The complementarity of human capital and language capital in foreign direct investment

Integrating the literature on language-MNEs (multinational enterprises) in international business and economic theory of human capital (HC), we establish an analytical framework to systematically examine how HC and language capital (LC) jointly determine foreign direct investment (FDI). We contend that the extent to which MNEs can leverage HC in a host country for FDI depends on LC. Based on an extensive bilateral dataset covering 3315 country pairs during 1995–2008, we reveal clear evidence on the moderating role played by LC in HC-FDI relationship and such evidence is robust to different measures used for different variables, the inclusion of more control variables and different samples.     

Safety risk and international investment decisions

We identify and demonstrate the merit of a novel institutional factor, safety risk, which likely affects multinational corporations’ (MNCs’) international investment decisions. Safety risk refers to the extent to which security and physical well-being are endangered due to normalized aggression and criminality in society. Despite concerns from executives and policymakers, safety risk has attracted little research attention. We validate a safety risk measure and evaluate the construct’s effect on MNCs’ investments. The findings indicate that countries’ safety risk deters MNCs from investing. Further, in post hoc analyses, firms’ prior experiences with safety risk and countries’ private security investments moderated this relationship.     

Endogenous market structures and the gains from foreign direct investment

This paper discusses the gains from liberalizing foreign direct investment (FDI) in a two-country setting with endogenous market structure. We investigate two different scenarios. In the first scenario, headquarters costs are large in the foreign country so that the industry is located in the domestic country only. In this case, multinational and national firms may coexist and market concentration may make FDI welfare improving for the foreign country and welfare reducing for the domestic country. In the second scenario, headquarters costs are symmetric and firms will be located in both countries. Here, profitable FDI activities lead to mutual welfare gains, irrespective of market structure effects.     

A knowledge-and-physical-capital model of international trade flows, foreign direct investment, and multinational enterprises

This paper addresses two important issues at the nexus of the literatures on international trade, foreign direct investment (FDI), foreign affiliate sales (FAS), and multinational enterprises (MNEs). First, the introduction of a third internationally-mobile factor (physical capital) to the standard 2 × 2 × 2 “knowledge-capital” model of MNEs with skilled and unskilled labor allows us to resolve fairly readily the puzzle in the modern MNE literature that foreign affiliate sales among two identical economies completely displace their international trade. Intra-industry trade and intra-industry FDI (and FAS) can coexist for national and multinational firms (with identical productivities) in identical countries. Second, the introduction also of a third country to the model suggests a formal N-country theoretical rationale for estimating gravity equations of bilateral FDI flows and FAS, in a manner consistent with estimating gravity equations for bilateral trade flows.     

The complex integration strategies of multinationals and cross country dependencies in the structure of foreign direct investment

The behavior of many multinational enterprises is not well described by existing models of foreign direct investment (FDI). Firms often follow strategies that involve vertical integration in some countries and horizontal integration in others, a strategy known as complex integration. This paper presents a three-country model that is used to analyze why firms might follow a strategy of complex integration. My analysis reveals that complex integration strategies create complementarities between potential host countries that have important implications for the structure of FDI. The analysis also shows that falling transport cost between countries may increase the importance of complex integration strategies.     

Longitude matters: Time zones and the location of foreign direct investment

Using bilateral foreign direct investment (FDI) data, we find that differences in time zones have a negative and significant effect on the location of FDI. We show that this finding is robust across different specifications, estimation methods and proxies for time zone differences. Time zones also have a negative effect on trade, but this effect is smaller than that on FDI. Finally, the impact of the time zone effect has increased over time, suggesting that it is not likely to vanish with the introduction of new information technologies.     

