Evidence on corruption as an incentive for foreign direct investment

This paper assesses the relationship between corruption and inward foreign direct investment (FDI). Previous research has presumed that corruption directly enters the cost function of multinationals, suggesting a negative relationship between corruption and FDI. For a sample of 73 developed and less developed countries and the time period 1995–1999, we find a clear positive relationship between corruption and FDI. Corruption is thus a stimulus for FDI.     

Institutional difference and foreign direct investment location choice: Evidence from China

Resting upon an extensive data set on foreign invested enterprises (FIEs) in China, we investigate the role of institutional difference in determining the locational choice of foreign direct investment (FDI). Estimation results using firm-level discrete choice model suggest that FIEs from source countries that are more remote institutionally from the Chinese mainland exhibit a higher degree of sensitivity to regional economic institutions in their choice of FDI location. Furthermore, we find that FIEs coming from countries with better institutions than China are more sensitive to the institutional difference. Interestingly, we find that the deterrent effect of institutional distance on FDI entry is mitigated for FIEs coming from countries with more ethnic Chinese individuals in their overall populations.     

National levels of corruption and foreign direct investment

We model the relationship between bilateral foreign direct investment (FDI) and the level of corruption in multinational firms’ (MCNs’) home and host countries. We construct and test a model of bilateral FDI between countries that differ in their levels of corruption. FDI is affected negatively both by the level of corruption in the host country and by differences in home- and host-country corruption. Our model emphasizes that MNCs develop skills for dealing with home-country corruption, and these skills become a competitive advantage in similarly corrupt host countries. We test the model using data on bilateral FDI stocks among a large number of home and host countries, using a variety of specifications and estimation strategies to provide robustness. Our results show that the effects of host-country corruption and of differences in corruption levels between home and host countries are statistically and economically significant.     

The determinants of the location of USA direct foreign investment

This article estimates a model of the location of USA direct foreign investment (DFI) in manufacturing that accounts for sociopolitical factors as well as host country demand and cost conditions. The results indicate that all three sets of factors play a significant role in shaping the geography of USA DFI. The results further indicate that the exclusion of sociopolitical factors from a model of DFI location not only limits the model's explanatory power, it leads to a misassessment of the influence of labour cost, tax rates, market size and other economic factors.     

中国企业对外直接投资:发展状况与问题解析

近年来,中国每年在吸收500—600亿美元的外国直接投资项目,《2003年世界投资报告》显示,去年流入中国的外商直接投资达527亿美元。外资的流入不但促进了中国经济的增长,也给中国企业学习如何对外直接投资提供了绝佳的机会。因为只有更多的有效率的高附加值的中国企业走向国际市     

Media freedom and democracy in the fight against corruption

Democratization and media freedom have been suggested as useful tools in the fight against political corruption, but so far their interplay in this fight has received scant attention. We present a game theoretic model which allows for varying quality of media freedom and democratic institutions. The model predicts, among others, that democratization and media freedom are complements in the fight against political corruption. We test our theoretical predictions using differences-in-differences estimations and panel data covering 129 countries from 1980 to 2007. We find evidence of causal effects of democratization and media freedom on corruption, and that the two are complements. Our main results hold after controlling for income, country fixed effects, and continent-specific time-varying shocks.     

The impact of foreign direct investment on innovation at domestic firms: Evidence from the deregulation of foreign investment in China

This paper studies the impact of foreign direct investment (FDI) on innovation by domestic firms in China. A difference-in-difference estimation strategy yields causal evidence by exploiting China's deregulation of FDI in 2002. Analysis of a matched firm–patent data set from 1998 to 2007 shows that both the quantity and quality of innovation by domestic firms benefited from the presence of FDI. Emphasizing the importance of knowledge spillover from FDI in similar technology domains, the authors examine the role of horizontal FDI and FDI in technologically close industries—those sharing similar technology domains. Findings show that the latter generates much more substantial positive spillover than the former. The paper also shows that knowledge spillover from FDI in similar technology domains is not driven by input–output linkages. In addition, the spillover effect is stronger in cities with higher human capital stock and firms with higher absorptive capacity.     

