Foreign direct investment and technology spillovers: Which firms really benefit?

Foreign direct investment is thought to contribute to host economies by increasing their efficiency either directly or through technology diffusion. Such efficiency benefits are neither equally produced by foreign firms nor equally distributed to all domestic firms. The special question addressed in this study is related to how differentiated such effects are depending on size and degree of (foreign) ownership. Based on a sample of 3,742 manufacturing firms operating in Greece in 1997, it is found that, while it is large, majority-held foreign firms that exhibit higher productivity, spillovers are important for small domestic firms and stem mostly from small joint ventures where the foreign partner owns a minor part of equity. JEL no. F23, O30     

Which firms benefit from robot adoption? Evidence from China

This paper investigates which firms benefit from robot adoption in a developing open economy such as China. First, we construct a unique comprehensive dataset to identify robot adoption in Chinese industrial firms. Second, we adopt difference-in-differences to provide empirical analysis after conducting the common trends tests. Third, we find that adopting robots significantly increases a series of firm performance indicators in robot adoption firms. Compared with adopting firms in the labor-intensive sector, firms in the capital-intensive sector significantly benefit from robot adoption in a series of firm performance indicators, e.g., employment, capital stock, output, total factor productivity, capital returns, and exports. Finally, we check the robustness, investigate the dynamic effects, and find persistent positive effects. Our findings shed some light on the impacts of robot adoption in developing and transition countries.     

How does outward foreign direct investment enhance firm productivity? A heterogeneous empirical analysis from Chinese manufacturing

Using an original linked firm-level panel data from Chinese manufacturing firms over the period 2002–2007, this paper examines how outward foreign direct investment (OFDI) led productivity increase of parent firms (known as the own-firm effect) changes over firm heterogeneity. Conducting propensity score matching (PSM) techniques and differences-in-differences (DID) analysis, we find strong and robust evidence that the first OFDI promotes parent firm's productivity and this effect varies substantially with the firms' characteristics. In particular, firm's absorptive capacity is essential for the own-firm effect, and the absorptive capacity related with the product innovation is more important than that of the process innovation for the own-firm effect. Also, OFDI strategies for obtaining advanced technology and investing in developed countries significantly strengthen the own-firm effect, whereas, government supports have no significant impacts on the own-firm effect.     

Can foreign direct investment promote BIT signing?

Compared to the vast number of previous studies on the impact of bilateral investment treaties (BITs) on Foreign Direct Investment (FDI), this paper empirically analyses how previous FDI affects BIT signing by using annual data covering 258 countries for the period 2002–2012. We find that the likelihood of signing BITs between two countries is higher when the country-pair has a larger sum of FDI stock and a larger FDI difference, and this effect is more pronounced in middle- and low-income countries than high-income countries. Further research finds that the institutional gap is an important factor that can enhance the positive impact of FDI stock/ FDI difference on the signing of BITs. The contribution of this research lies in providing a benchmark for incorporating more economic variables into the understanding of the determinants of BIT signing. In particular, the role of FDI should be given more attention.     

Which firms benefit the most from agglomeration? New evidence from an emerging country with consistent measure of productivity

Productivity influences of agglomeration for developed countries has been well documented so far, however, the studies are still rare for emerging and developing countries, especially ones focusing on firm heterogeneity. This article empirically investigates the effects of agglomeration on productivity using firm-level data from Vietnam – a typical emerging country. Firstly, the consistent productivity measure of each individual firm is yielded using the control function approach along with the instrumental variable procedure. Next, it is regressed on proxies of agglomeration, controlling firm and regional characteristics. Potential issues of self-selection and endogeneity are dealt with using the fixed effects technique and taking advantage of micro data. Findings show the productivity-enhancing influences of employment density and industrial diversity but no clear evidence on the productivity gains from specialization for a general firm. In addition, the most advantaged firms in highly agglomerated regions are proved to be foreign-owned, small-sized, or young. Finally, several sensitivity checks demonstrate that the estimated results are robust across various productivity measures, industrial levels, and samples.     

Does corruption matter for sources of foreign direct investment?

Review of World Economics - The paper provides a cross-country empirical analysis of the impact of corruption on foreign direct investment flows. The gravity model augmented with joint effects of...     

Are stricter investment rules contagious? Host country competition for foreign direct investment through international agreements

We argue that competitive diffusion is a driver of the trend toward international investment agreements with stricter investment rules, namely defensive moves of developing countries concerned about foreign direct investment (FDI) diversion in favor of competing host countries. Accounting for spatial dependence in the formation of bilateral investment treaties and preferential trade agreements that contain investment provisions, we find that the increase in agreements with stricter provisions on investor-to-state dispute settlement and pre-establishment national treatment is a contagious process. Specifically, a developing country is more likely to sign an agreement with weak investment provisions if other developing countries that compete for FDI from the same developed country have previously signed agreements with similarly weak provisions. Conversely, contagion in agreements with strong provisions exclusively derives from agreements with strong provisions that other FDI-competing developing countries have previously signed with a specific developed source country of FDI.     

