OUTWARD FOREIGN DIRECT INVESTMENT: EMERGING ECONOMIES’ HOME COUNTRY DETERMINANTS
Keywords:
Emerging Economies, International Investments, Outward FDI, Internationalization, Home Country Macroeconomic Determinants.
Abstract
The Tendency of firms from emerging economies to invest abroad has increased significantly during the last two decades. Despite this trend, comprehensive literature survey research on macroeconomic determinants and antecedents of outward FDI from emerging economies is still underrepresented. The purpose of this paper is to give a comprehensive understanding of home country level factors’ impact on outward FDI from developing countries through a systematic review of past researches on OFDI’s macroeconomic determinants of home economy. The findings reveal that the most important determinants are, home country market size and openness of home country towards internationalization. However, some researches posted contrasting results for the impact of home country’s interest rates, human capital and technological capability on OFDI from emerging economies. This study also points out that emerging economies suffer from shortage of skilled personnel, thus making human capital an essential push factor for OFDI.
JEL Classification Codes: F21, F23, P45.
References
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Chen, J. E., & Zulkifli, S. A. M. (2012). Malaysian outward FDI and economic growth. Procedia-Social and Behavioral Sciences, 65, 717-722.
Cheung, Y. W., & Qian, X. (2009). Empirics of China's outward direct investment. Pacific economic review, 14(3), 312-341. https://doi.org/10.1111/j.1468-0106.2009.00451.x
Child, J., & Rodrigues, S. B. (2005). The internationalization of Chinese firms: a case for theoretical extension? Management and organization review, 1(3), 381-410.
Das, K. C. (2013). Home country determinants of outward FDI from developing countries. Margin: The Journal of Applied Economic Research, 7(1), 93-116.
Das, K. C., & Banik, N. (2015). What motivates Indian firms to invest abroad?. International Journal of Commerce and Management, 25(3), 330-355. https://doi.org/10.1108/IJCoMA-12-2013-0132
Deng, P. (2004). Outward investment by Chinese MNCs: Motivations and implications. Business horizons, 47(3), 8-16.
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Douma, S., George, R., & Kabir, R. (2006). Foreign and domestic ownership, business groups, and firm performance: Evidence from a large emerging market. Strategic Management Journal, 27(7), 637-657. https://doi.org/10.1002/smj.535
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Egger, P. (2008). On the role of distance for bilateral trade. World Economy, 31(5), 653-662. https://doi.org/10.1111/j.1467-9701.2008.01098.x
Fu, X., Pietrobelli, C., & Soete, L. (2011). The role of foreign technology and indigenous innovation in the emerging economies: technological change and catching-up. World development, 39(7), 1204-1212.
Goh, S. K. (2011). Malaysia's outward FDI: The effects of market size and government policy. Journal of Policy Modeling, 33(3), 497-510. https://doi.org/10.1016/j.jpolmod.2010.12.008
Haiyan, W. (2017). Home-country determinants of outward FDI: Evidence from BRICS economies and five developed countries.
Holtbrügge, D., & Kreppel, H. (2012). Determinants of outward foreign direct investment from BRIC countries: an explorative study. International Journal of Emerging Markets, 7(1) (2012), pp. 4-30. https://doi.org/10.1108/17468801211197897
Hymer, S. H. (1960). The international operations of national firms: A study of direct foreign investment, MIT press, Cambridge, Ma.
Kalotay, K. (2005). The Central European research and development platform for investors. J. World Investment & Trade, 6, 995.
Kayam, S. S. (2009). Home market determinants of FDI outflows from developing and transition economies.
Kogut, B. (1983). Foreign direct investment as a sequential process. The multinational corporation in the 1980s, 35, 86.
Kolstad, I., & Wiig, A. (2012). What determines Chinese outward FDI?. Journal of World Business, 47(1), 26-34. https://doi.org/10.1016/j.jwb.2010.10.017
Kumar, N. (2007). Emerging TNCs: trends, patterns and determinants of outward FDI by Indian enterprises. Transnational Corporations, 16(1), 1.
Lall, S. (2001). Competitiveness, technology and skills. Books.
Lall, S. (1983). The rise of multinationals from the third world. Third world quarterly, 5(3), 618-626.
Lecraw, D. (1977). Direct investment by firms from less developed countries. Oxford economic papers, 29(3), 442-457.
Luo, Y., & Tung, R. L. (2007). International expansion of emerging market enterprises: A springboard perspective.
