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International investment location decisions:: The case of US firms
Abstract
In international ‘location tournaments’, governments compete for foreign investment with tax and other short-run incentives. Such tournaments can be won if agglomeration economies are sufficiently powerful to overcome investors' desire to spread investments as a hedge against risk. We focus on manufacturing investments by U.S. multinationals in the 1980s. Our econometric results suggest that agglomeration economies are indeed the dominant influence on investor calculations. Paradoxically, short-run incentives have limited apparent impact on location choice. We conclude that high-cost tournament play is unnecessary for countries with good infrastructure development, specialized input suppliers and an expanding domestic market.
... However, the relationship between FDI inflow and corruption is not very strong. In the setting of subpar national institutions, Wheeler and Mody (1992) investigated the impact of corruption on foreign direct investment (FDI). Tis trait manifests as a convoluted legal system, excessive bureaucracy, and onerous administrative procedures. ...
... In other words, corruption still hinders foreign direct investment (FDI) in underdeveloped countries due to inadequate institutions. However, Wei (2000) pointed out that Wheeler and Mody's (1992) study had some flaws and affected the research results. Twelve variables were included in the model study by Wheeler and Mody (1992); however, according to Wei (2000), they only included one corruption variable. ...
... However, Wei (2000) pointed out that Wheeler and Mody's (1992) study had some flaws and affected the research results. Twelve variables were included in the model study by Wheeler and Mody (1992); however, according to Wei (2000), they only included one corruption variable. Terefore, it is challenging to ascertain how corruption impacted foreign direct investment in this specific case. ...
Objectives
The purpose of the research is the identification of important determinants shaping the investment attractiveness of the country from the point of view of potential investors and assessment the degree of stakeholder satisfaction with existing methods of examining the investment climate and their availability for practical use.
Material and methods
In order to achive the aim it was developed a questionnaire consisting of 25 questions. These questions were designed to assess the opinions of potential investors regarding the degree of influence of various factors on their decision on capital allocation and the investment climate of a country. The survey was conducted among 506 enterprises from Special Economic Zones in Poland.
Results
Based on the conducted research, we have developed a list of the most important factors, perceived by potential investors, shaping the investment climate of a country. The most important were economic as well non-economic factors. The study shows also that a qualitative methodology for assessing the investment climate should be based on a variety of analytical tools to provide a more complete and objective picture of the investment attractiveness of a given country.
Conclusions
The use of expert assessments, statistical data and stakeholder opinions allows for a better understanding of the investment context, risk and return potential. This study has important implications for companies and investors who are looking for reliable tools to assess the attractiveness of potential investment locations and make informed investment decisions.
... The role of immigrant investors in driving foreign direct investment (FDI) has been a subject of debate. Several authors, including Wheeler and Mody (1992), Barrell and Pain (1999), Kinoshita and Campos (2003), Popescu (2013), and Agustina and Flath (2020) argue that immigrants can significantly impact host countries by enhancing the agglomeration effects of FDI. As explained by Barry et al. (2003), agglomeration occurs when firms mimic each other's location decisions due to reputation effects. ...
... Notwithstanding these divergent viewpoints, consensus has emerged regarding the profound influence of agglomeration economies on FDI, as acknowledged by Wheeler and Mody (1992), Barrell and Pain (1999), Head et al. (1995), and Cheng and Kwang (2000). This impact is particularly evident in the investment patterns of the U.S. and Japanese manufacturing sectors in the U.S. and Chinese markets. ...
... Furthermore, this approximation may not adequately account for sectoral diversification in FI-FDI. Different economic sectors may exhibit varying strengths of agglomeration effects, which could influence the observed relationship between lagged FDI and subsequent inflows (Wheeler & Mody, 1992). Although the use of lagged FDI as a proxy for FI-FDI is justified by its role in demonstrating and facilitating subsequent investments, we acknowledge its limitations. ...
IMPACT STATEMENT
Immigrant investors who lead the way serve as strong drivers for Foreign Direct Investment (FDI) inflows to African countries. Our examination of 21 nations in Africa reveals that successfully attracting immigrant investors is linked to higher overall FDI. To maximize effectiveness, policymakers should concentrate on four crucial strategies: designing immigration policies that favor entrepreneurs, creating comprehensive support systems for post-investment needs, establishing special economic zones with tax benefits, and simplifying administrative procedures for initial investors. These specific interventions generate a self-sustaining cycle of FDI attraction, utilizing immigrant networks to propel long-term economic growth while upholding high ethical principles.
... Empirical evidence on a negative correlation between corruption and inward Foreign Direct Investment (FDI) has so far been elusive. For example, in a study of foreign investment of U.S. firms, Wheeler and Mody (1992) failed to find a significant correlation between the size of FDI and the host country's risk factor, a composite measure that includes perception of corruption as one of the components. On the other hand, an empirical study undertaken by Wei (2000) concluded that increase in the financial crime activities like corruption level would reduce inward foreign direct investment. ...
... This paper is an output of the independent empirical research undertaken to study the impact of financial crime on the Indian economy. Though there are other studies undertaken, as mentioned at the start of this paper, i.e., study undertaken by Wheeler and Mody (1992) and by Wei (2000) regarding establishing relationship between foreign investment and host country's risk factor, there is no such study undertaken for India which empirically determine the impact of financial crime on the Indian economy. The research undertaken by Amahalu Nestor Ndubuisi; Abiahu Mary-Fidelis Chidoziem; Okika Elochukwu Christian & Obi Juliet Chinyere titled -"Effect of Money Laundering on Nigerian Economy" is worth mentioning which followed similar methodology as used in this paper. ...
Financial crime and money laundering has been the focus area globally for several years. It not only facilitates various predicate crimes but also has far-reaching socio-economic consequences for any country and threatens the integrity of the financial system. The more transition is there from the study of a developed to a developing country, the more leakages will be witnessed in-terms of country’s financial performance and increase in overall financial crime rate of that country. This poses a threat to the global economy and its security and India is not insulated from this threat. This empirical study aims to determine the effect of financial crime on the Indian economy. The socio-economic parameters of India from 2011 to 2021. Pearson Correlation Coefficient calculator is used to ascertain the relationship between the financial crime activities and the key parameters of the Indian economy. The result of the study is based on the socio-economic parameters of India and the four-hypothesis testing on the relationship between the financial crime activities and the key parameters of the Indian economy. All the four hypotheses are rejected and concluded that financial crime in India do not have any adverse impact on the Indian economy.
... Collaboration with the private sector: Companies and non-governmental organizations can provide support in the form of sponsorship, scholarships and internship programs. This collaboration can help improve school facilities and provide wider learning opportunities for students (Wheeler, 1992). Collaboration with stakeholders will run better and more effectively, requiring special strategies. ...
... Another challenge is the limited time and resources to manage this collaboration. Schools need to set clear priorities and strategies to ensure that collaboration with stakeholders can run effectively (Wheeler, 1992). ...
This article discusses the role of madrasah principals as innovators in improving the quality of teacher learning. This role includes developing teachers' professionalism, applying educational technology, and developing a relevant and up-to-date curriculum. Through the descriptive qualitative method, this study identifies various strategies used by madrasah principals in motivating and supporting teachers to improve their teaching quality. The results show that innovative madrasah principals are able to create a dynamic and collaborative learning environment, which in turn contributes to improved student achievement.
... Reuber et al. (1973) found that the MNCs invest in the countries with a better and reliable infrastructure, because this ensures an efficient distribution system. This finding supports the findings of Munteanu (1991), Wheeler and Mody (1992) and UNCTAD (1998). ...
... Expenditure on Gross Capital Formation as a share of GDP (GCF): This ratio serves as a proxy for infrastructure development. High-quality infrastructure enables cost-effective production, which in turn attracts FDI (Wheeler and Mody, 1992). In other words, it can be said that better infrastructure in an economy attracts FDI inflows since the MNCs find it profitable to operate in a country with better infrastructure (in terms of transportation and communication) which will help them producing and distributing their product at a lower cost of production. ...
