A case study of the industrial organization theory of direct foreign investment

Conclusion This paper examines the industrial organization theory of DFI by means of a case study of the electronic calculator industry. The investigation is done by examining the relevant product, firm and industry characteristics. We began by focusing on and identifying the technological advances in electronic calculators and the firms responsible for those advances, to determine whether DFI coincided with technological superiority. The evidence presented shows that U.S. foreign investment in electronic calculators became significant during the third phase, when the U.S. firms gained technological leadership in electronic calculator production. The firms which enjoyed this technological leadership are the ones that initiated DFI. Foreign investment activities in electronic calculators were facilitated by a gradual trend toward a concentration of the industry structure in favor of the investors. In some cases, investors were large international firms to begin with. Thus, we can conclude that the industrial organization theory of DFI is supported by the experience of the electronic calculator industry. The fact that the investors themselves generally de-emphasized the cost consideration and emphasized the market potential as motivating factors in initiating DFI ventures provides further credence to this finding. Since the investors had something unique to offer and enjoyed sufficient market power to assume the risk of initiating foreign production to exploit this unique advantage in a potentially large market, they were least concerned about the cost of production. However, the cost factor played an important role behind the DFI in developing countries.     

Exchange rate movements and foreign direct investment (FDI): Japanese investment in Asia, 1987–2008

The paper estimates the impact of exchange rate movements on foreign direct investment (FDI). By using the panel data of Japanese FDI flows to nine dynamic Asian economies during 1987–2008, the paper finds that (i) FDI declined with a depreciation of the yen against host country currencies; (ii) it increased with exchange rate volatility; and (iii) it was little affected by the Asian financial crisis, especially when disguised financial flows were removed from the data. A novel result concerns the negative response of FDI to the third moment of monthly exchange rate changes: the volume of FDI was smaller when the distribution was positively skewed (i.e., when the yen was biased towards relatively large depreciation shocks). If skewness proxies for expected mean-reverting changes, this supports the idea that source country investors care about the future stream of revenues and returns denominated in their own currency. These results are robust, with other standard control variables having statistically significant coefficients with expected signs.     

Intra-industry foreign direct investment: Its rationale and trade effects

Zusammenfassung Intra-industrielle Direktinvestitionen im Ausland: Ihre Gründe und Auswirkungen auf den AuΒenhandel. — Der Aufsatz zeigt, daΒ intra-industrielle Direktinvestitionen oder die daraus finanzierte Produktion im Ausland Formen des internationalen wirtschaftlichen Engagements sind, die ihre Begründung sowohl im intra-industriellen Handel als auch in der inter-industriellen Produktion finden. Dies wird an Hand einer Taxonomie aufgezeigt. Es wird argumentiert, daΒ intra-industrielle Direktinvestitionen im Ausland eine natürliche Folge der gleichen Faktoren sind, die zu intra-industriellem Handel führen, wobei unternehmensspezifische Vorteile wichtiger sind als die in einem Land begründeten Vorteile. Intra-industrielle Auslandsinvestitionen bedeuten auΒerdem, daΒ internationale Transaktionen am besten in hierarchischer Form und nicht über (Kassa-)M?rkte durchgeführt werden, und zwar aus Gründen, die den g?ngigen Theorien über multinationale Operationen entnommen werden k?nnen. Ganz sicher folgt sowohl aus der Theorie als auch aus den verfügbaren Daten, daΒ die intra-industrielle Produktion wahrscheinlich an Bedeutung gewinnen wird, vor allem dann, wenn keine Eingriffe durch die Regierungen erfolgen.

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Résumé Investissement étranger direct intra-industriel: sa base raisonnée et ses effets commerciaux. — L’article démontre que l’investissement étranger direct intra-industriel (IE-DII) ou la production correspondante comme forme d’engagement international économique est soumise à des motifs rationnels qui basent sur le commerce intra-industriel (Cll) et la production inter-industrielle. Les auteurs arguent que l’IEDII est une conséquence naturelle des facteurs économiques qui ménent au CII et qui même sont déterminés par la nature de ?l’industrie? dans laquelle le CH se passe. En plus, cependant, l’IEDII implique que les transactions internationales sont conduites le mieux par des hiérarchies et non par des marchés à cause des raisons qui peuvent être déduites par des théories recues des opérations internationales. Il apparait clairement, de la théorie aussi bien que des données disponibles que probablement la production intra-industrielle gagnera en importance, particuliérement si elle restera libre de l’intervention gouvernementale.

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Resumen Inversion extranjera directa en la industria: razón de su impacto sobre el comercio. — El artfculo muestra como la inversión extranjera directa intra-industrial o la producción como forma de participación económica internacional tiene una razón de ser basada en el comercio y en la producción intra-industrial. Se propone que la inversión extranjera directa es una conscuencia natural de los factures económicos que llevan el comercio intra-industrial, los que a su vez están determinados por la naturaleza de la industria en el que el comercio tiene lugar. La inversion extranjera directa implica adicionalmente sin embargo que las transacciones internacionales se ejecutan mejor a travès de jerarqufas que a travès de mercados por razones que pueden ser derivadas de conocidas teorias sobre operaciones multinacionales. Es evidente, por medio de la teoria y de las estadisticas disponibles, que se puede esperar un crecimiento de la producci?n intra-industrial, especialmente si se le libèra de interferencia gubernamental.

