How Does FDI Affect Domestic Firms’ Exports? Industrial Evidence

Using a Heckman sample selection model estimated using pooled four‐year firm‐level data, this paper explores the export spillovers from the FDI in the cultural, educational and sporting product manufacturing industry of the manufacturing sector in China from 2000 to 2003. The manufacturing sector contributes around 40 per cent of the GDP in the Chinese economy, and the cultural, educational and sporting product manufacturing industry has a significant proportion of FDI activities, and firms in this sector are active in exporting. Through the empirical exercise, we find that there exist export spillovers from FDI in the industry, for which the magnitude depends on firms’ geographical location, sale cost and revenue ratio, and ownership structure. On average, domestic firms located in Western China suffer from a foreign presence, irrespective of whether they are privately owned or state and collectively owned. For firms in Central China, both the privately owned and state and collectively owned firms appear to benefit from foreign presence. Regarding firms located in Coastal China, the privately owned firms suffer from the foreign presence, while in contrast the state and collectively owned firms benefit from the foreign presence. In addition, in this industry there are more firms that benefit from the presence of FDI than those that suffer, which to some extent justifies the government's policy to attract the FDI inflow.     

Foreign Ownership and the Extensive Margins of Exports: Evidence for Manufacturing Enterprises in Germany

We examine how foreign ownership of a firm affects the variety of goods that the firm exports and the number of countries it trades with. We construct a simple theoretical model of how foreign ownership may affect these extensive margins of exports and take this model to data from Germany, one of the leading actors on the world market for goods. In line with theoretical predictions we find that foreign‐owned firms do export more goods to more countries after controlling for firm size, productivity and industry affiliation. These differences between foreign‐owned firms and domestically controlled firms are highly statistically significant, and they are large from an economic point of view, with foreign‐owned firms exporting up to 39 per cent more goods to up to 31 per cent more countries.     

Quantitative Evaluation of the Determinants of Export and FDI: Firm‐level Evidence from Japan

Using firm‐level data for Japan, this paper examines the determinants of the export and foreign direct investment (FDI) decision. We contribute to the literature by employing a mixed logit model, i.e. a multinomial logit model with random intercepts and random coefficients, to incorporate any unobserved firm heterogeneity and by paying special attention to the quantitative significance of the determinants. We find that while the impact of productivity on the export and FDI decision is positive and statistically significant, it is economically negligible. The effect of firm size, credit constraints and information spillovers from experienced firms is also small in magnitude. A quantitatively dominant determinant of the export and FDI decision is instead the prior status of firms in terms of internationalisation. In addition, the use of the mixed logit model enables us to find a substantial role of unobserved firm characteristics in internationalisation of the firm. These findings suggest that entry costs to foreign markets, which substantially vary in size across firms, play an important role in the export and FDI decision. In addition, given that the negligible effect of productivity and the dominant effect of prior status appear to be more prominent in Japan than in some other countries, this study helps highlight the uniqueness of Japanese firms.     

State‐owned Enterprises,Exporting and Productivity in China: A Stochastic Dominance Approach

A popular explanation for China's rapid economic growth in recent years has been the dramatic increase in the number of private domestic‐ and foreign‐owned firms and a decline in the state‐owned sector. However, recent evidence suggests that China's state‐owned enterprises (SOEs) are in fact stronger than ever. In this paper, we examine over 78,000 manufacturing firms between 2002 and 2006 to investigate the relationship between ownership structure and the degree of firm‐level exposure to export markets and firm‐level productivity. Using a conditional stochastic dominance approach, we reveal that although our results largely adhere to prior expectations, the performance of SOEs differs markedly between those that export and those that supply the domestic market only. It appears that China's internationally focused SOEs have become formidable global competitors.     

Foreign direct investment,black economic empowerment and labour productivity in South Africa

The impact of foreign direct investment (FDI) on domestically owned firms in developing countries has been widely debated in the literature. It has been argued that FDI provides access to advanced technologies and other intangible assets, which may spill over to the host country and allow domestic firms to improve their performance. While there is a substantial literature on this issue, for obvious reasons, little is known about the effect of FDI on domestic firms in the African context. Noting this gap, this paper uses two-period (2003 and 2007) firm level panel data from South Africa to examine the impact of FDI on the labour productivity of domestic firms. A key policy change during this time period was the passage of the broad-based black economic empowerment act (BB-BEE) and we also examine the effect of the interaction between foreign firm ownership and BEE on labour productivity. Regardless of the empirical specification, we find no spillover effects and no evidence that a greater degree of BEE compliance by foreign firms influences labour productivity.     