This study examines Foreign Direct Investment (FDI) inflows in India, focusing on sectoral trends and determinants from 1980 to 2021. The primary objectives are to analyze the trend of FDI inflows at the sectoral level and to identify the key determinants influencing FDI inflows to India. The methodology involves the use of time-series data sourced from the RBI Databank, World Bank Databank, and OECD Databank. The unique contribution of this study over previous research lies in its detailed sectoral analysis of FDI inflows in India from 1981 to 2021, employing econometric techniques such as the Auto Regressive Distributed Lag (ARDL) Model and Error Correction Model. It not only identifies key macroeconomic determinants but also offers insights into both long-term and short-term dynamics of FDI inflows, providing a more comprehensive understanding of the factors influencing foreign investment in India. The findings reveal no significant structural change in sectoral FDI inflows. Moreover, the study highlights that Gross Domestic Product (GDP), Trade Openness, and Inflation rate are pivotal factors determining FDI inflows in India.
... In the second specification, the results show that the effect of poverty and governance on FDI appears to be none statistically significant similar to Wheeler and Mody (1992).From the third specification, when governance is the dependent variable, we can conclude that FDI is not significant and poverty significantly deteriorates institutional quality. This indicates that the higher level of poverty encourages corruption and illegal activities leading to bad quality of governance. ...
... In the second specification, the results show that the effect of poverty and governance on FDI appears to be none statistically significant similar to Wheeler and Mody (1992). From the third specification, when governance is the dependent variable, we can conclude that FDI is not significant and poverty significantly deteriorates institutional quality. ...
This paper examines the moderating role of governance in the effect of Foreign Direct Investment
(FDI) on poverty using simultaneous equations models for sub-Saharan African, Asian, Latin
American and Eastern European countries over the period 1996-2017. The main objective of this
study is to examine the role of governance as a moderator of the FDI effect on poverty. Our
analyses support a positive significant impact of FDI on poverty reduction in sub-Saharan Africa
and Latin America but a negative effect in Eastern Europe, while it is not significant in Asian
economies. In addition, we detect a positive conjoint impact of FDI and governance quality on
poverty in all African, Latin American and Eastern European economic communities. However,
this interactive effect is negative and not significant in Asia. This means that FDI reduces poverty
in the presence of governance quality. Our results support that in the poorest countries (sub-
Saharan Africa, Latin America), poverty is more sensitive to interactions between governance and
FDIs than in the richest countries (ASIA). As policy implications of this study, governments in
less developed regions must give great importance to improving the quality of governance. In this
way, it becomes possible to attract foreign direct investment and increase household consumption
reducing poverty as main purpose of Sustainable Development Goals (SDGs) for 2030.
... According to Jensen (2003), the political regime plays a crucial role in attracting FDI, with democratic systems being more appealing to foreign investors. However, other studies argue that both democratic and authoritarian regimes can positively impact FDI (Green and Cunningham, 1975;Li and Resnick, 2003;Wheeler and Mody, 1992). Globerman and Shapiro (2002) and Gani (2007) examine specific governance indicators such as rule of law, regulatory quality, government effectiveness, political stability and absence of violence, and control of corruption and their association with FDI. ...
The Extractive Industries Transparency Initiative was originally conceived by Tony Blair in 2002 to improve the transparency and accountability of extractive industries in resource-rich economies. It is theorized that added transparency will create an environment welcoming foreign direct investment (FDI). To investigate this claim, this paper studies the impact of EITI on FDI using a panel dataset of 62 countries over 30 years. The results show that EITI membership significantly increases FDI by roughly 50% depending on the specification. Further, when examining interaction and threshold effects, the paper finds asymmetric impacts during global economic downturns: while countries that leave EITI experience significant reductions in FDI, even the mere intention to join EITI is associated with significant increases in FDI. These findings demonstrate that EITI membership serves as an effective policy mechanism for attracting foreign investment in resource-rich developing economies.
... In the baseline model, we consider the country-specific pull factors recognized in the literature as determinants of capital flows. X ,t-1 represents the vector of the following country-specific pull factors used in the estimated models: Gross Domestic Product is used as a proxy for the size of the domestic market (Wheeler and Mody, 1992;Billington, 1999;Tiberto and de Mendonça, 2023); an increase in the gross domestic product of the recipient country is expected to generate an increase in the crossborder banking flows since economic growth reflects better market opportunities and greater attractiveness for foreign capital flows into the recipient country (Prasad et al., 2003;Asiedu, 2006;Jiménez, 2011;Boateng et al., 2015). We also control the effect of the exchange rate on the crossborder banking flows; a local currency appreciation can lead to an increase in the cross-border banking inflows as it lowers credit risk, improving the balance sheet positions of local borrowers and strengthening their repayment capacity (Correa et al., 2015). ...
The COVID-19 pandemic had a strong impact on the global economy, causing turmoil in financial markets and instability in the dynamics of capital flows. Using quarterly data extracted from Local Banking Statistics, published by the Bank for International Settlements, this study examines the effects of the COVID-19 pandemic on cross-border banking flows in recipient countries. Using an unbalanced panel of 20 advanced economies and 34 emerging market economies, we investigate the effects of COVID-19 pandemic on cross-border banking total flows. In addition, we also assess the effects of COVID-19 pandemic on the distribution of cross-border banking flows to the bank and non-bank sectors as well as to the instruments: loans and debt securities. Our results suggest the COVID-19 pandemic changed the destination of cross-border banking flows, deepening the concentration of capital flows to advanced economies. We also found evidence that the COVID-19 pandemic led to a reallocation of cross-border banking flows across economic sector, from the bank to the non-bank sector, as well as by type of financial instrument, from loans to debt securities.
... empirical evidence is somewhat inconsistent. Taking the quality of governance as an example, some scholars observed the prevalence of corruption repels FDI (Wei, 2000), while other studies did not find such evidence (Ramamurti & Doh, 2004;Wheeler & Mody, 1992). These two lines of questioning can be likened to sustainable development since they represent the broader picture of development beyond economic growth. ...
To attain sustainable development, funding is required. A principal source of developmental finance that has been embraced particularly by developing economies is foreign direct investment (FDI). However, there are arguments that FDI flow could be a “blessing” or a “curse” to the host country. Therefore, this study was designed to evaluate the effect of FDI on sustainable development in the Central African Economic and Monetary Community (CEMAC) region by hypothesizing that an upright spiral (“blessing”) can be attained through the modulation of information sharing. Our analysis revealed that (i) the pace of FDI flow has no discernable impact on sustainable development; (ii) the slow pace of sustainable development hurts the pace of FDI flows across the CEMAC region; and (iii) information sharing moderates the FDI–sustainable development nexus. These results were robust to an alternative estimate. The main conclusion based on an elasticity estimate is that the retrospective effects of sustainable development on FDI and the latter on subsequent sustainable development can lead to a “blessing” (upright spiral). Consequently, a rise in the rate of initial FDI flows has a positive spillover effect on sustainable development which concurrently stirs more inflow of FDI. This situation is termed in this study as the pro-sustainable development–FDI strategy.
... In the context of globalization, studies have used approaches such as evolutionary economic geography, gradient transfer theory, and cluster theory to investigate the international migration of manufacturing industries. Such studies have found that the main factors affecting the migration of manufacturing industries from developed to developing countries include cost, market size, institutional systems, and national policies [11][12][13]. ...