     

The role of foreign direct investment (FDI) on domestic entrepreneurship in South Africa

ABSTRACT

This study examines the effect of foreign direct investment on domestic entrepreneurship in South Africa. With the focus on inward capital flows, the study specifically employed stock data and the Global Entrepreneurship Monitor to measure the impact. The data set analysed is for the period 2000–18, and after testing a Threshold Vector Autoregressive model, it was established that there is a short-run and long-run nonlinear relationship between foreign direct investment and domestic entrepreneurship in South Africa. The key findings of the study were that foreign direct investment has a positive short-run and long-run influence on domestic entrepreneurship. The policy recommendations are for government to create an eco-system that supports entrepreneurship through the lowering of regulatory burden on new domestic firms and enact robust sector-specific localisation policies for big corporations.     

广东省外商直接投资、环境规制与技术创新

运用协整等计量分析方法实证研究广东省技术创新产出及其影响因素和负外部性的关系。实证结果表明,科技使用额对广东省技术创新产出能力的提升具有推动作用;实际外商直接投资水平和环境规制能力对广东省技术创新产出能力的提升具有抑制作用。同时,科技使用额、实际外商直接投资水平、环境规制能力和广东省技术创新产出能力之间不存在显著的格兰杰因果关系;广东省实际外商直接投资水平的变化会引起广东省环境规制能力变化。     

The ASEAN investment area,other FDI initiatives,and intra‐ASEAN foreign direct investment

The idea of establishing ASEAN as a single market and production base that will make ASEAN a dynamic and competitive location requires, among others, the free flow of investment. As part of the effort to promote regional investment, particularly intra‐ASEAN investment, several schemes have been implemented such as the 1998 Framework Agreement on the ASEAN Investment Area (AIA). This study investigated the impact of the AIA and other foreign direct investment (FDI) initiatives on intra‐ASEAN FDI. The findings on the impact of the AIA, measured via several proxies, do not provide strong evidence of benefits from the AIA, or from other investment‐promoting initiatives. With equal treatment given to non‐ASEAN investors, ASEAN members may have to provide separate incentives to enhance local entrepreneurs' competitiveness, which should in the long run be translated into higher FDI from ASEAN—either to other ASEAN members or to non‐ASEAN countries. Overall, the results do not argue wholly against the idea of the AIA, given that some of the AIA proxies have a significant impact. Moreover, it is early days yet, and a larger impact may come with time.     

改革开放后中国对外贸易与外来直接投资发展的同步性

改革开放以来中国的对外贸易与利用外来直接投资都取得了突飞猛进的增长。这种增长不仅表现为总量扩张上的同步性,而且呈现出结构变动上的高度相关性。在对中国对外经贸领域政策与体制变迁过程回顾基础上,本文得出的基本分析结论是,改革开放后中国对外贸易与外来直接投资间互补而非替代性关系的形成有着深刻的政策背景,那就是派生于中国对外开放战略的贸易体制改革与利用外资政策间相辅相成的互动关系。     

A consumer-surplus standard in foreign acquisitions,foreign direct investment,and welfare

Review of World Economics - This study scrutinizes the ramifications of the strategic use of a consumer welfare argument in regulating foreign acquisitions and foreign market entry (i) on a...     

Business groups,foreign direct investment,and capital goods trade: The import behavior of Japanese affiliates

We examine the impact of buyer–supplier relationships within business groups on capital goods trade by taking into account potential simultaneous effects of business group ties on foreign direct investment. We posit that (1) foreign affiliates of business group firms have a greater propensity to import capital goods from the home country, increasing home country exports; (2) if the establishment of overseas affiliates by business group firms attracts foreign direct investment by their capital goods suppliers, business group ties are localized and the ‘trade creating’ impact of business group ties may disappear or even be reversed. Empirical analysis of capital goods imports by 1790 manufacturing affiliates operated abroad by Japanese multinational firms, combined with information on linkages with machinery suppliers within horizontal and vertical business groups, provides broad support for these predictions. Our findings suggest that it may be incorrect to infer from the absence of a simple relationship between business group ties and trade that such ties are unimportant; instead, intra-group ties may be replicated abroad through foreign direct investment.     

Agglomeration and location of foreign direct investment: The case of China

This paper investigates the effect of agglomeration on foreign direct investment (FDI) location in China. We use different measures of agglomeration, and test both within and across region agglomeration effect. The results suggest that urbanization, foreign-specific agglomeration and industry diversity have positive impact on FDI location. Urbanization, foreign-specific agglomeration and industry specialization, also significantly promote industrial FDI. The results also suggest there exist both within and across region agglomeration effects. Other factors including market size, wage, education, road density, government policy and trade cost also have significant impacts on FDI location.     

