Corruption’s impact on foreign portfolio investment

Corruption has significant effects on a nation’s financial markets through its adverse impact on foreign portfolio investment (FPI). Yet, the effects of corruption on FPI are nonlinear and reverse J-shaped, with intermediate levels of corruption yielding the most negative effects. Highly transparent nations, where a “level playing field” exists between foreign and local investors due to lack of information asymmetries related to corruption, attract the most foreign investment. However, at the margin, very corrupt countries attract more investment than moderately corrupt countries because a “perverse level playing field” in the former countries may put foreigners and locals on an even footing in terms of resolving asymmetric information problems. This nonlinear pattern is consistent with foreign investors’ desire to trade in markets where they are not at an informational disadvantage.     

Does foreign aid mitigate the adverse effect of expropriation risk on foreign direct investment?

We construct a model of FDI, risk and aid, where a country loses access to FDI and aid if the country expropriates FDI. We show that: (i) the threat of expropriation leads to under-investment; (ii) the optimal level of FDI decreases as the risk of expropriation rises; and (iii) aid mitigates the adverse effect of expropriation risk on FDI. The empirical analysis employs data for 35 low-income countries and 28 countries in Sub-Saharan Africa, over the period 1983-2004. We find that risk has a negative effect on FDI and that aid mitigates but cannot eliminate the adverse effect of risk.     

The effect of outward foreign direct investment on home country's export: A case study on Taiwan, 1989–2006

The purpose of this study is to examine the effect of outward foreign direct investment (FDI) on home country's export in Taiwan since the late 1980s. By pooling the time series and cross-section data in a modified gravity model, the study analyzes the effect of outward FDI, both country by country and host groups as a whole, on Taiwan's exports. It is concluded that outward FDI has a complementary effect on home country's export in Taiwan, most significantly evidenced in China-bound investment, which accounted for most FDIs after the 1990s.     

Is foreign direct investment productive? A case study of the regions of Vietnam

By making use of a recently released dataset that covers a large number of manufacturing firms over the period 2000–2005, this paper examines the impact of foreign direct investment (FDI) and FDI generated spillovers on total factor productivity (TFP) in eight regions of Vietnam. Unlike most existing studies, this paper focuses on the impact of spillovers that take place through both horizontal and vertical linkages. The results presented in this paper suggest that the impact of FDI spillovers on TFP varies considerably across regions. FDI spillovers generate a strong positive impact on TFP through backward linkages only in Red River Delta, South Central Coast, South East and Mekong River Delta while in other regions the impact is negative and mostly insignificant. The paper also examines the impact of the absorptive capacity on TFP growth in each of the eight geographical regions.     

Is foreign direct investment a safer form of financing?

It has been common to attribute financial crises to short-term capital inflows, while foreign direct investment (FDI) is seen as a safer form of finance. The relationship between crises and the composition of capital flows is particularly relevant at present because the flow of capital to Latin America is becoming increasingly dominated by FDI. This paper asks whether the composition of capital inflows and of the stock of foreign liabilities is relevant for financial crises, be it their frequency, depth, or length. It explores the possible role of FDI as a benign form of external liability relative to other classes of liabilities, reviewing both analytical and empirical arguments.     

The evolution of inter-organisational social capital with foreign customers: Its direct and interactive effects on SMEs’ foreign performance

Taking a longitudinal approach, we analyze how the evolution of different dimensions of social capital between an SME (Small and Medium enterprise) and its key foreign customers directly influences the firm’s foreign performance growth. Moreover, we utilize a contingency approach by introducing two dyad-specific characteristics into the analysis: psychic and geographic interorganizational distances. Our findings contribute to the international business literature on social capital and suggest that while an investment in social capital with distant foreign customers always reinforces SMEs’ foreign performance development, relational and cognitive social capital have the same positive effects only for low levels of interorganizational psychic distance.     

Expanding to outward foreign direct investment or not? A multi-dimensional analysis of entry mode transformation of Chinese private exporting firms

This research examines the factors determining whether or not exporting firms expand to outward foreign direct investment (OFDI) as part of their internationalisation strategy, using a recent survey of Chinese private-owned enterprises. We carry out a multi-dimensional analysis to investigate the impact of firm productivity, internal resources and the external environment on OFDI decisions, including both the decision to undertake OFDI and the volume of OFDI flows. It is found that productivity, technology-based capability, export experience, industry entry barriers, subnational institutions and intermediary institutional support affect firms’ OFDI decisions. The findings have important policy and managerial implications.     