Introduction: The manufacturing industry is an important component of urban economy, and its spatial configuration profoundly influences its urban planning, infrastructure development, resource allocation, and sustainable development. A scientific industrial layout can effectively promote the growth, transformation, and upgrading of regional economies. Objectives: Based on data for manufacturing enterprises in Fujian Province spanning 2009–2021, this study explores the spatial distribution patterns of general and innovative manufacturing enterprises at different scales and the factors affecting their spatial distribution. Methods: we conduct spatial statistical analysis using standard deviation ellipse, spatial autocorrelation, kernel density, and negative binomial regression. Results: 1) The spatial distribution of manufacturing enterprises is uneven, mainly distributed along coastal urban belt centered on Ningde, Fuzhou, Quanzhou, Xiamen, and Zhangzhou. General manufacturing has been centered on Quanzhou–Xiamen, while innovative manufacturing centers have shifted from Xiamen to Quanzhou. 2) There are significant spatial agglomeration characteristics, forming two core hotspot areas of Xiamen–Zhangzhou–Quanzhou and Fuzhou. However, innovative manufacturing enterprises exhibit stronger polarization and diffusion phenomena. 3) The spatial pattern evolves from a “point-axis” pattern to a “point-cluster belt” pattern, with stronger spillover effects observed for innovative manufacturing enterprises. 4) The factors affecting the spatial pattern of manufacturing enterprises in Fujian Province show significant changes. Among them, regional distance to ports, industrialization level, financial support strength, transportation accessibility, and population size have significant effects. But the coefficient of distance to ports decreases sharply, external development level changes from having a significant positive effect to not have an effect. Furthermore, patent R&D and the number of economic development zones have more significant effects on innovative manufacturing enterprises. Conclusions: Compared to other coastal provinces in eastern China, Fujian Province's manufacturing industry is more concentrated in coastal areas, and with the industrial transformation and upgrading, the demand for high-quality workers is increasingly strong. Fujian Province should further integrate into the global industrial chain, strengthen industrial clusters, accelerate the cultivation of high-quality talents, thereby promoting high-quality development of the manufacturing industry.
... Lankes and Venables (1996) and Nunes et al. (2006) considered wage rate as a measure of labour cost and tried to link it with FDI flows, arguing that since labour cost can influence production cost therefore, it is expected that an increase in production cost will to discourage FDI inflows. On the other hand, other literature reports how the labour force influences the FDI flows positively (Bacovic et al., 2021;Sahoo, 2006;Kumar, 1994;Wheeler & Mody, 1992). The higher the employable workforce of a country, the more FDIs would be attracted to take advantage. ...
Purpose: This study examined the relationship between FDI inflows and key macroeconomic indicators in Tanzania, including inflation, exchange rate, and trade openness. Design/Methodology/Approach: The study utilises time series data covering 50 years from 1970 to 2019. In the analysis, the key diagnostic tests such as the Augmented Dickey-Fuller (ADF) test and the Philip Peron (PP) tests for unit root/stationarity and the Johansen cointegration test to test for the long-run relationship between the variables were conducted before the primary analysis. The results of the diagnostic tests led the study into the Vector Error Correction Model (VECM), which estimates the relationship between the dependent and independent variables after discovering a long-run relationship among or between the variables. Findings: The VECM results showed that FDI is significantly determined by its lagged (Previous years) values and exchange rate in the short run. The results also showed a significant long-run relationship between exchange rate and FDI inflows, with other factors remaining constant. These results were consistent with prior assumptions and other findings from the literature. Research Limitation: The study considered FDI inflows in aggregate. This may have limited the analysis and discussions on the impact of the macroeconomic indicators on the general level of FDIs. Practical Implication: The study recommends that the country continue to promote FDI inflows while stabilising its exchange rate. The two will lead to more FDI inflows and good macroeconomic performance. Social Implication: These social implications demonstrate how exchange rate stability and FDI influence extend beyond pure economics to affect various aspects of Tanzanian society and community development. Originality/ Value: The paper's novelty lies in the improved understanding of variable interdependencies.
... [18] IS (GDP percentage of secondary industry production value), Wheeler shows that good infrastructure had a significant positive impact on FDI in the manufacturing industry in the United States. [19] And Coughlin studies the factors that attract foreign direct investment in American states and The secondary industry to GDP ratio serves as a gauge for the industrial structure. [20] WAGE (Average wages of city workers); 0 is the constant term; is the urban fixed effect; ...
This research aims to investigate how China's high-speed rail system affects Chinese cities' appeal to foreign direct investment. This study uses the multi-time point difference to difference model to investigate the consequences in relation to foreign direct investment in high-speed rail in Chinese cities using panel data from 300 prefecture-level cities in China between 2008 and 2021.The findings indicate that the appeal of foreign direct investment is significantly impacted by the introduction of China's high-speed rail. Placebo test and delayed single-stage regression are also used in this paper, which proved that result is robust. In a further heterogeneity test, Chinese cities are classified according to center-periphery, high-speed railroads and city type. The findings indicate that the FDI influx into nearby cities, non-main line cities, and agricultural cities is significantly impacted by high-speed rails opening. There is no significant effect on FDI inflow in central cities and Cities with high-speed rail main lines The influence of FDI inflow on the service cities is negative. Construction of high-speed rail should be prioritized by the government in the nation's agricultural and comparatively underdeveloped cities, and encourage the building of high-speed rail that is not main line.
... The commission will be in the form of a bribe that allows bribe payers to get special privileges in obtaining investment licenses, paying taxes or protecting business activities. On the other hand, corruption can also be a "helping hand" when it makes the process of FDI in a country easier (Henisz, 2000;Quazi, 2014;Wheeler and Mody, 1992). Corruption as a grabbing hand is in line with "Sand the Wheels Hypothesis" given that corruption has a negative impact on the process of economic development. ...
Since corruption is a phenomenon often occurring in developing countries and bringing many effects in economy, this study aims to identify the effects of corruption on FDI and economic growth in 20 middle-income countries in the period of 2004 to 2017. This study applies a quantitative approach by gathering panel data from UNCTAD, World Bank, Transparency International, and Heritage Foundation as well as uses Panel OLS and Panel Two Stage Least Square in analyzing the data. One of the finding of the study reveals that economic growth positively influences FDI, and so does FDI affects economic growth. It supports either FDI led-Growth Hypothesis or Growth led-FDI Hypothesis. Corruption, meanwhile, positively and significantly affects economic growth, but its effect is insignificant on FDI. This finding corroborates Sand the Wheels Hypothesis. In addition, it is found that economic growth is positively and significantly influenced by infrastructure, human capital, and economic freedom. A phenomenon of global crisis represented by dummy variables also found to affect FDI. Yet, it does not bring effects for economic growth. Last but not least, EODB has no significant influences on FDI.
... Secondly, infrastructure is one most important determinants that foreign investor consider when they are considering making investment outside their home country as infrastructure is very vital component for FDI especially for developing countries as African countries which the relationship between infrastructure and FDI is not quietly examined (Michiels العذد عشر الخامس المجلذ الثالث -يوليو 0202 623 2018), as improving the infrastructure have a significant impact on attracting more FDI especially in developing countries as lower level of infrastructure contribute directly in increasing risk burden as well as increasing also cost associated for investment which discourage foreign investors to invest outside their home country Asiedu and Esfahani (2003), the main issue facing infrastructure in developing countries is the quality of infrastructure itself as it is a very crucial element for U.S investors to make FDI Wheeler and Mody (1992), furthermore infrastructure has positive and significant impact on FDI and enhancing its quality is essential, thus study is considering this effect on FDI and considering how the quality of infrastructure impact foreign decision in MENA region and African Countries as the quality of infrastructure still in progress and have not been quietly investigated in those regions Thirdly, MENA Region had faced many challenges especially when it comes to enhancing economic growth and attracting more FDI due to instability in terms of political, economic and financial constraints, consequently foreign investment is very crucial for overcoming issues MENA region have been facing considering the last ten years -The Arab Spring‖ as many countries faced very sever political instability as Egypt, Tunisia, Libya and Yamen that witnessed revolution and changing in political regimes which affected their capabilities in attracting FDI and serving MNEs with right resources for العذد عشر الخامس المجلذ الثالث -يوليو 0202 623 expansion as well as many MENs had forced to exist the market which had a huge impact on overall country's economy, monetary and fiscal policy and unemployment. ...
... Furthermore, the opening of a country to trade can influence FDI inflows, but the relationship between these variables varies according to the sector. Wheeler and Mody (1992), observe a positive relationship between trade liberalization and the inflow of FDI into the manufacturing sector, and the opposite relationship in the electricity sector. In the particular case of the automobile industry, connectivity needs are strongly correlated with the existence of trade agreements (Lejarraga et al., 2016). ...
