Determinants of outward FDI from emerging economies
DOI:
https://doi.org/10.24136/eq.2019.010Keywords:
foreign direct investment, knowledge-capital model, emerging multinationals, pseudo-Poisson maximum likelihoodAbstract
Research background: The last four decades have witnessed an upsurge of multi-nationals from emerging markets alongside a narrowed gap in growth prospects between developed and emerging economies. UNCTAD statistics show that FDI flows from emerging economies have gone steady since 1980 and occupied more than one fifth of global FDI stock in 2015. Japan led the reverse FDI trend when it started to invest abroad in the 1960s and 1970s. Two decades later, in the 1980s-1990s, the reverse FDI trend was continued by so-called Asian tigers, then recently by those rapidly-industrializing economies in Southeast Asia as well as China and India in East and South Asia.
Purpose of the article: The main goal of this paper is to contribute empirically to the study of the determinants of FDI outflows from emerging economies.
Methods: In order to derive empirically testable hypotheses this paper refers to theoretical Knowledge-Capital model developed by Markusen (2002). The model is estimated using the Poisson-Pseudo Maximum Likelihood estimation technique. The specific research hypotheses derived from the theory are verified using a panel dataset of 38 home emerging countries and 134 host countries over the period 2001?2012.
Findings & Value added: In this paper, we distinguish between horizontal and vertical reasons for FDI. Our estimation results support the hypothesis that main-stream theory of multinational enterprise can explain FDI flows from emerging economies, implying the significant roles of total market size, skilled-labor abundance, investment cost, trade cost as well as geographical distance between two countries.
Downloads
References
Amal, M. (2011). Foreign direct investment from emerging economies: determinants and strategies. In P. Pachura (Ed.). The economic geography of globalization. London: InTech.
DOI: https://doi.org/10.5772/18285
View in Google Scholar
Amal, M., Raboch, H., & Tomio, B. (2009). Strategies and determinants of foreign direct investment (FDI) from developing countries: case study of Latin America. Latin American Business Review, 10(2).
DOI: https://doi.org/10.1080/10978520903212532
View in Google Scholar
Arbix, G. (2010). Structural change and the emergence of the Brazilian MNEs. International Journal of Emerging Markets, 5(3/4).
DOI: https://doi.org/10.1108/17468801011058389
View in Google Scholar
Bano, S., & Tabbada, J. (2015). Foreign direct investment outflows: Asian developing countries. Journal of Economic Integration, 30(2).
DOI: https://doi.org/10.11130/jei.2015.30.2.359
View in Google Scholar
BCG (2009). The 2008 BCG 100 new global challengers: how top companies from rapidly developing economies are changing the world. Boston: Boston Consultancy Group.
View in Google Scholar
Bonaglia, F., Goldstein, A., & Mathews, J. (2007). Accelerated internationalization by emerging markets’ multinationals: the case of the white goods sector. Journal of World Business, 42(4). doi: 10.1016/j.jwb.2007.06.001.
DOI: https://doi.org/10.1016/j.jwb.2007.06.001
View in Google Scholar
Chittoor, R., Ray, S., Aulakh, P., & Sarkar, M. (2008). Strategic responses to institutional changes: ‘Indigenous growth’ model of the Indian pharmaceutical industry. Journal of International Management, 14(3). doi: 10.1016/j.intman. 2008.05.001.
DOI: https://doi.org/10.1016/j.intman.2008.05.001
View in Google Scholar
Cieślik, A. (2013). Horizontally integrated MNE and plant heterogeneity. Bank i Kredyt, 44(6).
View in Google Scholar
Cieślik, A. (2015a). North-North FDI, exporting and the first mover advantage. Bank i Kredyt, 46(2).
View in Google Scholar
Cieślik, A. (2015b). Imperfect competition, productivity differences and proximity-concentration trade-offs. Ekonomia, 40.
View in Google Scholar
Cieślik, A. (2016). Exports versus FDI in Smith-Motta framework. Equilibrium. Quarterly Journal of Economics and Economic Policy, 11(2). doi: 10.12775/ EQUIL.2016.009.
DOI: https://doi.org/10.12775/EQUIL.2016.009
View in Google Scholar
Cieślik, A. (2018). Leader-follower model of reciprocal FDI and international trade. Argumenta Oeconomica, 41(2). doi: 10.15611/aoe.2018.2.04.
DOI: https://doi.org/10.15611/aoe.2018.2.04
View in Google Scholar
Collie, D. R. (2011). Multilateral trade liberalization, foreign direct investment and the volume of world trade. Economics Letters, 113(1). doi: 10.1016/j.econlet. 2011.05.032.
DOI: https://doi.org/10.1016/j.econlet.2011.05.032
View in Google Scholar
Cuervo-Cazurra, A., & Genc, M. (2008). Transforming disadvantages into advantages: developing-country MNEs in the least developed countries. Journal of International Business Studies, 39(6). doi: 10.1057/palgrave.jibs.8400390.