Makino, S., Lau, C. M., & Yeh, R. S. (2002). Asset exploitation versus asset seeking. Journal of International Business Studies, 33(3), 403-421
Nunnenkamp, P., Andrés, M. S., Vadlamannati, K. C., & Waldkirch, A. (2012). What drives India’s outward FDI?. South Asian Journal of Macroeconomics and Public Finance, 1(2), 245-279. https://doi.org/10.1177/2277978712473402
Pantelidis, P., & Kyrkilis, D. (2003). Macroeconomic determinants of OFDI, International Journal of Social Economics, 30(7), 827-836. https://doi.org/10.1108/03068290310478766
Pantelidis, P., & Kyrkilis, D. (2005). A cross country analysis of OFDI patterns, International Journal of Social Economics, 32(6), 510-519. https://doi.org/10.1108/03068290510596998
Pradhan, JP. (2011). Emerging Multinationals: A Comparison of Chinese and Indian OFDI’, International Journal of Institutions and Economies, 3(1), 113-148
Pradhan, J. P. (2004). The determinants of outward foreign direct investment: a firm‐level analysis of Indian manufacturing. Oxford Development Studies, 32(4), 619-639. https://doi.org/10.1080/1360081042000293371
Ramamurti, R. (2009). 13 What have we learned about emerging—market MNEs?. Emerging multinationals in emerging markets, 399.
Ramasamy, B., Yeung, M., & Laforet, S. (2012). China's outward foreign direct investment: Location choice and firm ownership. Journal of world business, 47(1), 17-25. https://doi.org/10.1016/j.jwb.2010.10.016
Rugman, A. M., & Li, J. (2007). Will China’s multinationals succeed globally or regionally? European management journal, 25(5), 333-343.
Saad, R. M., Noor, A. H. M., & Nor, A. H. S. M. (2014). Developing countries’ outward investment: Push factors for Malaysia. Procedia-Social and Behavioral Sciences, 130, 237-246.
Scaperlanda, A. (1992). Direct investment controls and international equilibrium: The US experience. Eastern Economic Journal, 18(2), 157-170.
Taylor, R. (2002). Globalization strategies of Chinese companies: Current developments and future prospects. Asian Business & Management, 1(2), 209-225.
Thomas, R., & Narayanan, K. (2017). Determinants of OFDI: a study of Indian manufacturing firms. Transnational Corporations, 24(1), 9-26.
Tolentino, P. E. (2008). The determinants of the outward foreign direct investment of China and India: Whither the home country?.
Vernon, R. (1966). International investment and international trade in the product cycle. Quarterly Journal of Economics 80, 190-207.
Wells, L. T. (1983). Third world multinationals: The rise of foreign investments from developing countries. MIT Press Books, 1.
Zhang, X., & Daly, K. (2011). The determinants of China's outward foreign direct investment. Emerging markets review, 12(4), 389-398. https://doi.org/10.1016/j.ememar.2011.06.001
Zhang, Y. (2003). Towards the Transnationalisation of Chinese Firms: Policies and Debates. In China# x2019; s Emerging Global Businesses (pp. 47-80). Palgrave Macmillan, London.
Anand, J., & Kogut, B. (1997). Technological capabilities of countries, firm rivalry and foreign direct investment. Journal of International Business Studies, 28(3), 445-465.
Anwar, A., & Mughal, M. (2013). The role of diaspora in attracting Indian outward FDI. International Journal of Social Economics, 40(11), 944-955.
Banga, R. (2007, July). Explaining Asian Outward FDI. In presentation at UNCTAD-India ARTNeT Consultative Meeting on Trade and Investment Policy Coordination (pp. 16-17).
Barry, F., Görg, H., & McDowell, A. (2003). Outward FDI and the investment development path of a late-industrializing economy: evidence from Ireland. Regional Studies, 37(4), 341-349.
Bellak, C., Leibrecht, M., & Riedl, A. (2008). Labour costs and FDI flows into Central and Eastern European Countries: A survey of the literature and empirical evidence. Structural Change and Economic Dynamics, 19(1), 17-37.
Bhasin, Niti & Jain, Vandana (2013), ‘Home Country Determinants of Outward FDI: A Study of Select Asian Economies’, SSRN Electronic Journal. https://doi.org/10.2139/ssrn.2206739.