The Moroccan economy has undergone significant structural changes since the 1980s. Attracting Foreign Direct Investment (FDI) has been a key strategy for the country’s economic growth and development, particularly in some specific high value-added sectors, such as the automotive supply industry. This paper uses the results of a survey to examine the reasons why multinational enterprises (MNEs) in the automotive supply sector set up in Morocco. Our findings show that proximity to Europe and labor costs and skills are the most important considerations for investing in this sector in Morocco. However, some institutional issues are still of concern to these MNEs.
... A few among many that have acknowledged the importance of market size in drawing in foreign direct investment (FDI) are Wheeler & Mody (1992), Schmitz & Bieri (1972), and Pistoresi (2000). Recent studies by Asiedu (2006), Mlambo (2006), and Zhang (2008) examined the critical role that market size plays in drawing in foreign direct investment. ...
Impact statement
This study contributes to extending recent empirical literature on the possibility of spillovers in the Indonesian automotive industry not only from foreign firms within the industry, but also from potential externalities arising from downstream and upstream markets using stochastic frontier analysis (SFA). Generally, studies on FDI spillovers examine the role of FDI in explaining the efficiency differences measured by the distance to the frontier; however, few studies consider the impact of efficiency improvement and technological progress on productivity gains from FDI. This study attempts to capture the sources of productivity gains through both channels. The other studies have never discussed, based on author knowledge, the impact of spillovers regarding domestic firms’ specific market concentration as competitors, buyers, or sellers to foreign firms on efficiency and productivity.This study aims to fill this gap and analyze the importance of market characteristics in determining spillovers, VTI, trade openness, and foreign ownership. Previous studies on market concentration employ the Herfindahl-Hirschman Index (HHI), while this study utilizes the relative entropy coefficient (RE) to provide another approach to measure market concentration.In this study, the industry-specific characteristic is controlled using the inclusion of firm size and industrial dummy variables. The SFA estimation results are calculated to measure output elasticity with respect to each input and total factor productivity (TFP) growth. The discussion provides TFP decompositions, which are technical efficiency change (TEC), technological progress (TC), and scale efficiency change (SEC).
... According to Harjito and Sulong (2005), Malaysia has been effectively enhancing its infrastructure and telecommunications development, which are critical factors in attracting greater foreign investment. In contrast, Yong and Tuck (2009) suggest that, in the short run and not in the long run, infrastructure plays a pivotal role in influencing foreign direct investment (FDI) flows, taking into account events such as China's accession to the WTO in 2001 and the inclusion of corruption variables, as determined by Wheeler and Mody (1992). ...
This study investigates the determinants of foreign direct investment (FDI) localization in the context of the Moroccan automotive industry. Drawing on a comprehensive review of the literature, we formulate and test several hypotheses related to the influence of socioeconomic, institutional, and policy factors on FDI localization. Our empirical analysis utilizes data from a diverse sample of MCNs operating in the Moroccan automotive industry and employs robust methods to examine the relationship between various determinants and the localization of FDI. The results offer valuable insights into the factors driving FDI localization and provide implications for policymakers and practitioners seeking to attract foreign investment. The findings suggest that while certain factors, such as the quality of institutions and market size, positively influence FDI localization, others, including stable and favorable economic and financial environments and public incentives for investment, exhibit mixed or negative effects. Additionally, the study highlights the importance of infrastructure development and the availability of qualified labor in attracting FDI localization. Overall, this research contributes to the literature by offering a nuanced understanding of the complex dynamics shaping FDI localization in developing countries. The insights gleaned from this study can inform policymakers' efforts to formulate effective strategies for promoting FDI localization and fostering economic growth and development.
... Les économies d'agglomération font référence aux externalités positives et aux économies d'échelle associées à la concentration spatiale des activités et à la co-implantation d'installations de production connexes (Krugman, 1991 ;Smith et Florida, 1994). Il existe des preuves systématiques suggérant que les entreprises multinationales sont attirées par les regroupements d'activités économiques dans leur propre secteur et dans des secteurs et activités étroitement liés (Glickman et Woodward, 1988;Wheeler et Mody, 1992;Head et Ries, 1996;Devereux et Griffith, 1998;Driffield et Munday, 2000). Le nombre total d'entreprises industrielles dans un pays devrait attirer de manière significative les IDE, car l'existence de grappes industrielles signale un ensemble de conditions favorables aux investisseurs étrangers, telles que la présence de fournisseurs locaux, de main-d'oeuvre spécialisée et d'infrastructures (He, 2002). ...
... Les économies d'agglomération font référence aux externalités positives et aux économies d'échelle associées à la concentration spatiale des activités et à la co-implantation d'installations de production connexes (Krugman, 1991 ;Smith et Florida, 1994). Il existe des preuves systématiques suggérant que les entreprises multinationales sont attirées par les regroupements d'activités économiques dans leur propre secteur et dans des secteurs et activités étroitement liés (Glickman et Woodward, 1988;Wheeler et Mody, 1992;Head et Ries, 1996;Devereux et Griffith, 1998;Driffield et Munday, 2000). Le nombre total d'entreprises industrielles dans un pays devrait attirer de manière significative les IDE, car l'existence de grappes industrielles signale un ensemble de conditions favorables aux investisseurs étrangers, telles que la présence de fournisseurs locaux, de main-d'oeuvre spécialisée et d'infrastructures (He, 2002). ...
L'investissement direct étranger (IDE) constitue aujourd'hui un mécanisme fondamental pour favoriser la croissance des pays. En effet, plusieurs variables ont été identifiées dans la littérature comme étant des déterminants importants des IDE dans un pays donné. Depuis les années 90, le Maroc s'est engagé à mettre en oeuvre une politique industrielle visant à attirer des IDE pour inciter les filiales étrangères à venir fabriquer sur son territoire. Le but du présent article ainsi, est d'analyser les facteurs expliquant l'entrée des investissements directs étrangers au Maroc. De ce fait, la problématique qui se pose est : Quels sont les principaux facteurs permettant d'expliquer l'entrée des IDE au niveau du Maroc ? Pour répondre à cette question, nous avons choisi un mode de raisonnement hypothéco-déductif accompagné d'une démarche quantitative de modélisation, à cet égard, nous avons utilisé l'économétrie des séries via le modèle Vector AutoRegressive (VAR) sur une durée allant de 1992 à 2022, en se basant sur des littératures à la fois empiriques et théoriques. Les résultats reçus via notre modélisation économétrique montrent que les variables exogènes : infrastructures, stabilité politique, coût du travail, développement du marché, ouverture économique et agglomérations constituent des facteurs majeurs stimulant l'entrée des investissements directs étrangers au Maroc, alors que les variables exogènes qualification de la main-d'oeuvre locale et investissement direct étranger retardé d'une période constituent également des facteurs cruciaux mais, qui n'ont pas une influence significative sur les IDE. Mots clés : IDE, modélisation économétrique, infrastructures, ouverture économique et Maroc. Abstract: Today, foreign direct investment (FDI) is a fundamental mechanism for promoting growth in countries. Indeed, several variables have been identified in the literature as being important determinants of FDI in a given country. Since the 1990s, Morocco has been committed to implementing an industrial policy aimed at attracting FDI to encourage foreign subsidiaries to manufacture on its territory. The aim of this article is to analyse the factors that explain the inflow of FDI into Morocco. So the question is: What are the main factors explaining the inflow of FDI into Morocco? To answer this question, we have chosen a mortgage-deductive reasoning mode with a quantitative modelling approach, in this regard, we have used series econometrics via the Vector AutoRegressive (VAR) model over a period from 1992 to 2022, based on both empirical and theoretical literature. The results of our econometric modelling show that the exogenous variables: infrastructure, political stability, economic openness, labour skills and agglomerations are major factors stimulating the entry of FDI into Morocco, while the variables labour costs and FDI delayed by one period are also important determinants but have a negative influence on FDI. For the market development variable, we found that it has a positive but insignificant impact.
... What's more, tax incentives do not encourage firms to internalize. Most IFs relocate even before analyzing ways of lowering taxation (Wheeler & Mody, 1992). ...