Environmental Policy,North-South Trade and FDI

We analyze trade between two countries, called the North and the South. There is one firm in each country and production costs are lower in the South. To serve foreign markets firms may export or engage in FDI. Both countries set tariffs on imported goods. We find that the implementation of an environmental policy by the South may affect the location decision of the Southern firm. When only the North sets an environmental tax, firms engage in FDI if the difference in costs between the two countries is low, otherwise the South exports and the Northern firm engages in FDI. If the South also sets an environmental tax, this does not restrict FDI by Northern firm, encourages FDI by the domestic firm, reduces its environmental damage and increases joint welfare. Finally, in equilibrium the South decides to implement an environmental policy and both firms engage in FDI.     

How do Firms’ Outward FDI Strategies Relate to their Activity at Home? Empirical Evidence for the UK

This paper provides new empirical evidence on the relationship between the structure of firms’ overseas FDI and the performance and organisation of their home‐country operations in both manufacturing and business services. It addresses two questions. First, does sorting into multinational status on the basis of productivity extend to the scale of overseas activity? Second, is there evidence that off‐shoring to low‐wage countries has asymmetric effects on high and low‐skill activities in the home economy? The paper considers heterogeneity in firms’ outward FDI strategies and in their behaviour at home, distinguishing between low‐skill and high‐skill‐intensive activities. I differentiate between firms that invest in relatively low‐wage economies and hence might be engaged in vertical FDI, and those that only invest in high‐wage economies. I find that firms that invest in low‐wage economies simultaneously invest in a large number of high‐wage economies, employing complex FDI strategies. I add to existing evidence by demonstrating that selection into multinational status on productivity extends beyond the decision of whether or not to engage in FDI, to the geographic scope of overseas operations. This is consistent with the highest productivity firms being best able to overcome large fixed costs of establishing multiple overseas facilities. I find evidence consistent with differential effects of vertical FDI on firms’ high and low‐skill manufacturing activity in the UK. Relocating low‐skill activity to relatively low‐wage economies could enable a firm to expand output, with potential positive effects on investment, employment and output in complementary (high‐skill) activities at home. For firms investing in relatively low‐wage economies, I find that labour in these countries may substitute for relatively low‐skilled labour in the UK. In high‐skill manufacturing industries I find that multinationals that invest in low‐wage economies are larger, more capital intensive and more intensive in their use of intermediate inputs than other UK‐owned firms.     

FDI expansion speed of state-owned enterprises and the moderating role of market capitalism: Evidence from China

Drawing on an institutional logics perspective and isomorphism viewpoint, we posit that the negative impact of state ownership on the speed of foreign direct investment (FDI) expansion is attributed to the state socialism logic, which is inconsistent with market-oriented mechanisms that underpin rapid international expansion. We further argue that firms associated with the market capitalism logic shape an institutional context in which state-owned enterprises (SOEs) may adjust their behaviors by adopting market-oriented practices to expand quickly in the global market. Using outward FDI project information from Chinese listed firms over a fourteen-year period, we find evidence that confirms our theoretical predictions. Our analysis shows that, despite the negative relationship between state ownership and the speed of an SOE’s FDI expansion, both the non-state economy in the firm’s subnational region and privately owned enterprises in its industry sector positively moderate this relationship. This study enriches our understanding of institutional complexity in emerging markets and internationalization of emerging-market firms.     

In Search of Environmental Spillovers

There is an extensive literature that examines the relationship between foreign direct investment (FDI) and the productivity and competitiveness of domestic firms. Using estimation techniques from the productivity spillover literature, this paper tests for the presence of environmental spillovers from foreign firms. On the basis that foreign‐owned firms may encourage firms in their extended supply chain to improve their environment‐related management practices, evidence for the existence of environmental spillovers should be easier to find than productivity spillovers where firms naturally attempt to minimise intra‐industry knowledge leakage. In this paper we show that, first, foreign‐owned firms are more likely to implement environmental management systems (EMS) and, second, that the presence of foreign‐owned firms in those sectors that a firm supplies can encourage good environmental practice. This is especially true if a firm is foreign, has high absorptive capacity, and operates in the presence of formal and informal networks.     

Home Firm Performance After Foreign Investments and Divestitures

An almost undisputed aim for firms in today's globalised world is to operate internationally. Several papers find a positive relationship between foreign direct investment (FDI) and the domestic performance of firms. In this paper, we address the ‘FDI – export’ relationship to better understand this trend. Furthermore, by presenting results on firm's post‐divestiture employment growth at home, we are able to provide a more comprehensive view on firm performance after stepping in and out of foreign markets. We apply a propensity score matching technique in combination with a difference‐in‐difference estimator to analyse the performance dynamics of French firms that either invested abroad or carried out foreign divestitures during the period 2000–2007. FDI has, on average, a positive effect in terms of export share, operating turnover and employment in firm's domestic market. Industry differences reveal that firms in high‐tech industries experience a strong increase in their domestic performance, whereas firm performance in low‐tech industries increases only moderately in post‐investment periods. In contrast, the divestiture impact on the post‐divestiture performance is rather negligible.     

