Advertisement

Push Factors of Outward FDI—A Cross-Country Analysis of Developed and Developing Countries

  • Indrajit RoyEmail author
  • K. Narayanan
Chapter
  • 16 Downloads

Abstract

This paper empirically examines macroeconomic push factors for different segments (lower, median and upper) of OFDI distribution based on a cross-country analysis involving advanced economies (AE) and developing economies (DE). It is observed that the degree of economic development (nominal GDP, share of non-agricultural GDP, per capita income level), level of global integration (inward FDI stock), technological development (ICT goods import, R&D expenditure) of ‘home country’ have a positive influence on outward FDI, whereas interest rate is found to be negatively associated with the OFDI. Effects of these determinants are of varying magnitude across different segments (lower, median and upper strata) of the distribution of OFDI. Apart from various macroeconomic indicators for which hard data are available, perception-based indicators on control of corruption, governance aspects and climate of ease of doing business which are much weaker in developing economies than that of advanced economies also act as push factors of OFDI from developing countries.

Notes

Acknowledgements

An earlier version of this paper was presented in the one-day seminar on FDI: Issues and Policy organised by Knowledge Forum at Centre for Policy Studies, IIT Bombay on 24 February 2018. We are grateful to Prof. N. S. Siddharthan and the participants of the seminar for useful comments and suggestions. The errors that remain are our own.