This article examines how emerging countries around the world have managed to develop despite economic and financial crises, while developing countries, notably in North Africa, have been unable to sustain their growth despite significant endowments of production factors. This article posits that successful structural transformation (ST) is indispensable for them. It would constitute the necessary condition for their development if it emphasizes the allure of Foreign Direct Investment (FDI) to complement such absorptive capacities. The primary objective of this article is to analyze the impact of FDI on ST in North African countries compared to emerging countries worldwide. The analysis, grounded in theoretical literature and employing a panel econometric approach with data analysis, seeks to comprehend the role of FDI in the disparities between emerging and developing countries. It scrutinizes not only their impact on growth but also on crucial channels of ST such as innovation, urbanization, institutional quality, and labor migration. The results from the estimated econometric models reveal a negative impact of FDI on ST in North Africa, unlike in emerging countries. In conclusion, the article suggests redirecting FDI towards growth sectors and drivers of change such as innovation, urbanization, and institutional quality to foster ST in developing countries.
... The bigger size of the population enhances FDI inflows by attracting a huge skill base, enough labor force, and a market for products and services (Aziz & Makkawi, 2012 Kyrkilis and Koboti (2015), whose studies showed that certain characteristics must be present in the host country to allow property rights to significantly enhance FDI. Equation (4) was introduced to consider an argument by Krugman (1991) and Wheeler and Mody (1992) that foreign investments follow each other (the lag of FDI). In other words, FDI is positively attracted by already existing foreign investment in the host country. ...
The study investigated the impact of intellectual property rights on foreign direct investment (FDI) in selected African countries (Burkina Faso, Ivory Coast, Nigeria, Cameroon, Mali, Kenya, Burundi, Central African Republic, Rwanda, Senegal, Zimbabwe, and Tanzania). The purpose of the study is to develop property rights policies that encourages FDI in African countries. How FDI is influenced by the combination of trade openness and intellectual property rights was also examined using the same data set and econometric methods such as the dynamic generalized method of moments (GMM), fixed effects, and pooled ordinary least squares (OLS). Panel data ranging from 2005 to 2019 were used for the purposes of this study. A 1% increase in intellectual property rights led to a 22.73% increase in FDI inflows under the dynamic GMM and a 45.55% increase in FDI inflows under the random effects. These results show that intellectual property rights significantly enhanced FDI under the random effects and dynamic GMM. FDI was insignificantly enhanced by intellectual property rights under the pooled OLS and fixed effects methods. A 1% increase in complementarity between intellectual property rights and trade openness (complementarity term) pushed up FDI inflows by 17.78% under the dynamic GMM, whilst a 1% increase in the complementarity term increased FDI inflows by 16.72% under the fixed effects. In other words, dynamic GMM and fixed effects approaches show that the complementarity component significantly improved FDI inflows. The paper recommends implementing the best property rights strategies to improve FDI inflows into African countries. AcknowledgmentThe author appreciates the moral support from the University of South Africa, his employer.
... indicate to the market size is not an influencing factor in the case of vertical foreign investment, where FDI does not flow due to market search in the host State. 11 b-GDP and economic stability: In a cohort study of23 countries, researchers found that countries with large economies receive larger FDI inflows than small, stagnant economies. Schneider, Others (1985) found a positive correlation 12 between FDI flows and real GDP per capita, with researchers demonstrating that countries with higher GDP have better investment opportunities.13 ...
Domestic financing gap resulting from the lack of sufficient domestic savings to finance national investments, is one of the major economic problems in developing countries, putting these countries in the midst of a constant need for foreign capital in the form of direct or indirect investments. economic history indicates that the ability of the countries of the world to attract the optimal pattern of foreign direct investment, as it indicates that foreign investors do not risk their investments without studying the economic, political and social environment in the host country. this paper used analytical methods by analysis the data by using econometric models' framework which it allows measure the impact of the credit rating for the FDI, by using the variables credit rating from the Moody's agency and other variables such as credit GDP and Trade-GDP and gross fixed capital formulation growth rate, Exchange Rate as independent variable's and FDI as Dependent Variable. This paper reach to the positive rate is insignificant in the short run and the negative rating is significant that's mean the negative rate for the economy will decreasing the FDI to the Egyptian Economy (short Run) while the positive rating will not affect in the investment inflows. The variables such as (credit GDP) and
... Intuitively, the development of infrastructures can facilitate participation in global value chains through several channels including human capital, governance and foreign direct investments. Infrastructure is crucial for mobilising foreign capital (Wheeler & Mody, 1992). Bakar et al. (2022) add that the decision by multinational companies to invest in a given country is highly influenced by the availability of reliable infrastructures, given that the latter directly influence the productivity and profitability of the firm. ...
This study investigates the effects of infrastructure development on Africa's global value chain (GVC) partici-pation. Infrastructure development is proxied by a composite index which encompasses ICT, transport network,electricity and water supply while considering both the backward and the forward dimensions of GVCs. Findings from the Discroll-Kraay and system Generalised Method of Moments reveal that infrastructure development promotes Africa's GVCs for both up and down streams participation. These results are robust across different types of infrastructures and income groups. The transmission mechanisms with the interaction between infra-structure indicators, human capital, foreign direct investments (FDI), and governance procure negative synergy effects for electricity, transport and water supply and positive synergy effects for ICT. Both positive and negative net effects emerge but are nullified at respective governance, human capital and FDI thresholds. Based on the results obtained, practical policy implications are discussed.
... They can reallocate production and resources in response to external changes, reducing their operational exposure (Kogut & Kulatilaka, 1994). This flexibility often leads them to prefer lower-wage locations (Wheeler & Mody, 1992). Furthermore, the minimum wage level can influence their employment as it affects wage distribution throughout the labor market (Grossman, 1983;Neumark, Schweitzer, & Wascher, 2004). ...
This study examines the impact of a consecutive double-digit hike in Korea's minimum wage from 2018 to 2019 after the impeachment of President Park Geun-hye as an exogenous shock on the employment of multinational enterprises (MNEs). Notably, this topic has received limited attention in extant literature. Using a firm-level dataset covering the period 2006-2020, we find that MNEs respond to increases in the minimum wage by reducing their total employment size, including both regular and temporary workers. Furthermore, the effects are heterogeneous and depend on the participation of international trade and strategic partnerships. Our findings indicate that the minimum wage policy can even lead to a decrease in high-quality jobs within high-productivity companies, underscoring the need to adjust the pace of such increases to mitigate their side effects on the labor market.
... The chief objective of this study is to reveal a comparative analysis for multicriteria offshoring location selection problems by utilizing Fuzzy-AHP, TOPSIS, WSM, ARAS, and ELECTRE methods. To do so, fifteen countries, which have been commonly preferred for offshoring, are ranked by considering seven main criteria (attributes), namely cost [25,26], labor characteristics [17,27], infrastructure [28], proximity to suppliers [29,30], economic factors [17], quality of life [31], and proximity to market [32,33] and thirty subcriteria under these main criteria. These most effective attributes are selected after conducting a comprehensive literature review and utilizing expert knowledge. ...
Offshoring location selection is a crucial decision for firms in terms of competitiveness, flexibility, productivity, and profitability. Determining an efficient and appropriate location for offshoring has been a substantial multicriteria decision-making (MCDM) problem. Considering that the outcome of an MCDM method alone can be misleading, a novel hybrid approach is presented in this study. Thus, five MCDM methods are utilized to solve the problem, and the results of four MCDM methods are integrated to assure an optimal offshoring location. A Fuzzy-AHP (analytical hierarchy process) integrated with the technique for order preference by similarity to ideal solution (TOPSIS), additive ratio assessment (ARAS), elimination et choix traduisant la realité (ELECTRE), and weighted sum method (WSM) methodology is proposed for the appraisal and selection of the optimal offshoring location. In this context, fifteen alternative locations are determined based on the attractiveness of the locations in terms of offshoring. Fuzzy-AHP is implemented to analyze the problem's structure and find the weights of the quantitative and qualitative criteria. Consistency tests are implemented to assess the quality of inputs of an expert. Then, TOPSIS, WSM, ARAS, and ELECTRE are used to evaluate and rank the candidate locations and present a comparative analysis. By considering fifteen countries and using real data, offshoring location selection is conducted through the proposed methodology. Moreover, sensitivity analysis is made to diminish the subjectivity and assess the robustness of the techniques. The results demonstrated that giving more weights to the labor characteristics and proximity to market criteria might improve the quality of the best offshoring country index.