The determinants of foreign direct investment in China: The case of Taiwanese firms in the IT industry

This study illustrates the factors that affect a firm's intention to engage in foreign direct investment (FDI) in China, using Taiwanese firms in the Information Technology (IT) sector as an example. By building upon the literature, we investigate a firm's decision to engage in FDI by taking industry and firm factors into consideration. This study applies an event history technique to perform an empirical analysis, taking into account the conditional probability of the element of time. These factors are analyzed in a dynamic context using a sample of 667 Taiwanese firms in 10 industries between 1996 and 2005. We find that network linkages, the expansion of markets, and China's incentive policies positively affect the intention to engage in FDI. A firm with a higher degree of export orientation and larger firm size also has a strong effect on motivating FDI.     

A model of demand,productivity and foreign location decision among Taiwanese firms

We develop a theoretical framework to examine the relative importance of firm demand and productivity in firm decisions to export and where to locate foreign direct investments. The model shows that the equilibrium firm decision depends on product technology, consumer preference for product quality, fixed investment costs of establishing a foreign subsidiary, transportation costs and relative wages. Our empirical results confirm the predictions of the theoretical model. Firm-level demand and productivity components are important in explaining the decision to participate in foreign markets with their relative importance depending on the firm's organizational form (exports versus FDI) and the destination of the investments. In general, FDI firms are more productive than exporting firms regardless of FDI destinations. FDI firms also have a higher demand component than exporters and this demand component is stronger than productivity. Finally, among FDI firms, while those with a high demand index and productivity have a significantly higher propensity to invest in high-income countries, firm productivity is the sole determinant of firms undertaking FDI in low-income countries.     

Mitigating the dual liability of newness and foreignness in capital markets: The role of returnee independent directors

Foreign firms undergoing an initial public offering in developed economies face a dual liability of newness and foreignness that can negatively impact the firm’s ability to access capital. In this study, we examine the ability of returnee independent directors to overcome such a liability among 232 foreign listings in the U.S. We find that returnee independent directors positively impact the price premium of the foreign IPO. We also find that this relationship is contingent on the level of ownership retained by non-independent directors, the level of ownership retained by venture capitalists, and investor protection in the firm’s country of origin.     

The role of corporate governance in FDI decisions: Evidence from Taiwan

There has been a considerable literature on the determinants of why firms undertake foreign direct investment (FDI), but very little on whether firms with different governance characteristics are more or less likely to venture overseas. For example, are family-controlled firms more predisposed to FDI than firms, with similar attributes, but different forms of ownership? Does the presence of institutional shareholders suggest a greater propensity to invest abroad? Does the composition of the Board of Directors have an impact? Most extant studies of corporate governance focus on the impact of governance factors on firm performance. However, these performance outcomes are a function of the strategic decisions made by the firms, which suggests it might be useful to consider the relationship between corporate governance factors and particular strategic decisions. One example is the decision to undertake foreign direct investment. The two main strands of IB literature on the determinants of FDI have little or nothing to say about how corporate governance factors might affect the FDI decision. Both internalisation theory and the resource-based view see FDI primarily as a means by which firms can appropriate rents in overseas markets from the exploitation of their idiosyncratic resources and capabilities. This paper extends this literature by investigating the effects of governance factors on the decision to undertake FDI. In particular, we want to assess the impact upon the FDI decision of (a) the extent of family control, (b) the presence of domestic and foreign institutional shareholders, and (c) the composition of the Board of Directors. We investigate these effects using a sample of 228 publicly listed firms in Taiwan, and our results clearly indicate that family control and share ownership by domestic financial institutions in Taiwanese firms are associated with the decision to undertake FDI. We also find that corporate governance impacts in different ways with regard to Taiwanese FDI in China in comparison to Taiwanese FDI in the rest of the world.     

Ownership Concentration and CSR Policy of European Multinational Enterprises

This study investigates how ownership concentration in European multinational firms is associated with these firms’ corporate social responsibility (CSR). We employ factor analysis on responsibility data from EIRiS and use a regression analysis. Using firm-level data for almost 700 European firms, we find that shareholder concentration is significantly related to such policies. That is, more concentrated ownership goes hand in hand with poorer CSR policies. In our analysis, we control for size, leverage, profitability, industry, and country of origin. We use several indicators for ownership concentration. We also find that with more concentrated ownership, CSR of the firm gets worse. We suggest that especially with large shareholders, CSR would need to be included in their performance assessment.     