References

  1. Al-Sadig, A. J. (2013). Outward foreign direct investment and domestic investment: the case of developing countries. IMF working paper, WP/13/52, Washington DC.Google Scholar
  2. Barry, F., GÖrg, H., & Mcdowell, A. (2003). Outward FDI and the investment development path of a late-industrializing economy: Evidence from Ireland. Taylor & Francis, Regional Studies, 37(4), 341–349.Google Scholar
  3. Banga, R. (2007). Drivers of outward foreign direct investment from Asian developing economies. ResearchGate. https://www.researchgate.net/publication/228903280.
  4. Behrman, J. N. (1972). The role of international companies in Latin America: Autos and petrochemicals. Lexington, MA: Lexington Books.Google Scholar
  5. Bhasin, N., & Jain, V. (2013). Home country determinants of outward FDI: A study of select asian economies. SSRN.Google Scholar
  6. Blonigen, B. A. (1997). Firm-specific assets and the link between exchange rates and foreign direct investment. American Economic Review, 87(3), 447–466.Google Scholar
  7. Buckley, P. J., Clegg, J. C., Cross, A. R., Liu, X., Voss, H., & Zheng, P. (2007). The determinants of chinese outward foreign direct investment. Journal of International Business Studies, 38(4), 99–518.CrossRefGoogle Scholar
  8. Castro, C., & Nunes, P. (2013). Does corruption inhibit foreign direct investment? Politica/ Revista de Ciencia Politica, 51(1), 61–83.Google Scholar
  9. Caves, R. (1971). International corporations: The industrial economics of foreign investment. Economica, 38, 1–27.CrossRefGoogle Scholar
  10. Clegg, J. (1987). Multinational enterprises and world competition: A comparative study of the USA, Japan, the UK, Sweden and West Germany. New York: St Martin’s Press.Google Scholar
  11. Coase, R. H. (1937). The nature of the firm. Economica, New Series, 4(16), 386–405.CrossRefGoogle Scholar
  12. Deng, P. (2004). Outward investment by Chinese MNCs: Motivations and implications. Business Horizons, Elsevier, 47(3), 8–16.CrossRefGoogle Scholar
  13. Dunning, J. H. (1981). Explaining outward direct investment of developing countries: In K. Kumar & M. G. McLeod (Eds.), Support of the eclectic theory of international production, Multinationals from developing countries. Lexington Books: Lexington, Massachusetts.Google Scholar
  14. Dunning, J. H. (1988). The eclectic paradigm of international production: A restatement and some possible extensions. Journal of International Business Studies, 19, 1–31.CrossRefGoogle Scholar
  15. Dunning, J. H. (2001). The eclectic (OLI) paradigm of international production: Past, present and future. International Journal of the Economics of Business.Google Scholar
  16. Dunning, J. H. (1993). Multinational enterprises and the global economy. Addison- Wesley: Wokingham.Google Scholar
  17. Dunning, J. H., & Lundan, S. M. (2008). Multinational enterprises and the global economy (2nd ed.). Cheltenham, UK: Edward Elgar.Google Scholar
  18. Dunning, J. H., & Narula, R. (1996). The investment development path revisited: Some emerging issues. In J. Dunning & R. Narula (Eds.), Foreign direct investment and government, catalysts for Economic Restructuring. London: Routledge.Google Scholar
  19. Fu, X., Pietrobelli, C., & Soete, L. (2011). The role of foreign technology and indigenous innovation in emerging economies: Technological change and catching up. World Development, 39(7), 1204–1212.CrossRefGoogle Scholar
  20. Girma, S. (2005). Absorptive capacity and productivity spillovers from FDI: A threshold regression analysis. Oxford Bulletin of Economics and Statistics, 67(3), 281–306.CrossRefGoogle Scholar
  21. Goh, S. K., & Wong, K. N. (2011). Malaysia’s outward FDI: The effect of market size and government policy. Journal of Policy Modeling, 33(3), 497–510.CrossRefGoogle Scholar
  22. Grubaugh, S. G. (1987). Determinants of direct foreign investment. Review of Economics and Statistics, 69, 149–152.CrossRefGoogle Scholar
  23. Hashai, N., & Almor, T. (2004). Gradually internationalizing ‘born global’ firms: An oxymoron? International Business Review, 13(4), 465–483.CrossRefGoogle Scholar
  24. Hymer, S. H. (1960). The international operations of national firms: A study of direct investment. (Ph.D. Thesis). Massachusetts Institute of Technology, Cambridge, MA. Published in 1976 by MIT Press, Cambridge, MA.Google Scholar
  25. Johanson, J., & Vahlne, J. (1977). The Internationalization process of the Firm- a model of knowledge development and increasing foreign market commitments. Palgrave Macmillan Journals.Google Scholar
  26. Kimino, S., Saal, D. S., & Driffield, N. (2007). Macro determinants of FDI inflows to Japan: An analysis of source country characteristics. The World Economy, 30(3), 446–469.CrossRefGoogle Scholar
  27. Koenker, R. (2005). Quantile regression. Cambridge University Press, Econometric Society Monographs No. 38.Google Scholar
  28. Kogut, B., & Chang, S. J. (1991). Technological capabilities and Japanese foreign direct investment in the United States. Review of Economics and Statistics, 73, 401–413.CrossRefGoogle Scholar
  29. Kumar, N. (2007). Emerging TNCs: trends, patterns and determinants of outward FDI by Indian enterprises. Transnational Corporations, 16(1), 1–26.Google Scholar
  30. Kyrkilis, D., & Pantelidis, P. (2003). Macroeconomic determinants of outward foreign direct investment. International Journal of Social Economics, 30(7), 827–836.CrossRefGoogle Scholar
  31. Lall, S. (1980). Monopolistic advantages and foreign involvement by U.S. manufacturing industry. Oxford Economic Papers, 32, 102–22.CrossRefGoogle Scholar
  32. Lall, S. (2001). Competitiveness. Technology and skills, Cheltenham. Edward Elgar.Google Scholar
  33. Li, X. (2011). Sources of external technology, absorptive capacity, and innovation capacity in Chinese state-owned high-tech enterprises. World Development, 39(7), 1240–1248.CrossRefGoogle Scholar
  34. Pearce, R. D. (1989). The internationalisation of sales by leading enterprises: Some firm, industry and country determinants. Discussion papers in international investment and business studies, Series B, No. 135 Reading, UK: University of Reading.Google Scholar
  35. Rugman, A. M., & Li, J. (2007). Will China’s multinationals succeed globally or regionally? European Management Journal, 25(5), 333–343.CrossRefGoogle Scholar
  36. Taylor, R. (2002). Globalization strategies of Chinese companies: Current developments and future prospects. Asian Business & Management, 1, 209–225.CrossRefGoogle Scholar
  37. Teece, D. J. (1986). Transactions cost economics and the multinational enterprise: An assessment. Journal of Economic Behaviour and Organization, 21–45 (North Holland).Google Scholar
  38. The World Bank. (2008). Global economic prospects: Technological diffusion in the developing world. Washington DC: The World Bank.Google Scholar
  39. Tolentino, P. E. (2008). The determinants of the outward foreign direct investment of China and India: Whither the home country? UNU-MERIT working paper series 049, United Nations University, Maastricht Economic and social Research and training centre on Innovation and Technology.Google Scholar
  40. Vernon, R. (1966). International investment and international trade in the product cycle. The Quarterly Journal of Economics, 80, 190–207.CrossRefGoogle Scholar

Copyright information

© Springer Nature Singapore Pte Ltd. 2020

Authors and Affiliations

  1. 1.Reserve Bank of IndiaMumbaiIndia
  2. 2.Department of Humanities and Social SciencesIndian Institute of Technology BombayMumbaiIndia

Personalised recommendations