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The Complementarity of Foreign and Domestic Investments by Emerging-Market Multinationals

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Book cover Contemporary Issues in International Business

Part of the book series: The Academy of International Business ((AIB))

Abstract

We study the impact of foreign direct investment on domestic investment by emerging-market firms. This relationship underlies a key policy debate on whether and how home-country governments should support outward foreign direct investment. While some governments are strongly in favour of supporting their firms’ overseas expansion, many are hesitant as outward foreign investment is considered to replace domestic investment and thus harmful to the home economy. We argue that emerging-market firms’ foreign expansion complements rather than substitutes their domestic investment because foreign direct investment enables these firms to increase their efficiency and improve their value chain positioning. The ability to arbitrage different home and host countries’ comparative advantages improves the efficiency and sophistication of home operations, ultimately contributing to further domestic investment and growth.

This study is part of a research initiative, titled ‘The Study of Thailand’s outward foreign direct investment’, which was funded by the Thailand Research Fund with grant RD5810034. This paper is based on the report for the Thailand Research Fund, and we thank them for permission to reproduce parts of the report. We are grateful for the suggestions for improvement on previous versions of the paper from Somchanok Passakonjaras, Saovanee Chantapong, Kornkarun Cheewatrakoolpong, Navarat Vongbenjarat, the audience at the Thailand Research Fund’s ‘The Study of Thailand’s Outward FDI’ meeting on March 2016, and the audience at the Academy of International Business, UK Chapter on April 2017. Thanida Doltunyapornpakapob provided superior research assistance. For access to data, we thank Pakorn Pitithawatchai and Patamaporn Nitichai from the Stock Exchange of Thailand for data on outward foreign direct investment flows of public companies, and Thammasat Business School for access to Thompson Reuters Datastream.

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Authors and Affiliations

  1. Thammasat Business School, Thammasat University, Bangkok, Thailand

    Pavida Pananond

  2. Northeastern University, Boston, USA

    Alvaro Cuervo-Cazurra

Authors
  1. Pavida Pananond
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  2. Alvaro Cuervo-Cazurra
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Correspondence to Pavida Pananond .

Editor information

Editors and Affiliations

  1. Henley Business School, University of Reading, Reading, United Kingdom

    Davide Castellani

  2. Henley Business School, University of Reading, Reading, United Kingdom

    Rajneesh Narula

  3. Henley Business School, University of Reading, Reading, United Kingdom

    Quyen T. K. Nguyen

  4. Henley Business School, University of Reading, Reading, United Kingdom

    Irina Surdu

  5. Henley Business School, University of Reading, Reading, United Kingdom

    James T. Walker

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Pananond, P., Cuervo-Cazurra, A. (2018). The Complementarity of Foreign and Domestic Investments by Emerging-Market Multinationals. In: Castellani, D., Narula, R., Nguyen, Q., Surdu, I., Walker, J. (eds) Contemporary Issues in International Business. The Academy of International Business. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-70220-9_7

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