Board gender quotas and outward foreign direct investment: Evidence from France

We show that board gender quota laws reduce the propensity of French firms to undertake outward foreign direct investment. For this, we use firm-level data for the period 2007 to 2015 and a difference-in-difference approach. The exogenous increase in the share of women directors decreases the share of foreign subsidiaries by 7 percentage points when the share of women directors is at its highest. The share of foreign subsidiaries is affected by the decrease in probability of having a foreign subsidiary, which indicates disinvestment. The effects on outward foreign direct investment we detect are strongest for the poorly managed firms, pointing to tough managerial monitoring by gender diverse boards as the driving force behind results.     

The impact of foreign direct investment on innovation: Evidence from patent filings and citations in China

This paper studies how foreign direct investment (FDI) affects innovation in the host country, using matched firm-level patent data of Chinese firms. The data contain multidimensional information about patent counts and citations, which, together with an identification strategy based on Lu et al. (2017), allows us to measure innovation comprehensively and to uncover the causal relationship. Our empirical analysis shows that FDI has positive intra-industry effects on the quantity and quality of innovation, as well as radical innovation, by Chinese firms. We show that these positive effects are driven by increases in competition, rather than by knowledge spillovers from FDI which is measured by patent citations between domestic firms and foreign invested enterprises (FIEs). We further investigate the inter-industry effects of FDI and find that FDI has positive vertical effects on innovation in upstream sectors through backward knowledge spillovers.     

The welfare effect of a free trade agreement in the presence of foreign direct investment and rules of origin

This paper investigates the welfare effect of forming a free trade agreement (FTA). To receive tariff‐free treatment, firms must comply with the rules of origin (ROO). Outside firms could undertake either market‐oriented or export‐platform foreign direct investments (FDIs). ROO have the following effects: (i) An infeasible FTA may become feasible by deterring outside firms' FDIs, (ii) an FDI of a less efficient firm could replace that of an efficient firm, or (iii) FDIs made before the FTA is concluded might be eliminated. These potential effects complicate the welfare effect of the FTA and could decrease the consumer surplus.     

Absorptive capacity and the effects of foreign direct investment and equity foreign portfolio investment on economic growth

This study examines the effects of foreign direct investment (FDI) and equity foreign portfolio investment (EFPI) on economic growth using data on 80 countries from 1979 through 1998. The results largely suggest that lagged FDI and EFPI do not have direct, unmitigated positive effects on growth, but some data are consistent with the view that the effects of FDI and EFPI are contingent on the ‘absorptive capacity’ of host countries, with particular respect to financial or institutional development. Moreover, extreme bound analysis (EBA) of significant results indicates that the estimates are robust compared to other empirical studies on growth.     

The interaction effect of economic freedom and democracy on corruption: A panel cross-country analysis

This paper examines the effects of economic freedom, democracy and its interaction term on controlling corruption. Interactive results indicate that economic freedom and democracy significantly combat corruption. Economic freedom reduces corruption in any political environment. Democracy increases corruption when economic liberalization is low.     

Political decentralization and corruption: Evidence from around the world

How does political decentralization affect the frequency and costliness of bribe extraction by corrupt officials? Previous empirical studies, using subjective indexes of perceived corruption and mostly fiscal indicators of decentralization, have suggested conflicting conclusions. In search of more precise findings, we combine and explore two new data sources—an original cross-national data set on particular types of decentralization and the results of a firm level survey conducted in 80 countries about firms' concrete experiences with bribery. In countries with a larger number of government or administrative tiers and (given local revenues) a larger number of local public employees, reported bribery was more frequent. When local—or central—governments received a larger share of GDP in revenue, bribery was less frequent. Overall, the results suggest the danger of uncoordinated rent-seeking as government structures become more complex.     