DOI: https://doi.org/10.1057/palgrave.jibs.8400390
View in Google Scholar
Dunning, J. (1981). Explaining the international direct investment position of countries: towards a dynamic or developmental approach. Weltwirtschaftliches Archiv, 117(1).
DOI: https://doi.org/10.1007/BF02696577
View in Google Scholar
Dunning, J. (1986). The investment development cycle revisited. Weltwirtschaftliches Archiv, 122(4). doi: 10.1007/BF02707854.
DOI: https://doi.org/10.1007/BF02707854
View in Google Scholar
Dunning, J., & Narula, R. (1996). The investment development path revisited: some emerging issues. In J. Dunning & R. Narula (Eds.). Foreign direct investment and governments. London: Routledge.
View in Google Scholar
Eicker, F. (1963). Asymptotic normality and consistency of the least squares estimators for families of linear regressions. Annals of Mathematical Statistics, 34(2).
DOI: https://doi.org/10.1214/aoms/1177704156
View in Google Scholar
Enderwick, P. (2009). Large emerging markets (LEMs) and international strategy. International Marketing Review, 26(1). doi: 10.1108/02651330910933177.
DOI: https://doi.org/10.1108/02651330910933177
View in Google Scholar
Faria, A., & Mauro, P. (2009). Institutions and the external capital structure of countries. Journal of International Money and Finance, 28(3). doi: 10.1016/j. jimonfin.2008.08.014.
DOI: https://doi.org/10.1016/j.jimonfin.2008.08.014
View in Google Scholar
Frenkel, M., Funke, K., & Stadtmann, G. (2004). A panel analysis of bilateral FDI flows to emerging economies. Economic Systems, 28(3). doi: 10.1016/j.ecosys. 2004.01.005.
DOI: https://doi.org/10.1016/j.ecosys.2004.01.005
View in Google Scholar
Gammeltoft, P. (2008). Emerging multinationals: outward FDI from the BRICS countries. International Journal of Technology and Globalisation, 4(1).
DOI: https://doi.org/10.1504/IJTG.2008.016184
View in Google Scholar
Gourieroux, C., Monfort, A., & Trognon, A. (1984). Pseudo Maximum Likelihood Methods: Applications to Poisson Models. Econometrica, 52(3). doi: 10.2307/ 1913472.
DOI: https://doi.org/10.2307/1913472
View in Google Scholar
Helpman, E. (1984). A simple theory of trade with multinational corporations. Journal of Political Economy, 92(3). doi: 10.1086/261236.
DOI: https://doi.org/10.1086/261236
View in Google Scholar
Helpman, E., & Krugman, P. (1985). Market structure and foreign trade: increasing returns, imperfect competition and the international economy. Cambridge: MIT Press.
View in Google Scholar
Helpman, E., Melitz, M. J., & Yeaple, S. R. (2004). Export versus FDI with heterogeneous firms. American Economic Review, 94(1). doi: 10.1257/00028280 4322970814.
DOI: https://doi.org/10.1257/000282804322970814
View in Google Scholar
Helpman, E., Melitz, M., & Rubinstein, Y. (2008). Estimating trade flows: trading partners and trading volumes. Quarterly Journal of Economics, 123(2). doi: 10.1162/qjec.2008.123.2.441.
DOI: https://doi.org/10.1162/qjec.2008.123.2.441
View in Google Scholar
Horstmann, I., & Markusen, J. R. (1987). Strategic investments and the development of multinationals. International Economic Review, 28(1). doi: 10.2307/ 2526862.
DOI: https://doi.org/10.2307/2526862
View in Google Scholar
Krugman, P. (1983). The ‘new theories’ of international trade and multinational enterprise. In D. B. Audretsch & Ch. P. Kindleberger (Eds.). The multinational corporation in the 1980s. Cambridge: MIT Press.
View in Google Scholar
Kyrkilis, D., & Pantelidis, P. (2005). A cross country analysis of outward foreign direct investment patterns. International Journal of Social Economics, 32(6). doi: 10.1108/03068290510596998.
DOI: https://doi.org/10.1108/03068290510596998
View in Google Scholar
Luo, Y., & Tung, R. (2007). International expansion of emerging market enterprises: a springboard perspective. Journal of International Business Studies, 38(4). doi: 10.1057/palgrave.jibs.8400275.
DOI: https://doi.org/10.1057/palgrave.jibs.8400275
View in Google Scholar
Luo, Y., Xue, Q., & Han, B. (2010). How emerging market governments promote outward FDI: experience from China. Journal of World Business, 45(1). doi: 10.1016/j.jwb.2009.04.003.
DOI: https://doi.org/10.1016/j.jwb.2009.04.003
View in Google Scholar
Markusen, J. R. (1984). Multinationals, multi-plant economies and the gains from trade. Journal of International Economics, 16(3-4). doi: 10.1016/S0022-1996 (84)80001-X.