Buckley, P. J., & Castro, F. (1998). A time-series analysis of the locational determinants of FDI in Portugal. In Proceedings of the Annual Conference of the Academy of International Business, Vienna.
Buckley, P. J., Clegg, L. J., Cross, A. R., Liu, X., Voss, H., & Zheng, P. (2007). The determinants of Chinese OFDI. Journal of international business studies, 38(4), 499-518.
Buckley, P. J., Cross, A. R., Tan, H., Voss, H., & Liu, X. (2006). An investigation of recent trends in Chinese outward direct investment and some implications for theory. Centre for International Business University of Leeds Working Paper.
Buckley, P. J., Forsans, N., & Munjal, S. (2012). Host–home country linkages and host–home country specific advantages as determinants of foreign acquisitions by Indian firms. International Business Review, 21(5), 878-890. http://dx.doi.org/10.1016/j.ibusrev.2011.10.001
Chen, C. (2015). Determinants and motives of OFDI from China’s provincial firms. Transnational Corporations, 23(1), 1-28.
Chen, J. E., & Zulkifli, S. A. M. (2012). Malaysian outward FDI and economic growth. Procedia-Social and Behavioral Sciences, 65, 717-722.
Cheung, Y. W., & Qian, X. (2009). Empirics of China's outward direct investment. Pacific economic review, 14(3), 312-341. https://doi.org/10.1111/j.1468-0106.2009.00451.x
Child, J., & Rodrigues, S. B. (2005). The internationalization of Chinese firms: a case for theoretical extension? Management and organization review, 1(3), 381-410.
Das, K. C. (2013). Home country determinants of outward FDI from developing countries. Margin: The Journal of Applied Economic Research, 7(1), 93-116.
Das, K. C., & Banik, N. (2015). What motivates Indian firms to invest abroad?. International Journal of Commerce and Management, 25(3), 330-355. https://doi.org/10.1108/IJCoMA-12-2013-0132
Deng, P. (2004). Outward investment by Chinese MNCs: Motivations and implications. Business horizons, 47(3), 8-16.
Denisia, V. (2010). Foreign direct investment theories: An overview of the main FDI theories. European journal of interdisciplinary studies, (3).
Douma, S., George, R., & Kabir, R. (2006). Foreign and domestic ownership, business groups, and firm performance: Evidence from a large emerging market. Strategic Management Journal, 27(7), 637-657. https://doi.org/10.1002/smj.535
Dunning, J. H. (1973). The determinants of international production. Oxford economic papers, 25(3), 289-336.
Dunning, J. H. (1977). Trade, location of economic activity and the MNE: A search for an eclectic approach. In The international allocation of economic activity (pp. 395-418). Palgrave Macmillan, London.
Dunning, J. H. (1980). Explaining outward direct investment of developing countries: in support of the eclectic theory of international production. University of Reading, Department of Economics.
Dunning, J. H., & Narula, R. (1994). Transpacific foreign direct investment and the investment development path: the record assessed. University of South Carolina.
Egger, P. (2008). On the role of distance for bilateral trade. World Economy, 31(5), 653-662. https://doi.org/10.1111/j.1467-9701.2008.01098.x
Fu, X., Pietrobelli, C., & Soete, L. (2011). The role of foreign technology and indigenous innovation in the emerging economies: technological change and catching-up. World development, 39(7), 1204-1212.
Goh, S. K. (2011). Malaysia's outward FDI: The effects of market size and government policy. Journal of Policy Modeling, 33(3), 497-510. https://doi.org/10.1016/j.jpolmod.2010.12.008
Haiyan, W. (2017). Home-country determinants of outward FDI: Evidence from BRICS economies and five developed countries.
Holtbrügge, D., & Kreppel, H. (2012). Determinants of outward foreign direct investment from BRIC countries: an explorative study. International Journal of Emerging Markets, 7(1) (2012), pp. 4-30. https://doi.org/10.1108/17468801211197897
Hymer, S. H. (1960). The international operations of national firms: A study of direct foreign investment, MIT press, Cambridge, Ma.
Kalotay, K. (2005). The Central European research and development platform for investors. J. World Investment & Trade, 6, 995.
Kayam, S. S. (2009). Home market determinants of FDI outflows from developing and transition economies.
Kogut, B. (1983). Foreign direct investment as a sequential process. The multinational corporation in the 1980s, 35, 86.
