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

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FDI, Technology and Innovation

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.

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Notes

  1. 1.

    ‘Home country’ refers to parent or originating country of a company who have initiated outward FDI, whereas ‘host country’ refers to country of destination.

  2. 2.

    ‘Push factors’ refers to domestic factors or determinants from Home country’s perspective.

  3. 3.

    ‘Developed economies’ refers to set of countries with high GDP, low inflation, high per capita income, higher life expectancy, high level of literacy and skilled manpower.

  4. 4.

    G7 refers to front runners among the developed economies, viz. Canada, France, Germany, Italy. Japan, UK and USA.

  5. 5.

    Other_Dev is set of developed countries (excluding G7 countries), viz. Australia, Austria, Belgium, Denmark, Finland, Ireland, New Zealand, Norway, Spain, Sweden and Switzerland).

  6. 6.

    ‘Emerging market economies’ (EMEs) refer to set of countries with roughly 80% world population and constitute 20% world economies and which are progressing towards becoming advanced with faster GDP growth, low or middle per capita income, with lower level of literacy as well as skilled manpower. EMEs are in between of developed economies and frontier or least developed economies.

  7. 7.

    BRICS refers to Brazil, Russia, India, China and South Africa which are front runner among the EMEs.

  8. 8.

    Other_EMEs: Mexico, Thailand, Bangladesh, Bulgaria, Colombia, Ghana, Indonesia, Malaysia, Pakistan, Philippines, Sri Lanka, Turkey and Uruguay.

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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.

Author information

Authors and Affiliations

  1. Reserve Bank of India, Mumbai, India

    Indrajit Roy

  2. Department of Humanities and Social Sciences, Indian Institute of Technology Bombay, Mumbai, India

    K. Narayanan

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  1. Indrajit Roy
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Correspondence to Indrajit Roy .

Editor information

Editors and Affiliations

  1. Madras School of Economics, Chennai, Tamil Nadu, India

    N. S. Siddharthan

  2. Department of Humanities and Social Sciences, Indian Institute of Technology Bombay, Mumbai, Maharashtra, India

    K. Narayanan

Appendix

Appendix

Scatter plots of OFDI and determinants (push factors) of selected home countries (Related to Chapter “Patent Policy and Relationship Between Innovation and Monopoly Power: Evidence from Indian High and Medium Technology Industries”)

figure a
figure b
figure c

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Roy, I., Narayanan, K. (2020). Push Factors of Outward FDI—A Cross-Country Analysis of Developed and Developing Countries. In: Siddharthan, N., Narayanan, K. (eds) FDI, Technology and Innovation. Springer, Singapore. https://doi.org/10.1007/978-981-15-3611-3_8

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