Affiliates and parent employment through foreign direct investment: a study case of substitutability or complementarity

How does outward foreign direct investment (FDI) affect employment of multinationals in the home country? Does the impact of outward investment differ among manufacturing and service sectors? Using data on Italian MNEs, this paper examines the impact of Italian outward FDI on local employment between 1998 and 2006. In particular, we investigate the relationship existing between employment in the parent company and employment in foreign affiliates by distinguishing according to host-country location and sector of activity. The results suggest that the effects of Italian outward FDI on domestic employment differ according to the sector and the country of destination. In the manufacturing sector, a weak but significant relationship of labour substitutability is found for Italian MNEs producing low-technology products in foreign affiliates localized in high-wage countries. On the other hand, a significant North–south complementarity relationship in labour demands appears in the High and Medium-high- technology sectors. In the service sector, we find strong complementarity between employment in the parent firm and employment in foreign affiliates: in particular, this regards Italian MNEs producing knowledge-intensive services both in Western affiliates and CEEC locations. These results are robust when we control for endogeneity of output and parent wages.     

Economic growth,local industrial development and inter-regional spillovers from foreign direct investment: Evidence from China

In many countries inward foreign direct investment (FDI) typically concentrates in a few regions. However, there is little empirical evidence on whether spatially concentrated FDI boosts economic growth in other regions within the same country. We use a dataset that covers 96% of Chinese cities from 1996 to 2004 and find that “inter-regional spillovers” from FDI concentrated in China's coastal cities have a positive and significant effect on the growth of inland cities. In addition, an inland city's industrial development affects its absorptive capacity to gain such inter-regional spillovers from coastal FDI.     

Intellectual property rights and foreign direct investment: A disaggregated analysis

This paper aims at overcoming several shortcomings of previous empirical studies on the relationship between IPR protection and FDI. First of all, we use sectorally disaggregated FDI data for a large sample of host countries. Second, we address the proposition that stronger IPR protection raises not only the quantity but also the quality of FDI. Third, we check to which extent the relationship between IPR protection and FDI is affected by applying alternative measures of IPR protection. Our empirical findings support the hypothesis that the threat of an unauthorized use of intellectual-property-related assets and, thus, FDI depends on industry as well as host-country characteristics. Furthermore, stronger IPR protection may help induce high-quality FDI. JEL no. F21, F23     

Intellectual property rights and foreign direct investment: A disaggregated analysis

This paper aims at overcoming several shortcomings of previous empirical studies on the relationship between IPR protection and FDI. First of all, we use sectorally disaggregated FDI data for a large sample of host countries. Second, we address the proposition that stronger IPR protection raises not only the quantity but also the quality of FDI. Third, we check to which extent the relationship between IPR protection and FDI is affected by applying alternative measures of IPR protection. Our empirical findings support the hypothesis that the threat of an unauthorized use of intellectual-property-related assets and, thus, FDI depends on industry as well as host-country characteristics. Furthermore, stronger IPR protection may help induce high-quality FDI. JEL no. F21, F23     

Productivity,financial constraints and outward foreign direct investment: Firm-level evidence

This paper studies the relationship between the financial constraints and outward foreign direct investment (OFDI) of Chinese enterprises. First, we construct a theoretical model and develop a series of hypotheses to analyze how productivity and financial constraints influence firms' OFDI decisions. Then we construct a multivariate index to measure internal and external financial constraints. Using Chinese Industrial Enterprises Database as well as the Database of OFDI Firms in China, our empirical finds that both productivity and financial constraints have important impacts on firms' OFDI decisions. In addition, the marginal effect of the financial constraints increases as firms' productivity rises; an effect felt more to the private enterprises than state-owned enterprises. Empirical results also indicate that external financial constraints affect the firms' OFDI decisions more greatly than the internal financial constraints.     

Efficiency spillovers from foreign direct investment in the EU periphery: A comparative study of Greece,Ireland, and Spain

Despite a growing number of empirical studies on efficiency spillovers arising from the presence of multinational firms for a number of countries, general conclusions on this issue have been inhibited by differences in the data sets and estimation techniques used across studies. In this paper we conduct a comparative empirical study for Greece, Ireland and Spain by creating comparable data sets and estimating identical models. Our results show evidence of spillovers in Ireland and Spain only, although these positive spillovers seem to depend on whether firms have the absorptive capacity to capture technological spillovers and the criteria used to classify them as foreign affiliates. JEL no. F23, O30     

The determinants of foreign direct investment in transforming economies: A comment

Conclusion We are deeply convinced that econometric and other statistical methods are essential tools of empirical economic analysis. However, they are useful only if applied properly. There is an overwhelming evidence that Zhen Quan Wang and Nigel J. Swain failed to do so in their referred article. All these problems of the empirical analysis suggest that the claims made by the paper are not supported by the data and the estimated models and can (and should) be considered as the results of pure speculation.