Product business, foreign direct investment, and licensing: Examining their relationships in international technology exploitation

In the past, most industrial firms focused on internally exploiting technological knowledge in their own products. By contrast, external technology exploitation through out-licensing was primarily an entry mode into foreign markets or into product markets for which a firm had limited complementary assets. Outward technology transfer was mainly regarded as a substitute for foreign direct investment and for a firm's internal product business. The recent trend towards active licensing questions this traditional role of international licensing. To overcome the focus on market entry in prior research, we analyze the motives for technology licensing. On this basis, we use data from 152 firms to test six hypotheses relating product diversification, technological diversification, and foreign direct investment to the extent of technology out-licensing, considering technological turbulence as a moderator. The results provide support for a capability-based understanding of technology licensing, and they may lead us to fundamentally rethink traditional assumptions on the relation between product marketing, foreign direct investment, and licensing.     

Links between foreign direct investment and human capital formation: Evidence from the manufacturing sector in India

This paper is related to the literature on the effect of foreign direct investment (FDI) on the labour market of host countries. Labour market literature has focused on the demand side of FDI; that is, increasing wage inequality by demanding more skilled workers or just increasing the overall average wages. On the supply side, FDI can enrich the skilled labour force of the host country by the provision of on-the-job training or learning or through indirect technological spillover effects. This paper takes into account both these effects and tests for human capital formation effect of FDI in India for core manufacturing sector firms for the period 2001–2015 using the Prowess database of the Centre for Monitoring Indian Economy. It also takes into account the endogeneity of decision-making on the part of foreign firms in locating FDI. Different dynamic panel data methods are used with static and dynamic generalized method of moments techniques. This study does not find any positive supply-side human capital formation effects of FDI but finds a positive demand-side effect of FDI of raising wage inequality and average wages. The results remain robust while taking into account heterogeneities at region, industry, size, and age of the firms.     

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.     

Trade and foreign direct investment in China: a political economy approach

We view the political process in China as trading off the social benefits of increased trade and foreign direct investment against the losses incurred by state-owned enterprises due to such liberalization. A model drawing on Grossman and Helpman [Am. Econ. Rev. 84 (1994) 833; The Political Economy of Trade Policy: Papers in Honor of Jagdish Bhagwati, MIT Press, Cambridge (1996) 199] is used to derive an empirically estimable government objective function. The key structural parameters of this model are estimated using province-level data on foreign direct investment and trade flows in China, over the years 1984-1995. We find that the weight applied to consumer welfare is between one-seventh and one-quarter of the weight applied to the output of state-owned enterprises.     

Multinational country risk: Exposure to asset holding risk and operating risk in international business

We address the phenomenon of country total risk, confounded by the risk of holding assets abroad and operating them in the foreign market. The findings point to deep differences in risk patterns as ownership of intangible assets exposes the holders to a higher risk. Indeed, the asset-specific risk is the dominant component of advance market volatility, explaining more than 80 percent of the cross-sectional variance. The model in the study accounts for the deficiencies in the related research streams and attempt to alleviate the typical problems in popular estimation methods.     

The determinants of China's outward foreign direct investment

Globalisation has led to a rapid increase in the growth of foreign direct investment (FDI) globally. Over the last decade China has become the largest recipient of FDI whilst simultaneously increasing its outward FDI dramatically. The growth in China's outward FDI has attracted little attention from scholars in mainstream research publications. The motivation behind this paper is to investigate the factors driving this growth from both economic and strategic backgrounds. The paper employs panel data analysis covering the period 2003–2009 where we quantify the main drivers of China's outward FDI across a range of variables including bi lateral and multi lateral trade, market size, GDP growth, openness and resource endowment.     

Assessing the effects of policies on China’s outward foreign direct investment

This paper discusses the determinants of China’s outward foreign direct investment (OFDI) with a special focus on the role of government policy. In particular, we investigate the types of policies that are most influential in promoting OFDI. Our main contribution is to analyse, for the first time, China’s OFDI policies by means of quantitative indicators. We refine policies definitions and distinguish between Regulation Policies, Service Policies, Promotion Policies and Supervision Policies, and we develop a methodology for collecting, screening and coding policies; then we create new indices to capture different types of policies. We find that Regulation Policies, Service Policies and the general attitude of the government have significant effects on China’s OFDI at the national level.     

