-variant sectoral characteristics. Secondly, we confirm previous findings that one needs to take into account the “absorptive capacity” of firms when considering whether they are able to avail of externalities associated with FDI presence. For the Spanish case we find that only firms with sufficient levels of such capacity experience positive spillovers.     

Do High-technology Exports Cause More Technology Spillover in China？

The volume of China’s high-technology exports has grown sharply since the implementation of its export promotion strategy "Revitalizing Trade through Science and Technology" in 1999.This paper investigates whether technology spillover effects are greater for hightechnology exports than for primary manufactured goods exports.We present a generalized multi-sector spillover model to identify both between spillover effects from exports towards non-exporters and within-spillover effects among export sectors.Using panel data for 31 provinces in China over the period from 1998 to 2005,we find that although high-technology export sectors have higher productivity compared with other sectors,this productivity advantage does not lead to technology spillover to both domestic sectors and other export sectors,and export technology spillover mainly derives from traditional export sectors rather than high-technology export sectors.As such findings can be largely attributed to the fact that China’s high-technology exports depend significantly on processing trade by foreign- invested firms,policy implications are discussed in relation to how to best promote the role of China’s high-technology exports during economic expansion.     

Promoting exports: the role of inward FDI in China

Since the late 1970s, exports and inward foreign direct investment (FDI) in China have risen dramatically under the open-door policy. The critical role of FDI in China's exports may be indicated by the fact that exports by foreign affiliates in China in 1998 were US$81 billion, comprising 44% of China's total exports in that year. While there is considerable evidence on the FDI export linkage in China, systematically empirical analyses have been limited. This paper investigates the issue using panel data at the provincial level in the period of 1986–1997. The findings support the widely held belief that increased levels of FDI positively affect provincial manufacturing export performance.     

Which firms benefit from foreign direct investment? Empirical evidence from Indonesian manufacturing

Despite growing concern regarding the productivity benefits of foreign direct investment (FDI), very few studies have been conducted on the impact of FDI on firm-level technical efficiency. This study helps fill this gap by empirically examining the spillover effects of FDI on the technical efficiency of Indonesian manufacturing firms. A panel data stochastic production frontier (SPF) method is applied to 3318 firms surveyed over the period 1988–2000. The results reveal evidence of positive FDI spillovers on technical efficiency. Interesting differences emerge however when the samples are divided into two efficiency levels. High-efficiency domestic firms receive negative spillovers, in general, while low-efficiency firms gain positive spillovers. These findings justify the hypothesis of efficiency gaps, that the larger is the efficiency gap between domestic and foreign firms the easier the former extracts spillover benefits from the latter.     

THE IMPACT OF EXCHANGE RATE MOVEMENTS ON FOREIGN DIRECT INVESTMENT: MARKET‐ORIENTED VERSUS COST‐ORIENTED

This paper examines the impact of exchange rate movements on foreign direct investment (FDI). We first employ a real options model to show that while the depreciation of a host country's currency tends to stimulate FDI activity of cost‐oriented firms, the depreciation tends to deter FDI activity for market‐oriented firms. With industry panel data on Taiwan's outward FDI into China over the period 1991–2002, our empirical findings indicate that the exchange rate level and its volatility in addition to the relative wage rate have had a significant impact on Taiwanese firms’ outward FDI into China. In general, the empirical results are consistent with the prediction of the theory. Our results reveal that the relationship between exchange rates and FDI is crucially dependent on the motives of the investing firms. Without considering this fact in an empirical model, the testing results might suffer from aggregations bias.     

Does Foreign Direct Investment Induce Domestic Mergers?

This paper examines the impact of foreign firm entry on the industry consolidation process in a host country that operates through mergers and exits of incumbent firms. Using a three-stage oligopolistic model, the paper shows that foreign direct investment (FDI) may trigger consolidation via a merger since the approval of a domestic merger by the antitrust authority is more likely in the case a foreign firm enters via FDI and a firm’s incentive for a domestic merger is greater and that, in turn, the possibility to merge and become more efficient modifies the outcome of the game by making FDI compared to exports less likely.     

Japanese foreign direct investment and regional trade

We examine the relationship between Japanese FDI outflows, domestic and foreign fixed investment, and the exchange rate. The results indicate that aggregate FDI outflows have been driven by investment in Japan and the exchange rate, while the geographic distribution of such investment has been influenced by foreign economic conditions. We also find that FDI outflows have a temporary impact on exports but a permanent effect on imports. We find no evidence that behavior with respect to East Asia differs from that with respect to North America or Europe.     

Export Spillovers to Chinese Firms: Evidence from Provincial Data

Multinational firms are important conduits of managerial skills, foreign market linkages, and technology. Foreign export spillovers associated with multinational firms have the potential to reduce entry costs for local exporting firms. This paper examines whether exports by multinational firms increase the probability of exporting by domestic Chinese firms. The findings from the Probit estimation highlight the varying relationships between multinational exports and local foreign entry based on the type of ownership. The results from separating foreign-invested enterprises into overseas Chinese companies and OECD-based multinational firms suggest that the export activity of the former does not increase the probability of exporting by local firms, whereas the latter positively influence the export decision of local firms, particularly under processing trade.     

A general equilibrium analysis of FDI growth in Chinese services sectors

This paper analyzes one of the features of the Chinese economic transition, namely, the impact of foreign direct investment (FDI) accruing to advanced services sectors. To that aim we use an innovative computable general equilibrium (CGE) model that includes, in a multi-regional setting, foreign multinationals operating in monopolistic competition. The model is based on data that split the world economy in 2016 into 11 regions (China - US - EU27 - Great Britain -other advanced economies - India - Japan - South East Asia - Latin America - Middle East - Sub Saharan Africa) and 21 sectors. We provide quantitative evidence on several characteristics of the 21 sectors in China, EU27 and the US, as well as other data on the role of China in the global stage, including its evolution since 2004. Several scenarios focusing on the increase of FDI inflows in services, because of the reduction of its FDI barriers, are simulated deriving short and long run results. We find that the impact of more foreign multinationals in services is positive for China but smaller than the one that had been obtained in other previous studies on FDI in manufactures. This is due to the still limited role of services in the Chinese economy and to a crowding out effect that domestic firms experience after the entry of foreign multinationals. On the whole the impact is, however, slightly positive for China, because manufactures benefit from the entry of foreign services multinationals. The rest of regions are unaffected or benefit very slightly, due to the fact that services production is less export oriented and more devoted to private consumption than in the case of manufactures. However, their manufacturing sectors are slightly harmed by the stronger Chinese competition. Many of them manage to more than offset this latter trend through higher exports or FDI in services directed to China.     

Microeconomic mechanisms behind export spillovers from FDI: evidence from Bulgaria

This paper studies how the presence of multinational enterprises affects the export performance of Bulgarian manufacturing firms—export spillovers from FDI. Using export data at the firm/product/destination level for the period 2004–2006, it finds positive forward spillover on export value and quantity, related to quality upgrading. Conversely, it finds negative (or insignificant) backward and horizontal spillover on export flows, related to quality downgrading. When aggregating data at the firm level and considering that a firm can operate in several sectors, the paper shows that the presence of foreign input suppliers allows domestic firms to export additional varieties of lower quality and upgrade the average quality of existing varieties, whereas the presence of foreign customers generates the opposite effect.