Firm strategies in expanding and diversifying exports

This paper provides novel empirical evidence on the patterns and dynamics of exports by Irish firms over the past two decades from a highly detailed data set of export records at the firm‐product‐destination level. We identify patterns of export concentration and specialisation and how these evolved over time. Firms’ strategies for export growth along product and destination markets mixes are then examined and the contributions of intensive (average sales) and extensive (number of products or markets) margins to overall exports and to export growth are calculated. We find that most exporting firms are quite small, selling a few products to a small number of destinations while export values are dominated by a relatively small group of highly globalised large firms selling many products to many destinations. Continuing exporters frequently introduce new products, drop products and enter and exit markets. Export growth in the case of Irish‐owned exporters appears largely driven by the extensive margin of product and destination changes. However, the opposite pattern holds for foreign‐owned firms with growth mainly coming from the intensive margin.     

The decision to export: Firm heterogeneity,sunk costs,and spatial concentration

Integrating perspectives of the Uppsala model of internationalization process, international new ventures and trade theories of heterogeneous firms, this paper develops a dynamic discrete-choice model of export decisions by a profit-maximizing firm. Empirical analyses based on a panel data set of Chinese firms show that sunk costs, productivity, firm size, foreign ownership, industry competition and spatial concentration are positively associated with the decision to export, while state ownership has a negative association with the probability of exporting. However, we find that the relationships are not always uniform and depend on firm-specific idiosyncrasies. The results show that foreign-invested firms and large firms (regardless of ownership) rely on productivity performance related advantages for expanding overseas, while domestic firms, especially small- and medium-sized enterprises, build competitive advantage by leveraging agglomeration economies and the associated spillovers. Our results highlight the role of firm heterogeneity, sunk costs and spatial concentration in shaping the export behavior of firms.     

Foreign Direct Investment,Productivity, Demand for Skilled Labour and Wage Inequality: An Analysis of Uruguay

This study seeks to identify the causal effects of foreign ownership on productivity, the demand for skilled labour and wage inequality. With this aim, we use differences‐in‐differences techniques for a panel of Uruguayan manufacturing firms in the period 1997–2005. Our results seem to indicate that FDI causes higher productivity and increased demand for skilled labour. Furthermore, although average wages are higher in foreign‐owned firms than in domestic ones, the wage gap between skilled and unskilled workers is wider. It follows that promoting foreign investment enhances productivity. In addition, due to the greater demand for skilled workers, policies such as training schemes would be conducive to raising productivity still further, while other social policies could help to mitigate the wage inequality effects.     

The moderating role of local embeddedness on the performance of foreign and domestic firms in emerging markets

This paper examines the impact of the firm’s degree of local embeddedness on its performance in emerging markets using the World Bank’s Enterprise Survey Manufacturing Sector Module data on 15,715 firms covering 78 emerging markets. We use the degree of localization of sourcing and sales to measure the degree of embeddedness in the host country market. We argue that since embeddedness brings the firm into closer interaction with local firms and institutions, the costs of embeddedness should be lower for local firms than for MNE subsidiaries, since local firms can be assumed to be better able to decipher local institutions. We find that both dimensions are subject to a reversed U-shaped function. That is, by extending the degree of local sales and local sourcing up to a certain percentage, a firm can realize positive performance growth by becoming more embedded into the emerging market, but beyond this point, the performance impact is negative. We also find that foreign firms involved in local sales seem to lose part of their ability to exploit their ownership advantages as compared to foreign firms that export their production.     

Firm heterogeneity and technology transfers to local suppliers: Disentangling the effects of foreign ownership,technology gap and absorptive capacity

In this paper, I present novel microeconomic evidence on the effects of firm heterogeneity on the creation and impact of technology transfers from foreign direct investment (FDI) to local suppliers in a developing country setting. The main findings are threefold. First, FDI firms are significantly more involved in knowledge transfer activities than domestic producer firms. In particular, FDI firms offer more technological support, support with a direct positive impact on production processes of local suppliers. Second, the type of ownership also influences the effect of the technology gap on technology transfers. A large technology gap between a producer firm and its suppliers lowers the provision of support; however, FDI firms offer more technological support to their suppliers of material inputs when the technology gap is large. Independent of the support that the suppliers receive, foreign ownership of client firms and a large technology gap make it more likely that suppliers experience large positive impacts. Third, the level of absorptive capacity of local suppliers is also important for the impact of the technology transfers, confirming the notion that heterogeneity among both producer firms and local suppliers affect the level, nature and impact of local technology transfers.