The impact of foreign direct investment on new firm survival in the UK: evidence for static versus dynamic industries

The paper examines the impact of Foreign Direct Investment (FDI) on the survival of business start-ups. FDI has potential for both negative displacement/competition effects as well as positive knowledge spillover and linkage effects on new ventures. We find a net positive effect for the whole dataset. However, a major contribution of the paper is to outline and test an argument that this effect is likely to be comprised of a net negative effect in dynamic industries (high churn: firm entry plus exit relative to the stock of firms) alongside a net positive effect in static (low churn) industries. We find evidence to support this view. The results identify new effects of globalisation on enterprise development with associated challenges for industrial policy.

Why a poor governance environment does not deter foreign direct investment: The case of China and its implications for investment protection

It is widely believed that countries with a poor governance environment (e.g., weak laws and rampant corruption) do not attract foreign direct investment (FDI); however, our study suggests otherwise. Using China as a case study, this article argues that the prevailing theory that a good governance environment begets FDI is incomplete. When faced with a poor governance environment, investors choose direct investment over indirect (portfolio) investment because the former can be better protected by private means. In fact, China attracts a large amount of FDI because of, rather than despite, its lack of a good governance environment. In conclusion, this article offers strategies to better protect investments and to chart through the pitfalls resulting from rapid changes in the governance environment.     

Cross-border mergers and acquisitions vs. greenfield foreign direct investment: The role of firm heterogeneity

We develop a general equilibrium model with heterogeneous firms to address two sets of questions: (1) what are the characteristics of firms that choose the various modes of foreign market access (exporting, greenfield FDI, and cross-border M&A), and (2) how does the international organization of production vary across industries and country-pairs? We show that the answers to these questions depend on the nature of firm heterogeneity. Depending on whether firms differ in their mobile or immobile capabilities, cross-border mergers involve the most or the least efficient active firms. The comparative statics on industry and country characteristics display a similar dichotomy.     

Seeking greener pastures: a theoretical and empirical investigation into the changing trend of foreign direct investment flows in response to institutional and strategic factors

A generic theoretical model is proposed that provides a holistic conceptualization of the phenomenon of changing trend of FDI flows. Integrating both institutional and strategic factors, a rationale for such a change is provided, and the circumstances under which future shifts might take place are identified. A collection of criteria and incentives that various host governments and their agencies must provide to attract FDI are outlined. Several propositions that lead to empirically testable hypotheses are developed from this model. Statistical evidence is then provided of a shift in FDI flows, and the change in their determinants, by empirically analyzing investment by US multinational enterprises into Western Europe and Asia over the 20-year period, 1981–2000.     

Foreign direct investment location choice of small- and medium-sized enterprises: The risk of value erosion of firm-specific resources

Drawing on the resource-based view and FDI theory, the present study introduces the risk of value erosion as a core concept to explain the moderating effect of SMEs’ resources (knowledge intensity and international experience) on the relationship between motives (market seeking, resource seeking, strategic asset seeking) and FDI location choice (developed countries vs. developing countries). Testing our theoretical predictions on survey data obtained from 100 German SMEs, our results indicate that knowledge intensity and international experience significantly influence the relationship between motives and SMEs’ FDI location choice. Adding this perspective, we provide an enhanced understanding of SMEs’ FDI location choice and beyond.     

Experiential drivers of foreign direct investment by late-comer Asian firms: The Chinese evidence

Focusing on the cognitive process of managerial decision making, we argue that both organizational and personal international experiences contribute to managerial knowledge structure which in turn influences firms' foreign direct investment decisions. Given the decision task context of late-comer Asian firms, the two types of experiences can lead to decision outcomes that compete for limited decision making resources, and therefore their interaction effect is expected to be negative. Based on a sample of 164 Chinese electronic manufacturing firms over an eight-year period (2001–2008), we found substantial support for our hypotheses. While both organizational and personal international experiences increase the foreign direct investment propensity of a firm, these experiences also weaken each other's effects.