Corporate investment is determined by a combination of factors that are associated with the financial structure and firm-specific characteristics, as well as the institutional environment in the country where the firm is located. Although a lot of studies demonstrate the importance of firm-specific characteristics and capital structure, the institutional environment remains an important yet less studied factor in explaining the investment behaviour of firms. This study examines how institutional quality in the form of prevalent corruption influences corporate investment in India. The results confirm the investment-enhancing role of corruption via promoting credit accessibility. This study also explores a non-linear relationship between corruption and firms’ investment to examine whether corruption ‘greases the wheels’ of firms’ investment even at its higher level.
JEL: D20, D22, C33
This study tries to investigate the cross-country variations in infrastructure development among different sets of countries with varying institutional rankings, over time, by building five infrastructure indices. Along with building the total/composite infrastructure index, four other (energy, ICT, finance and transport) sub-indices are also built in this study. The strength of our study lies in the fact that we not only find variations in the total infrastructure development but also within the sub-indices. We have introduced the role of country-specific Institutional quality and inflow of FDI empirically in this regard to determine the cross-country variance in infrastructure development. The core hypothesis of our study is that countries that receive a good amount of FDI inflows will have impressive infrastructure development provided the country-specific institutional quality is high. On the contrary, countries with low institutional indexes may not have a positive association between FDI inflows and infrastructure development. However, there are exceptions. For example, institutionally strong countries like Ireland and Belgium should invest more funds to boost their financial infrastructure sector. On the other hand, another institutionally strong country like Norway should develop its transport infrastructure. In this study, we are mainly interested in the joint impact of FDI inflows with the institutional variable on infrastructure development that has been largely neglected in the empirical literature. Using two-dimensional panel data for FDI inflows for 39 countries over the period 2000–20, we find that the conditional effects are positive and significant. From the policy point of view, we identify the possible areas of the infrastructure of a country that needs capital to be invested and at the same time identify some of the countries that need to improve their institutional quality that will eventually lead to improvement in the infrastructure development. The results of our study are robust to different institutional measures and infrastructure indices.
Using a panel of 43 economies between 1985 and 2022, this article establishes a link between foreign direct investment (FDI) inflows and geopolitical risk. We distinguish the idiosyncratic component of geopolitical risk from the global geopolitical risk index provided by Caldara and Iacoviello (2022. American Economic Review , 112, 1194–1225.). We then incorporate both global and idiosyncratic risks into a static FDI regression model, controlling for other economic and institutional determinants. Our findings suggest that both global and idiosyncratic geopolitical risks pose significant obstacles to FDI inflows. Additionally, we investigate whether water and energy risks, when interacting with geopolitical risk, influence the behaviour of international investors. To test this hypothesis, we estimate the interaction effect of water stress and energy intensity as proxies for water and energy risks, respectively. Our findings imply that foreign investors perceive high energy intensity and water stress as moderating factors that could motivate host country policymakers to avoid involvement in geopolitical confrontations, thereby supporting peacebuilding to prevent or resolute conflicts.
Purpose
This paper investigates the impact of foreign direct investment (FDI) on infrastructure development, focusing on electricity, transportation and telecommunication.
Design/methodology/approach
The study employs multivariate regressions on panel data from up to 165 countries over the period 1996–2015, and the instrumental variables two-stage least squares (IV-2SLS) approach to address endogeneity concerns.
Findings
The results show that FDI promotes most types of infrastructure in the recipient countries. In addition, we find that greenfield investments generally contribute toward infrastructure development, while cross-border M&As exhibit only a little developmental impact and may even exert a negative influence on some infrastructure types. Finally, we find that FDIs have a larger developmental impact on developing nations during the period from 1996 to 2015.
Practical implications
Our findings suggest that, while policies which aim to attract further FDI may yield desirable developmental outcomes, a closer look at particular FDI strategies is required when implementing such policies to ensure a sustainable FDI-development nexus.
Originality/value
This study is among the most comprehensive studies in terms of both the time period and the number of countries analyzed, offering a critical examination of the impact of FDI on infrastructure development. At the same time, by decomposing total FDI into its two major strategies (i.e. greenfield investment and cross-border M&As), we also join the line of work that examines the mechanisms through which FDI affects the development of recipient countries. Finally, it highlights that FDI significantly impacts developing nations, particularly in infrastructure projects affected by corruption. Conversely, in developed countries, FDI may hinder domestic investment and long-term growth.
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L’objectif de ce papier est d’identifier les facteurs d’attractivité des investisseurs implémentés dans la ville de Casablanca au Maroc. Le modèle conceptuel proposé a été construit à l’aide d’une revue de littérature sur les facteurs d’attractivité territoriale. Les données exploitées ont été collectées à travers une enquête réalisée auprès des dirigeants des entreprises installées à la ville de Casablanca, qui totalise, à elle seule, environ le tiers des entreprises du Maroc. Sur le plan empirique, l’approche « Partial Least Square (PLS) » a été mobilisée afin de tester le lien de causalité entre les variables explicatives et l’attractivité territoriale. Ainsi, nos résultats montrent que les facteurs de ressources naturelles, de notoriété de marque, de digitalisation de services et d’infrastructures agissent positivement sur l’attractivité de la ville. A la lumière des résultats de ce papier, des mesures pourraient être proposées aux décideurs publics afin d’améliorer l’attractivité territoriale de la ville de Casablanca.
The study aims to identify the motives of foreign direct investment in Nepal and analyse the perceived strengths and weaknesses of investment climate. Additionally, it examines the experience of foreign investors in Nepal in terms of further investment plans and net promoter scores attributed to the host country. The study relies on primary data collected from the survey of 65 sampled industries with foreign direct investment, using structured questionnaires. Descriptive analysis has been used to assess the key factors motivating foreign investors. The findings reveal that labour cost, repatriation facility, industrial security, low operating costs, access to neighbouring market/trade openness, and investment and communal hospitality stand out as major motivating factors, while political instability, macroeconomic instability, availability of machinery and equipment, road access, and bureaucracy are the major precluding factors. The policy reforms in Nepal have notably shaped investors' perceptions. Acts like the Foreign Investment and Technology Transfer Act, 1992, and subsequent amendments such as the Foreign Investment and Loan Management, 2021, have significantly motivated investors by improving repatriation facilities and ease of VISA and work permit accessibility. Despite the efforts, land facilitation for foreign investors has been perceived as a weakness. The net promoter score for Nepal is 12 on a scale from −100 to +100, which is positive, albeit low, indicating a substantial gap to attain full promoters and needs to be improved by further enhancing the investment climate.
Bu çalışmada Türkiye’ye gelen doğrudan yabancı yatırımlar, Yeni Kurumsal İktisat perspektifinde analiz edilmektedir. Türkiye’ye gelen doğrudan yabancı yatırımların potansiyelin altında kalmasının nedenleri kurumlar, işlem maliyetleri, mülkiyet hakları gibi argümanlara dayandırılarak ortaya konulmuştur. Bu nedenle kurumsal belirleyicilerin Türkiye’ye gelen doğrudan yabancı yatırımlar üzerindeki etkisi araştırılmıştır. 1999-2021 yılları arasında kapsayan bu çalışmada; dışa açıklık, enflasyon, insani gelişme endeksi değişkenleriyle birlikte yönetişim göstergeleri, sivil özgürlükler ve siyasi haklar da kurumsal değişkenler olarak yer almaktadır. Kurumsal değişkenlere Asal Bileşenler Analizi uygulanarak formel kurumlar değişkeni elde edilmiştir. Çalışmada, üç farklı model oluşturularak ARDL sınır testi yöntemiyle formel kurumlar ile Türkiye’ye gelen doğrudan yabancı yatırımlar üzerindeki ilişki tespit edilmiştir. Dışa açıklık değişkenin doğrudan yabancı yatırımlar üzerinde pozitif bir etkiye sahip olduğu, formel kurumlarla arasında uzun dönem ilişkisi olduğu tespit edilmiştir. Enflasyon değişkenin doğrudan yabancı yatırımlar üzerinde negatif bir etkiye sahip olduğu, formel kurumlarla arasında uzun dönem ilişkisi olduğu tespit edilmiştir. Uzun dönem katsayıları incelendiğinde ise her iki değişkene kıyasla formel kurumların doğrudan yabancı yatırımlar üzerinde daha fazla etkiye sahip olduğu gözlenmektedir. İnsani gelişme endeksinin doğrudan yabancı yatırımlar üzerinde pozitif bir etkiye sahip olduğu, formel kurumlar ile uzun dönem ilişkisi olduğu tespit edilmiştir ve insani gelişme endeksinin doğrudan yabancı yatırımlar üzerinde daha etkili olduğu sonucuna ulaşılmaktadır.