What hinders digital communication? Evidence from foreign firms in Japan

Digital technology such as virtual meetings is key to communication and collaboration. However, a firm-level survey in Japan during the COVID-19 pandemic shows that foreign firms regarded digital communication as a key business obstacle. This paper estimates the determinants of the likelihood that foreign firms regard digital communication as an obstacle. The results show that digital communication is hindered by language differences, employees’ nationality differences, employment size, and time differences from foreign headquarters. Contrary to common assertions, digital communication is regarded as an obstacle in remote-work feasible sectors, but not so in in-person service sectors. Thus, digital communication does not completely eliminate barriers to face-to-face communication.     

China's outward foreign direct investment in the Belt and Road Initiative: What are the motives for Chinese firms to invest?

Because of the potentially large and important effects of the extremely ambitious Belt and Road Initiative (BRI) launched by China in late 2013, considerable attention has been given to the motives for, and repercussions of, the BRI-driven infrastructural projects. Yet, the non-infrastructural outward foreign direct investment (FDI) from China to BRI countries, which varies quite substantially across different sectors and different countries, has not yet received much attention. In contrast to some recent studies showing that the massive initiative has increased China's total FDI outflows to fellow BRI countries, in this paper, based on our sector-level difference-in-differences models, we find that effect to be statistically insignificant. Yet, at the same time, we provide empirical evidence on the sectoral pattern of China's outward FDI before and after 2014 indicating that China's FDI outflows to BRI countries have significantly increased in sectors characterized by overcapacity and contributing to pollution in China, thereby demonstrating that China's BRI-driven outward FDI has been very selective in terms of sectors. We confirm these findings with a variety of robustness checks and show that it is BRI countries with relatively low institutional quality that have been more likely to receive these types of FDI from China. We thus speculate that Chinese firms have been motivated to place FDI investments in BRI countries for the sake of alleviating China's own overcapacity and pollution problems. Our findings lead us to suggest that, although these sectoral patterns are consistent with the different stages of economic development in which China and its fellow BRI-identified countries find themselves, Chinese investors and host country governments should be more concerned with the potential for unwanted side-effects of the FDI investments so that the mutually beneficial effects of the BRI can be sustained into the indefinite future among all countries involved.     

Is there a link between BRIC foreign direct investment and SADC export performance?

The BRICS (Brazil, Russia, India, China and South Africa) countries have agreed to strengthen their economic ties, thus paving the way for enhanced trade and investment performance. South Africa's strategic value in BRICS is that it is a gateway to the opportunity-rich Southern African Development Community (SADC). By using South Africa as a production hub for exports to the surrounding region, foreign investors would have ready access to neighbouring markets. This article addresses the question of whether, and in what ways, foreign direct investment (FDI) from the BRIC (Brazil, Russia, India and China) countries to the SADC influences the SADC's export performance. A series of empirical analyses revealed a positive causation between BRIC FDI and SADC exports, offering a clear incentive for the SADC to rejuvenate its trade and investment policies and structures, and strengthen its ties with BRIC countries in the interests of attracting more FDI and building a strong and sustainable export sector.     

Is the relationship between foreign direct investment and trade different across developed and developing countries? Evidence from Korea

Empirical studies that pool data from developed and developing countries may conflate the separate roles played. The pooled coefficient estimates may significantly misrepresent the true relationships. This paper analyses the impact of outward and inward foreign direct investment (FDI) flows between Korea and developed and developing countries on Korean exports in 12 manufacturing sectors over the 1988–2006 period. The evidence suggests that the outward FDI to developing countries is likely to increase Korean exports to those countries than FDI to developed countries likely to increase exports to developed countries. Thus, pooling investment flows can lead to incorrect inferences.     

Does foreign direct investment cause long run economic growth? Evidence from the Latin American and the Caribbean countries

The empirical evidence about the temporal precedence between foreign direct investment (FDI) and economic growth in open developing economies is mixed. In this research effort, we explored the FDI-growth nexus for 16 developing countries of Latin American and the Caribbean countries during the last three decades, a period in which many of these countries introduced various economic and financial reforms. As a departure from many previous studies, the current analysis uses the Granger noncausality test procedure recently developed by Toda and Yamamoto (J Econ 66:225–250, 1995), and Dolado and Lutkepohl (Econ Rev 15:369–386, 1996)–TYDL. Our results suggest that the null hypothesis that ‘FDI does not Granger cause economic growth’ is rejected for all countries except Dominican Republic, Trinidad and Tobago, and Jamaica. There is also evidence of unidirectional causality from growth to FDI for all countries except Bolivia, Colombia, Costa Rica, Dominican Republic, Ecuador, El Salvador, Guatemala, and Jamaica. We found bidirectional causality for Argentina, Brazil, Mexico, Peru and Venezuela.     