Macroeconomic,institutional, and sectoral determinants of outward foreign direct investment: Evidence from Japan

This paper empirically explores the determinants of outward foreign direct investment (FDI) in the Japanese manufacturing sector. We estimate a gravity model of FDI for 30 host countries covering the period 2005–2017, using Poisson pseudo maximum likelihood to tackle the issue of zero-value observations. The results indicate that Japanese overseas investments are not only driven by traditional factors, such as market size, the yen real exchange rate, trade openness, differences in perception of corruption, and financial instability, but also by industry characteristics. In particular, we find that low technological industries characterized by growing labour costs are more likely to be relocated abroad. Furthermore, we demonstrate nonlinearities in the determinants of Japanese overseas investments depending on the host country's development, the host country's region, and the category of FDI implemented (vertical vs horizontal).     

A Nested logit approach to modelling the location of foreign direct investment in the Central and Eastern European Countries

This paper applies the Nested logit model to a three-level dataset in order to examine the factors explaining foreign investment location decisions into 13 Central and Eastern European Countries (CEECs) over an eleven-year period between 1997 and 2007. The three-level dataset allows firm, industry and country factors to simultaneously determine the firm-level investment location decisions. The Nested logit model partially relaxes the assumption of the independence from irrelevant alternatives and tests if national boundaries affect the choice of investment location of multinational enterprises in the CEECs. In addition, the Heteroskedastic Extreme Value model is used to help identify an appropriate nesting structure. Empirical results show that the responsiveness of the firms' decision regarding where to locate capital in the CEECs to country-level variables differs both across sectors and across firms of different sizes and profitability.     

The effect of foreign aid on corruption: A quantile regression approach

This paper investigates the effect of foreign aid on corruption using a quantile regression method. We show that foreign aid generally reduces corruption, and its reduction effect is greater in less corrupt countries. Moreover, this effect is different by different donor countries.     

中国利用外资:现状、问题与对策

近几年,中国利用外商直接投资一直呈徘徊和下滑态势,１９９７年实际利用外商直接投资４５２亿美元,比１９９６年增长８．４％,１９９８年为４５４亿美元,仅比 １９９７年增长０．４６％,１９９９年为４０３亿美元,比上年下降１１．２％,２０００年为 ４０８亿美元,仅比上年增长０．９３％。值得注意的是,中国利用外资的徘徊是与国际资本流动的大幅上升相并存的。１９９６年至１９９９年,全球跨国直接投资由３４９０亿美元增至 ８６５５亿美元,增长 １．４８倍,年均增长３５％,２０００年超过１万亿美元。从１９９３年开始中国…     

Democracy in the neighborhood and foreign direct investment

The determinants of foreign direct investment (FDI) have been extensively studied. Even though there is extensive research in the area, most of it is based on analyzing the effects of host country characteristics on FDI flows, and yet there is little research on how neighboring country characteristics play a role in facilitating FDI flows to host countries. This paper analyzes the association between the democracy level in neighboring countries and FDI flows to host countries. Using bilateral FDI flows from the OECD countries, with a large host country sample, we find that countries surrounded by democratic countries attract higher FDI flows. Furthermore, we find evidence that countries that are surrounded by neighboring countries with good institutions tend themselves to have better institutions, experience lower civil conflict, and have higher political stability and hence indirectly attract higher FDI flows. Our findings suggest that if neighboring countries act in such way as to become more democratic, FDI flows to these countries would be higher since not only does improving the quality of democracy attract more FDI inflows, but also being surrounded by neighboring advanced democratic countries will also lead to higher FDI flows to them.     

Governance and foreign direct investment: a panel gravity model approach

This paper investigates the link between governance and foreign direct investment in the case of 14 transition countries by using a panel gravity model approach in two alternative ways. First, the level of governance in the target country is studied. Second, the absolute difference in the governance level between the source and target country is investigated. In both cases the results suggest that the lack of good governance does not deter, in fact it encourages, foreign direct investment.