Abstract
The study aims to identify and re-evaluate the barriers to Foreign Direct Investment (FDI) inflows under Dunning’s OLI eclectic paradigm (ownership advantages, locational advantages, and internalisation advantages) that are an essence of government policy that restricts or impedes decisions on the location and mode of investments. In Sultanate of Oman, barriers to foreign direct investment inflows comprise exclusion of foreign investors to certain economic activities, imposition of localization quotas, foreign ownership caps, discriminatory requirements on joint ventures and acquisitions, foreign ownership screening, notification and bureaucratic hurdles, overt and covert procedural delays in approvals, and operational restrictions. In this study empirical and policy data on Foreign Direct Investment in Oman was collected from National Centre for Statistical Information (NCSI), World Trade Organization (WTO), Transparency International, International Monetary Fund (IMF), FDI Intelligence, Oman Investment Authority, World Economic Forum, Bureau of Business & Economic Affairs-US Dept. of State, research publications in Business Source Premier, ScienceDirect, Elsevier, Scopus and SpringerLink. The OLI framework was further subdivided into 23 variables. For each variable a ‘three letter’ notation was created, and barriers were identified and re-evaluated against the findings. Findings indicated a significant correlation between OLI factors and FDI to which ownership, i.e., modes of entry and location barriers played a significant role followed by internalisation barriers. FDI barriers and restricted market access have made the domestic Omani market too small for certain large-scale investments that require minimum economies of scale to be viable. Many of the government incentives to attract FDI have become unsustainable in the long run. To overcome the ill-effects of restrictive policies, Sultanate of Oman should undertake multilateral steps to enhance the overall investment climate and increase the inflow of FDI. This will help realize the economic diversification initiative of Oman Vision 2040. With this perspective in view, the first part of the paper sheds light on aspects inherent in policy implementation, the second part identifies and reviews the FDI barriers faced by firms and categorizes them under Dunning’s OLI eclectic paradigm, and the third part deals with economic policy recommendations for Sultanate of Oman.
Keywords: Barriers, drivers, Foreign direct investment, OLI eclectic paradigm
JEL classifications: F21, O53
This study investigates how host country governance and investment environment may impact multinational corporations' (MNCs’) selection of innovative partners, an underexplored topic in existing IB literature. Drawing on the transaction cost perspective and a behavioral theory of the firm (BTOF), we analyzed data from 1,980 non-service-sector MNCs in Taiwan (2007-2012), totaling 4,921 observations. Results show that MNCs' satisfaction with host-country governance and investment conditions influences their technology sourcing and innovative partner selection. Higher governance satisfaction leads MNCs to choose partners within their value chain, while high investment environment satisfaction prompts selection of third-party consultants or research centers as partners. Moreover, underperforming MNCs are less likely to source technology from their parent firms, preferring external consultants or research centers during underperforming periods. This research provides novel insights into MNCs' local partner selection and practical implications.
Corruption is considered a major issue globally, particularly for developing countries, as it takes away important resources resulting in huge costs to the economy. This is especially true in the case of attracting foreign direct investment (FDI) in the host country. However, the theoretical literature contains counter-arguments, with some scholars agreeing with the above argument while others suggest that, in some cases, corrupt practices facilitate business transactions, thus helping to attract FDI. This chapter further explores this literature. It first provides a review of the theoretical and empirical literature on corruption–growth and corruption–investment relationships. This is followed by some interesting details on the cost of corruption. Subsequently, some econometric analysis is performed to verify the ‘grabbing hand’ and ‘helping hand’ views on the impact of corruption. The empirical findings of this chapter support a grabbing hand view for the top 20 (least corrupt) countries while the evidence suggests a helping hand view for the bottom 20 (most corrupt) countries. The author also finds evidence supporting a non-linearcorruption–growth and corruption–investment relationship for the sample of the 20 most corrupt countries. He believes that these are interesting findings and could have important policy implications.
The study examined the determinants of foreign direct investment (FDI) in Sub Saharan Africa between 1970 and 2000. Results indicate that trade liberalization has been the main determinant of FDI over the three decades. However, the low level of FDI inflows to the region, suggest that liberalization policies are necessary but insufficient in attracting FDI. Policy makers in the region should therefore focus on institutional reforms and improve the business climate to enhance the region's chances of attracting more FDI. On the other hand, multinational enterprises could exploit the favorable FDI policy environment to negotiate favorable terms of entry and reap the benefits of beingfirst-movers.
Tax sensitivity of foreign direct investment (FDI) has important policy implications. If FDI is not responsive to taxation, then it may be an appropriate target for taxation by the host country, which can raise revenue without sacrificing any economic benefits FDI produces. This paper examines the effects of taxation on FDI in Mexico. The empirical model used for this purpose distinguishes FDI finance by transfers and retained earnings and incorporates host and home country tax and non-tax factors including host country risk factors and credit status of multinationals. The paper concludes that empirical evidence on tax sensitivity of FDI in Mexico is quite strong. It suggests that FDI transfers and reinvested earnings respond negatively to the Mexican effective tax rate and to regulations. It is further dampened by the excess credit status of multinationals. It is encouraged by a favorable economic and political climate in Mexico, as indicated by the country credit rating of The Institutional Investor and by tariffs.
A two-sector, two-period trade model is developed in which one sector has increasing returns based on the creation of specialized intermediate inputs. One of the two (otherwise identical) countries is not able to enter the increasing returns sector in the first period through some "accident of history". A theoretical and numerical analysis solves for parameter regimes under which firms in the disadvantaged country are or are not able to enter the increasing returns sector in the second period. The welfare consequences of the two alternative second period outcomes are compared to one another and to an equilibrium with both countries entering in the first period. The disadvantaged country may fall further behind in the second period even when its firms are able to enter.
The authors construct a dynamic, two country model of trade and growth in which endogenous technological progress results from the profit-maximizing behavior of entrepreneurs. They study the role that the external trading environment and that trade and industrial policies play in the determination of long-run growth rates. Cross-country differences in efficiency at R&D versus manufacturing (i.e., comparative advantage) bear importantly on the growth effects of economic structure and commercial policies. Copyright 1990 by American Economic Association.
This paper examines the importance of firm size in explaining foreign direct investment with data from American and Swedish firms. The results suggest that firm size only has a threshold effect on foreign investment, an effect on the decision to invest abroad. Once, however, a firm has jumped the initial barriers to foreign production, size has no effect on the fraction of the firm's resources devoted to foreign activity. Among firms that invest in foreign production large firms do not appear to have any particular advantage over small investing firms.
The introduction of recent developments in the area of finance theory into the mainstream of work on international finance includes the mean-variance portfolio theory model and the more-sophisticated capital-asset pricing model (CAPM). These tools are applied to demonstrate that it is possible to reduce the risk of any domestic portfolio by going international. This gain from international-risk diversification is not available from industrial diversification within an economy. The study also explores recent developments in the international monetary system which create barriers to the free movement of capital between nations. Both theoretical and empirical work on the financial aspects of multinational enterprise are reported. 109 references, 50 tables.