Kolstad, I., & Wiig, A. (2012). What determines Chinese outward FDI?. Journal of World Business, 47(1), 26-34. https://doi.org/10.1016/j.jwb.2010.10.017
Kumar, N. (2007). Emerging TNCs: trends, patterns and determinants of outward FDI by Indian enterprises. Transnational Corporations, 16(1), 1.
Lall, S. (2001). Competitiveness, technology and skills. Books.
Lall, S. (1983). The rise of multinationals from the third world. Third world quarterly, 5(3), 618-626.
Lecraw, D. (1977). Direct investment by firms from less developed countries. Oxford economic papers, 29(3), 442-457.
Luo, Y., & Tung, R. L. (2007). International expansion of emerging market enterprises: A springboard perspective.
Makino, S., Lau, C. M., & Yeh, R. S. (2002). Asset exploitation versus asset seeking. Journal of International Business Studies, 33(3), 403-421
Nunnenkamp, P., Andrés, M. S., Vadlamannati, K. C., & Waldkirch, A. (2012). What drives India’s outward FDI?. South Asian Journal of Macroeconomics and Public Finance, 1(2), 245-279. https://doi.org/10.1177/2277978712473402
Pantelidis, P., & Kyrkilis, D. (2003). Macroeconomic determinants of OFDI, International Journal of Social Economics, 30(7), 827-836. https://doi.org/10.1108/03068290310478766
Pantelidis, P., & Kyrkilis, D. (2005). A cross country analysis of OFDI patterns, International Journal of Social Economics, 32(6), 510-519. https://doi.org/10.1108/03068290510596998
Pradhan, JP. (2011). Emerging Multinationals: A Comparison of Chinese and Indian OFDI’, International Journal of Institutions and Economies, 3(1), 113-148
Pradhan, J. P. (2004). The determinants of outward foreign direct investment: a firm‐level analysis of Indian manufacturing. Oxford Development Studies, 32(4), 619-639. https://doi.org/10.1080/1360081042000293371
Ramamurti, R. (2009). 13 What have we learned about emerging—market MNEs?. Emerging multinationals in emerging markets, 399.
Ramasamy, B., Yeung, M., & Laforet, S. (2012). China's outward foreign direct investment: Location choice and firm ownership. Journal of world business, 47(1), 17-25. https://doi.org/10.1016/j.jwb.2010.10.016
Rugman, A. M., & Li, J. (2007). Will China’s multinationals succeed globally or regionally? European management journal, 25(5), 333-343.
Saad, R. M., Noor, A. H. M., & Nor, A. H. S. M. (2014). Developing countries’ outward investment: Push factors for Malaysia. Procedia-Social and Behavioral Sciences, 130, 237-246.
Scaperlanda, A. (1992). Direct investment controls and international equilibrium: The US experience. Eastern Economic Journal, 18(2), 157-170.
Taylor, R. (2002). Globalization strategies of Chinese companies: Current developments and future prospects. Asian Business & Management, 1(2), 209-225.
Thomas, R., & Narayanan, K. (2017). Determinants of OFDI: a study of Indian manufacturing firms. Transnational Corporations, 24(1), 9-26.
Tolentino, P. E. (2008). The determinants of the outward foreign direct investment of China and India: Whither the home country?.
Vernon, R. (1966). International investment and international trade in the product cycle. Quarterly Journal of Economics 80, 190-207.
Wells, L. T. (1983). Third world multinationals: The rise of foreign investments from developing countries. MIT Press Books, 1.
Zhang, X., & Daly, K. (2011). The determinants of China's outward foreign direct investment. Emerging markets review, 12(4), 389-398. https://doi.org/10.1016/j.ememar.2011.06.001
Zhang, Y. (2003). Towards the Transnationalisation of Chinese Firms: Policies and Debates. In China# x2019; s Emerging Global Businesses (pp. 47-80). Palgrave Macmillan, London.
Published
2021-07-28
How to Cite
Kapil, S., & Dhingra, P. K. (2021). OUTWARD FOREIGN DIRECT INVESTMENT: EMERGING ECONOMIES’ HOME COUNTRY DETERMINANTS. Indian Journal of Finance and Banking, 6(1), 58-72. https://doi.org/10.46281/ijfb.v6i1.1241
Section
Regular Research Article/ Short Communication Article
Copyright (c) 2021 Sheeba Kapil, Puneet Kaur Dhingra
This work is licensed under a Creative Commons Attribution 4.0 International License.