Characteristic of the new policy system of Chinese foreign direct investment

Under the background of the ＂Go Global＂ strategy, a new policy system of FDI （Foreign Direct Investment） is established. It is constituted of three parts including the FDI approving policy, the FDI encouraging policy and the FDI supervising and servicing policy. And the new policy system emphasizes on the efficiency of FDI investors instead of the government control.     

Do oligopolistic firms benefit from being forced to act non-strategically?

The present study seeks to answer the question of whether acting non-strategically can benefit firms. In a static Cournot framework, if a subset of firms are constrained to the equilibrium level of output, being non-strategic will have no impact on profits of neither constrained nor strategic firms and provided that sufficiently large number of firms are restricted, a marginal quantity contraction can be to their benefit. In contrast, using a dynamic Cournot framework, we find that the constraint set at the equilibrium level or moderately deviated from it, leads to increased profits for all firms irrespective of the number of non-strategic ones.     

The impact of China’s outward foreign direct investment on domestic innovation

This paper explores the reversal technology spillovers of outward foreign direct investment (OFDI) on Chinese firms. Combining a uniquely merged database of Chinese firm-level OFDI and patent data and applying the Propensity-Score-Method-Difference-In-Differences (PSM-DID) methodology, we find a positive causal effect of OFDI on invention patent applications. Some estimations of heterogeneous effects show that OFDI promotes invention patent applications for private enterprises but has mute impact on state-owned and foreign-owned enterprises. With respect to OFDI host countries, OFDI toward developed countries is more effective for promoting innovation activities than developing countries. Three potential transmission channels of OFDI are empirically tested: direct technology purchases, access to high-tech inputs, and international mobility of personnel. Lastly, some policy implications are raised for China’s “Going Out” strategy and the economic development driven by innovation.     

Is downsizing a good strategy during the downturn? Evidence from Taiwanese manufacturing firms

In response to a crisis, while retrenchments are considered to be an important part of a firm’s long-term recovery, research has indicated that downsizing strategies, reducing employment and shrinking the R&D budget, may lead to an erosion of a firm’s valuable core competence. Drawing from the literature of organizational turnaround strategies, this study advances the downsizing research by explaining how downsizing strategies affect a firm’s long-term performance. Using a uniquely compiled dataset of 2559 Taiwanese manufacturing firms, our research shows that increasing labor employment during a financial crisis can significantly improve a firm’s long-term total factor productivity and sales. In other words, employment downsizing may not be the best solution when encountering an economic downturn.     

Why privatize or why not? Empirical evidence from China's SOEs reform

Using a firm-level panel dataset which covers over 50,000 state-owned enterprises (SOEs) across China for the years 1998 to 2003, we attempt to answer the question of why some SOEs are privatized while others remain under state control. By applying a Heckman two-stage procedure, we investigate the causes that determine SOE privatization outcome. We find that the factors most conducive for privatization are the rise of competition, the increase of FDI concentration of both industries and provinces, and the hardening of SOEs' budget constraints. Moreover, it is shown that relatively better performing SOEs, measured by per employee value-added, profitability, and export propensity, are more prone to privatization. However, we should be careful in interpreting this result, due to the problem of selection bias. Results of the first-stage selection equation suggest that many small and non-performing SOEs dropped out of the sample, possibility due to privatization. What we can conclude is that, among the remainders, the better performing SOEs are more likely to be privatized.     

Patents,foreign direct investment and economic growth in Australia, 1860–2010

We examine the long run relationship between innovation and economic development in Australia, using 150 years of data on patenting activity, and aggregate and sectoral economic indicators. Our initial results point to several important causal relationships, particularly the effects of patents on real GDP and of private capital formation on patents. We delve deeper at the sector level and find important causal relationships of patents with real foreign direct investment (FDI) since World War II. Australia's dependence on FDI for private capital formation served as an important stimulus for knowledge creation in key sectors including manufacturing, agriculture and mining.     

Do Chinese domestic firms benefit from FDI inflow?: Evidence of horizontal and vertical spillovers

Using a large panel dataset covering all manufacturing firms (above a minimum scale) in China from 1998 to 2005, this paper examines whether there exist productivity spillovers from foreign direct investment (FDI) to domestic firms. In estimating productivity, we control for a possible simultaneity bias by using semi-parametric estimation techniques. We find that Hong Kong, Macao and Taiwan (HMT) invested firms generate negative horizontal spillovers, while Non-HMT foreign invested firms (mostly from OECD countries) tend to bring positive horizontal spillovers in China. These two opposing horizontal effects seem to cancel out at the aggregate level. We also find strong and robust vertical spillover effects on both state-owned firms and non-state firms. However, vertical spillover effects from export-oriented FDI are weaker than those from domestic-market-oriented FDI.