Offshore investment often bears the image of 'footloose' industry, with little to hinder movement to the most favorable environment. An effort to describe this particular segment of U.S. direct investment supports some elements of the colorful anecdotal portrait painted by critics in the Third World. Semiconductor assemblers are moderately sensitive to wage rates, and adjust quite rapidly in maintaining what they perceive as a diversified portfolio of 'risky' LDC production locations. On the other hand, this reaction is small enough to guarantee that modest increases in wages will not send all investment fleeing from an export platform. New methods of modelling direct foreign investment when risk diversification is important in explaining industrial location decisions are introduced in this paper.
The location of overseas manufacturing production is influenced by common factors that operate in all industries: notably proximity to the United States and to other markets. Within industries, ‘opposites attract’: low-wage and low-capital-intensity parents choose high-wage countries. Production for export is attracted by large internal markets in host countries. Economies of scale in production presumably make large markets economical as export bases. Another factor is high trade propensities of host countries. U.S. firms tend to export from high-wage countries but labor cost is not in general a major influence on the location of export production.
This paper investigates whether macroeconomic time series are better characterized as stationary fluctuations around a deterministic trend or as non-stationary processes that have no tendency to return to a deterministic path. Using long historical time series for the U.S. we are unable to reject the hypothesis that these series are non-stationary stochastic processes with no tendency to return to a trend line. Based on these findings and an unobserved components model for output that decomposes fluctuations into a secular or growth component and a cyclical component we infer that shocks to the former, which we associate with real disturbances, contribute substantially to the variation in observed output. We conclude that macroeconomic models that focus on monetary disturbances as a source of purely transitory fluctuations may never be successful in explaining a large fraction of output variation and that stochastic variation due to real factors is an essential element of any model of macroeconomic fluctuations.
This paper considers the prospects for constructing a neoclassical theory of growth and international trade that is consistent with some of the main features of economic development. Three models are considered and compared to evidence: a model emphasizing physical capital accumulation and technological change, a model emphasizing human capital accumulation through schooling, and a model emphasizing specialized human capital accumulation through learning-by-doing.
This paper explores Paul N. Rosenstein-Rodan's idea that simultaneous industrialization of many sectors of the economy can be profitable for them all even when no sector can break even industrializing alone. The authors analyze this idea in the context of an imperfectly-competitive economy with aggregate demand spillovers, and interpret the big push into industrialization as a move from a bad to a good equilibrium. They present three mechanisms for generating a big push and discuss their relevance for less-developed countries. Copyright 1989 by University of Chicago Press.
Standard one-sector growth models often have the counterfactual implication that economies with access to similar technologies
will converge to a common balanced growth path. We propose an elaboration of the Diamond model that permits multiple, locally
stable stationary states. This multiplicity is due to increasing social returns to scale in the accumulation of human capital.
The share of U.S. multinational firms in world exports of manufactures has remained almost constant at about 17 per cent for the last 20 years while that of the U.S. as a country has declined substantially. The composition of world manufactured exports shifted toward high-technology or R&D-intensive products during these years and away from low-technology products. The comparative advantage of the U.S., and even more that of U.S. multinationals, were in high-tech products throughout the period, as was that of Japan. However, the U.S. and its multinationals shifted even further toward such products during the period than did the world as a whole, and the Asian NIC's exports moved still faster in this direction. With respect to short-run fluctuations, we find that the export shares of U.S. multinationals have been less sensitive to exchange rate fluctuations than those of the U.S. And shares in high-tech exports have been less sensitive than those in low-tech exports. High R&D intensity was a factor raising the competitiveness of U.S. industries and particularly that of U.S. multinationals in those industries. High advertising intensity raised the competitiveness of U.S multinationals but not usually that of their industries. Higher growth in R&D-intensity also led to increase in multinationals' shares of world exports between 1977 and 1982.
The share in world exports of manufactured goods of U.S. multinational firms, including their majority-owned overseas affiliates, has been nearly stable since 1966. This stability, over a period in which the export share of the U.S. as a geographical entity was declining for the most part, suggests that it was not declines in the competitiveness of American firms' management and technology that were responsible for the deterioration of the U.S. trade position. That view is reinforced by the fact that a good deal of the change in U.S. export shares can be explained by changes in U.S. prices relative to those of other countries. The comparative advantage of both the U.S. and U.S. multinational firms, especially the latter, has been in chemicals, machinery, and transport equipment, industries with relatively fast growth in worldwide exports. The growth of U.S. exports in 1966-77 fell far short of what it would have been if the U.S. had retained its share in each industry. The growth of U.S. multinationals' exports fell a little short of that implied by constant-shares but surpassed that of the U.S. as a country in almost every industry. After 1977, both the U.S. and its multinationals kept up with their constant share growth rates and the U.S. even ran a bit ahead. The multinationals' position as exporters, now supplying almost half their exports from their majority-owned overseas affiliates, seems to have been quite insulated from changes in U.S. policies and circumstances.
In this paper we examine the impact of membership in Preferential Trade Agreements (PTAs) on trade between PTA members. Rather than considering the impact of PTA membership on the volume of trade we consider the impact of membership on the structure of trade. For a large sample of countries over the period 1962-2000 we find that membership in a PTA is associated with an increase in the extent of intra-industry trade. In addition, we find that the effect of PTA membership on IIT is larger when a PTA is formed between two developed countries.
Industry location patterns and the importance of history Center for Economic Policy Research, Paper no. 84. Arthur, B., 1990, Positive feedbacks in the economy
- B Arthur
Arthur, B., 1986, Industry location patterns and the importance of history, Stanford University, Center for Economic Policy Research, Paper no. 84. Arthur, B., 1990, Positive feedbacks in the economy, Scientific American 262,92-99.
Uncertainty, market structure and performance: Galbraith as conventional wisdom
- Caves
Caves, R.E., 1970, Uncertainty, market structure and performance: Galbraith as conventional wisdom, in: J.W. Markham and G.F. Papanek, eds., Industrial organization and economic development: Essays in honor of E.S. Mason (Houghton MiIllin, Boston, MA).
High technology centers and the economics of locational tournaments
- P David
David, P., 1984, High technology centers and the economics of locational tournaments. Stanford University, Mimeo. -_ Drazen, A. and C. Azariadis, 1990, Threshold externalities in economic development, Quarterly Journal of Economics 105,501-526.
Kritisches und positives zu einer allgemeinen reinen lehre vom standort
- O Englander
Englander, O., 1926, Kritisches und positives zu einer allgemeinen reinen lehre vom standort. Zeitschrift fur Volkswirtschaft und Sozialnolitik. NeueFolae 5.
Foreword, in: A.M. Rugman, International diversification and the multi-national enterprise
- H G Grubel
Grubel, H.G., 1979, Foreword, in: A.M. Rugman, International diversification and the multi-national enterprise (Lexington Books, Lexington).
Financial flows versus capital spending: Alternative measures of U.S.Canadian investment and trade in the analysis of taxes Location theory and the shoe and leather industries
- H Grubert
- J Mutti
Grubert, H. and J. Mutti, 1989, Financial flows versus capital spending: Alternative measures of U.S.Canadian investment and trade in the analysis of taxes, Mimeo. D. Wheeler and A. Mody, International investment Hoover, E.M., 1937, Location theory and the shoe and leather industries (Harvard University Press, Cambridge, MA).
The principle of increasing risk, in: Essays in the theory of economic fluctuation
- M Kalecki
Kalecki, M., 1938, The principle of increasing risk, in: Essays in the theory of economic fluctuation (George Allen and Unwin, London).
Tax sensitivity of foreign direct investments: An empirical assessment, Policy, Research and External Affairs Working Paper no
- A Shah
- J Slemrod
Shah, A. and J. Slemrod, 1990, Tax sensitivity of foreign direct investments: An empirical assessment, Policy, Research and External Affairs Working Paper no. 434 (The World Bank, Washington, DC).
1826, Der isolierte staat in beziehuna auf landwirtschaft und national-okonomie
- Von Thunen
Von Thunen, J.H.. 1826, Der isolierte staat in beziehuna auf landwirtschaft und national-okonomie. (Hamburg).
Kritisches und positives zu einer allgemeinen reinen lehre vom standort. Zeitschrift fur Volkswirtschaft und Sozialpolitik
- Englander