Does distance matter in foreign direct investment sub-national location choice? Evidence from China

Multinational enterprises (MNEs) make investment decisions according to the distance factors at a sub-national level. This paper made estimates using the gravity model with provincial foreign direct investment (FDI) data from 2000 to 2012 and employed three concepts of distance. Our empirical results indicate that geographic distance and cultural distance have significant negative effects on FDI flow, whereas economic distance has a significant positive effect. It suggests that FDI prefers to locate in regions that are geographically and culturally close but economically distant from the home country, which further implies that FDI in China is dominated by vertical FDI. Our findings suggest that Chinese provincial governments should place emphasis on attracting FDI from culturally close countries and provide institutional support to encourage and promote horizontal FDI.     

Do bilateral investment treaties attract foreign direct investment? The role of international dispute settlement provisions

This paper studies the effects of the strength of bilateral investment treaties (BITs) on foreign direct investment (FDI) activity. We develop an index for the strength of international dispute settlement provisions included in BITs in order to examine the role the content of BITs plays in attracting FDI. To this end, we make use of data from UNCTAD's International Investment Agreement Mapping Project and measure the provision strength of 2,571 BITs. Using panel data of bilateral and total FDI inflows and inward FDI stocks, we study the effect of BITs on FDI. Our main finding indicates that stronger international dispute settlement provisions in BITs are indeed associated with positive effects on FDI activity.     

South Korea’s outward direct investment and its dyadic determinants: Foreign aid,bilateral treaty and economic diplomacy

This study investigates the factors that affect South Korean outward foreign direct investment (FDI) in developing countries. Most previous studies focus on monadic factors and do not consider how and to what extent bilateral relationships between South Korea and the host countries affect the investment decisions of Korean firms. The current study finds that interstate factors such as South Korea's international investment treaties with and official development assistance to host countries have positive effects on FDI to these countries, while presidential visits have strong and statistically significant effects on FDI only in countries located in non-Asian regions, especially the African continent. The findings suggest that the effects of bilateral relations on South Korea's FDI vary depending on the geographic location of the host country.     

A review of research on outward foreign direct investment from emerging countries,including China: what do we know,how do we know and where should we be heading?

Using the Antecedents, Decisions and Outcomes (ADO) format as an organizing framework, this article gives an overview of the literature on different dimensions and characteristics of outward foreign direct investment (OFDI) by firms from emerging countries. Based on an extensive coverage of studies published over a period of nearly 25 years between 1993 and 2017, we review extant research on this phenomenon from mainly China, as well as other emerging countries. We identify advances and analytical areas of OFDI research and pinpoint the key theories, methodologies, observed characteristics and the variables that have been examined in this growing research literature. Many areas of the above research themes remain underexplored, despite recent significant advancements, and may provide directions for future research.     

Does foreign direct investment promote institutional development in Africa?

Foreign direct investment (FDI) inflows into Africa have increased since the turn of the millennium, mainly due to FDI growth into African countries by multinational enterprises (MNEs) from developing economies. While African governments view this growth as a positive development for the continent, many governments in the West have raised concerns regarding the institutional impact of investments from developing economies. This paper examines the impact of FDI flows on institutional quality in African countries by distinguishing investments from developed versus developing economies. Previous empirical studies have found a significant relationship between FDI flows and institutional quality in African countries but regard the relationship as MNEs rewarding African countries for adopting institutional reforms. However, little attention has been paid to the reverse causality, i.e. that FDI can cause an institutional change in African countries. Using bilateral greenfield FDI flows between 56 countries during 2003?2015, we find no significant FDI effect from developed and developing economies on institutional quality in host countries. However, aggregate FDI flows from developed and developing economies have a significant positive effect on host country institutional quality but differ concerning the impact's timing. In contrast, we find no significant effect of FDI flows from China on host country institutional quality. Our results are robust to alternative measures of institutional quality.     

