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.     

Licensing versus direct investment: implications for economic growth

We develop a symmetric two country model of foreign direct investment (FDI) that captures the internalization decision and its implications for both the rate and magnitude of innovations. When mode choice (licensing versus FDI) is fixed, a subsidy to multinational production increases the rate but decreases the size of innovations. When mode can switch, the rate and size of innovations both increase, provided the subsidy is not too large. Although innovation size decreases for industries where firms already were choosing FDI, innovation size increases for industries where firms switch from licensing to FDI because multinationals choose larger innovations than licensors.     

An information-based trade off between foreign direct investment and foreign portfolio investment

The paper develops a model of foreign direct investments (FDI) and foreign portfolio investments (FPI). FDI enables the owner to obtain refined information about the firm. This superiority, relative to FPI, comes with a cost: a firm owned by the FDI investor has a low resale price because of asymmetric information between the owner and potential buyers. The model can explain several stylized facts regarding foreign equity flows, such as the larger ratio of FDI to FPI inflows in developing countries relative to developed countries, and the greater volatility of FDI net inflows relative to FPI net inflows.     

Empirical asymmetries in foreign direct investment and taxation

This paper assesses the sensitivity of the operations of multinational corporations (MNCs) to host country taxation. The empirical analysis is based on two different measures of MNC activity by U.S. majority-owned foreign affiliates: panel data for aggregate real gross product in manufacturing that originates in a given host country and micro data for a single year regarding the likelihood of a firm locating in a given host country. The empirical estimates indicate that investment geared toward export markets, rather than the domestic market, is particularly sensitive to host country taxation, that this sensitivity appears to be greater in developing countries than developed countries, and that it is becoming greater over time.     

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.

Religion and foreign direct investment

This study examines the effect of religion on foreign direct investment (FDI). Using a large sample of directional FDI flows and religious data between 1985 and 2019, we calculate the religious distance between home and host countries and find that FDI flows are smaller for country pairs with greater religious distance. This finding remains intact after a host of variables affecting FDI are controlled. Moreover, the negative effect of religious differences is less pronounced if the host country has higher religious diversity or both countries have a bilateral investment treaty (BIT) in force. Finally, we construct a country-level measure for religiosity and find an asymmetric effect of religiosity on FDI flows. Overall, our study suggests that both religious differences and the level of religiosity play important roles in explaining international FDI flows. (JEL F21, F41, Z12)     

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.     

Intellectual property rights and foreign direct investment

This paper develops a product cycle model with endogenous innovation, imitation, and foreign direct investment (FDI). We use this model to determine how stronger intellectual property rights (IPR) protection in the South affects innovation, imitation and FDI. We find that stronger IPR protection keeps multinationals safer from imitation, but no more so than Northern firms. Instead, the increased difficulty of imitation generates resource wasting and imitation disincentive effects that reduce both FDI and innovation. The greater resources absorbed in imitation crowd out FDI. Reduced FDI then transmits resource scarcity in the South back to the North and consequently contracts innovation.     

Absorptive capacity from foreign direct investment in Spanish manufacturing firms

This paper deals with the determinants of absorptive capacity from foreign direct investment (FDI) spillovers. We study how firm behavior, capabilities, and structure drive absorptive capacity such as research and development (R&D) activities and expenditures, R&D results, internal organization of innovation, external relationships of innovation, human-capital quality, family management, business complexity, and market concentration. Our results enhance and complement previous evidence of the determinants of absorptive capacity, particularly with different approaches to innovative activities as mediators of the capability.     

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.     

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.     

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.     

Investigating the causality links between environmental quality,foreign direct investment and economic growth in MENA countries

This paper investigates the causal relationship between environmental quality, Foreign Direct Investment and economic growth using simultaneous-equation panel data VAR model a panel of 17 MENA countries over the period 1990–2012. Our empirical results pointed out that there is a unidirectional causality running from both FDI stocks and CO₂ emissions to economic growth. They also indicate the existence of unidirectional causality running from economic growth to CO₂ emissions. However, the results support the occurrence of unidirectional causality from FDI stocks to CO₂ emissions. Our empirical result confirms the hypothesis of neutrality for the Environment-GDP link. There is bidirectional causality from ${\text{CO}}_2$emissions and economic growth, and a bidirectional causal relationship between FDI stocks and CO₂ emissions. For the global panel, we show that the existence of a unidirectional causality running from FDI stocks to economic growth; a bidirectional causality between economic growth and CO₂ emissions; as well as a bidirectional causality between FDI stocks and ${\text{CO}}_2$emissions.     

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.     

Foreign direct investment in the banking sector: the case of Italian banks in the '90s

The present paper addresses the issue of the determinants of the growth of multinational banks upon foreign markets at a micro individual level. Theories and approaches suggested so far about globalisation of the banking sector basically relate banks' international growth to the theory of the multinational enterprise. Accordingly, this paper relies on the eclectic paradigm, which views the foreign direct investment decision to be a combination of ownership, internalisation and location advantages. Empirical evidence is provided through an econometric model based on count data techniques, with reference to the Italian case in the decade 1989–1999. Results show that the availability of resources and international experience already gathered by the parent banks have positive effects on their decision to undertake direct investments abroad. Multinational banks are also proved to grow internationally in order to internalise their pre-existing bank–client relationships, and to locate their foreign units where they can exploit positive externalities related to the presence of important international financial centres.     

North‐South foreign direct investment and bilateral investment treaties

Bilateral investment treaties (BIT s) have become increasingly popular as a means of encouraging foreign direct investment (FDI ) from developed to developing countries. We adopt a difference‐in‐difference analysis to deal with the problem of self‐selection when estimating the effects of BIT s on FDI flows from a sample of OECD countries to a broader sample of lesser developed countries. Our results indicate that forming a BIT with a developed country significantly increases FDI inflows to developing countries. We further find that the development of new FDI flows and the reinvigoration of deteriorating FDI relationships accounts for the majority of the increase in FDI flows due to BIT formation.     

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.     

China's outward foreign direct investment

China's outward foreign direct investment (FDI) is steadily increasing. The United States is now a key target for China's outward FDI, and the response by the American public tends to fall at opposite ends of the spectrum: fever or fear. Chinese FDI in the United States faces challenges posed by its liability of foreignness in political, cultural, marketing, and technological aspects. Utilizing mini case studies, we herein examine the polarized responses to Chinese outward direct investment, its history, and the challenges faced by Chinese multinational corporations operating in or attempting to enter the U.S. market. Finally, strategy suggestions are proposed.