Does foreign direct investment expand the capability set in the host economy? A sectoral analysis

Most empirical studies examining the impact of foreign direct investment (FDI) on economic development use aggregate monetary-based measures such as GDP or TFP growth as indicators for development. We deviate from this approach and use instead the recently developed economic complexity index; this measure summarises the complexity of the productive structure of an economy, and its values can be interpreted as the number of capabilities present in a country. These capabilities are units of productive knowledge necessary for the production of goods, and goods differ in the number of necessary capabilities. Furthermore, we use sectoral FDI data to take differences between sectors of an economy into account, since the number of necessary capabilities also varies between the sectors. In our empirical analysis, covering 63 developing and developed countries over the period 2005–14, we find that FDI in the tertiary sector has a statistically significant and robust positive effect on the number of capabilities, whereas FDI in the primary and secondary sectors generally does not increase the capability set of an economy.     

How important is foreign direct investment for late industrialising countries?

While it has long been recognised that the process of development is necessarily linked to technology, the question of the efficiency of technological spillovers from foreign direct investment remains controversial. The following paper examines the theoretical background and then focuses on the case of Mexico, analysing the technological performance of multinational enterprises in that country.     

China’s Consumption Market on the Road to Recovery

The Party leadership’s proposals for formulating the 14th Five-Year Plan(2021-2025)for National Economic and Social Development and the Long-Range Objectives Through the Year 2035 were adopted by the fifth plenary session of the 19th CPC Central Committee in October of 2020.The proposals clearly stated the need for“comprehensively promoting consumption”and made concrete arrangements for how to achieve this target.It is estimated that during the 14th Five-Year Plan period,the consumption and retail market will undergo rapid growth to become the backbone of China’s economic development.     

Relations with the People’s Republic of China

The Association of South East Asian Nations (ASEAN) has, from the point of view of the big powers, become an important factor in the balance of power struggle. Political as well as economic reasons seem to suggest closer relations with the People’s Republic of China.     

Does foreign investment benefit the exporting activities of Vietnamese firms?

Using firm-level data, this paper examines the effects of foreign investment on the exporting behaviour of domestic firms in the Vietnamese manufacturing and service sectors. Applying the Heckman selection model on panel data and following the Wooldridge approach, we find that investment by foreign firms has a significant positive effect on the decision of domestic firms in the same and upstream sectors to export. The proportion of exports of domestic firms declines through horizontal and forward linkages, but increases through backward linkages in the manufacturing sector. However, there is only weak evidence in support of export spillovers on domestic firms in the service sector. We also find that the presence of foreign firms has differing effects on the exporting activities of low- versus high-tech firms in the manufacturing sector.     

Investigating the direct and indirect effects of corporate hypocrisy and perceived corporate reputation on consumers’ attitudes toward the company

Consumers are placing increasing importance on the social responsibility of firms when making purchase decisions. Nonetheless, corporate irresponsibility has become more prevalent in the corporate world. Through corporate social responsibility (CSR), companies can showcase their virtues and appear as good citizens while ignoring many internal standards. Hence, the primary purpose of this study was to explore the impact of corporate hypocrisy on CSR belief, corporate reputation, and consumers’ attitudes toward a company that may have a bad reputation. Second, we investigated the mediating effect of CSR belief and perceived corporate reputation on the relationships between corporate hypocrisy and consumers’ attitudes toward the company. We asked a sample of respondents in Australia (n =518) to respond to a real CSR campaign launched by a beer company. The results showed that CSR belief mediates the relationship between corporate hypocrisy and consumers’ attitudes toward the company. The results indicated a perception that companies may use CSR to try to shift the blame from producers to users. The results of this study provide guidelines for managers, social marketers, and public policy makers on how to create and evaluate companies’ CSR campaigns. The results of this study contribute to the debate on how consumers respond to various CSR campaigns as well as the intended or unintended consequences of CSR in directing consumers’ attention away from the negative impacts businesses have on society.     

What drives firms’ intent to seek strategic assets by foreign direct investment? A study of emerging economy firms

What drives firms, particularly those from emerging economies, to engage in competitive catch-up with world leaders? We study the first step leading to catch-up, namely the managerial intent to acquire strategic assets that help closing the gap. Theoretically grounded in the awareness–motivation–capability (AMC) framework of competitive dynamics, we identify key factors contributing to firms’ strategic intent to catch-up by acquiring strategic assets abroad. Using a sample of 154 Chinese firms, we find that firms’ strategic assets seeking intent of foreign direct investment is influenced by their exposure to foreign competition, their governance structure, and relevant financial and managerial capabilities.