DOI: https://doi.org/10.1016/S0022-1996(84)80001-X
View in Google Scholar
Markusen, J. (2002). Multinational firms and the theory of international trade. Cambridge, Mass.: MIT Press.
DOI: https://doi.org/10.7551/mitpress/4797.001.0001
View in Google Scholar
Markusen, J. R. (2013). Multinational firms. In D. Bernhofen, R. Falvey, D. Greenaway & U. Kreickemeier (Eds.). Palgrave handbook of international trade. Basingstoke: Palgrave Macmillan.
DOI: https://doi.org/10.1007/978-0-230-30531-1_8
View in Google Scholar
Markusen, J., & Maskus, K. (2002). Discriminating among alternative theories of the multinational enterprise. Review of International Economics, 10(4). doi: 10.1111/1467-9396.00359.
DOI: https://doi.org/10.1111/1467-9396.00359
View in Google Scholar
Markusen, J. R., & Venables, A.J. (1998). Multinational firms and the new trade theory. Journal of International Economics, 46(2). doi: 10.1016/S0022-1996 (97)00052-4.
DOI: https://doi.org/10.1016/S0022-1996(97)00052-4
View in Google Scholar
Markusen, J., & Venables, A. (2000). The theory of endowment, intra-industry and multi-national trade. Journal of International Economics, 52(2). doi: 10.1016/ S0022-1996(97)00052-4.
DOI: https://doi.org/10.1016/S0022-1996(99)00055-0
View in Google Scholar
Martínez-Zarzoso, I. (2013). The log of gravity revisited. Applied Economics, 45(3). doi: 10.1080/00036846.2011.599786.
DOI: https://doi.org/10.1080/00036846.2011.599786
View in Google Scholar
McMillan, J. (2007). Market institutions. In L. Blume & S. Durlauf, S. (Eds.). The new Palgrave dictionary of economics. Hampshire: Palgrave Macmillan.
DOI: https://doi.org/10.1057/978-1-349-95121-5_2398-1
View in Google Scholar
Mudambi, R., & Navarra, P. (2002). Institutions and international business: a theoretical overview. International Business Review, 11(6).
DOI: https://doi.org/10.1016/S0969-5931(02)00042-2
View in Google Scholar
OECD (2008). OECD benchmark definition of foreign direct investment. France.
View in Google Scholar
Pangarkar, N., & Lim, H. (2003). Performance of foreign direct investment from Singapore. International Business Review, 12(5). doi: 10.1016/S0969-5931(03) 00078-7.
DOI: https://doi.org/10.1016/S0969-5931(03)00078-7
View in Google Scholar
Peng, M., Wang, D., & Jiang, Y. (2008). An institution-based view of international business strategy: a focus on emerging economies. Journal of International Business Studies, 39(5). doi: 10.1057/palgrave.jibs.8400377.
DOI: https://doi.org/10.1057/palgrave.jibs.8400377
View in Google Scholar
Ramamurti, R., & Singh, J. (2009). Emerging multinationals from emerging markets. Cambridge: Cambridge University Press.
DOI: https://doi.org/10.1017/CBO9780511576485
View in Google Scholar
Rasiah, R., Gammeltoft, P., & Jiang, Y. (2010). Home government policies for outward FDI from emerging economies: lessons from Asia. International Journal of Emerging Markets, 5(3/4).
DOI: https://doi.org/10.1108/17468801011058415
View in Google Scholar
Seo, J., & Suh, C. (2006). An analysis of home country trade effects of outward foreign direct investment: the Korean experience with ASEAN 1987–2002. Asean Economic Bulletin, 23(2).
DOI: https://doi.org/10.1355/AE23-2B
View in Google Scholar
Silva, J. M. C. S., & Tenreyro, S. (2006). The log of gravity. Review of Economist and Statistics, 88(4). doi: 10.1162/rest.88.4.641.
DOI: https://doi.org/10.1162/rest.88.4.641
View in Google Scholar
Silva, J. M. C. S., & Tenreyro, S. (2011). Further simulation evidence on the performance of the Poisson pseudo-maximum likelihood estimator. Economics Letters, 112(2). doi: 10.1016/j.econlet.2011.05.008.
DOI: https://doi.org/10.1016/j.econlet.2011.05.008
View in Google Scholar
Silva, J. M. C. S., & Tenreyro, S. (2013). Trading partners and trading volumes: implementing the Helpman-Melitz-Rubinstein model empirically. Oxford Bulletin of Economics and Statistics, 77(1). doi: 10.1111/obes.12055.
DOI: https://doi.org/10.1111/obes.12055
View in Google Scholar
Sinha, U. B. (2010). Strategic licensing, exports, FDI, and host country welfare. Oxford Economic Papers, 62(1). doi: 10.1093/oep/gpp014.
DOI: https://doi.org/10.1093/oep/gpp014
View in Google Scholar
Stal, E., & Cuervo-Cazurra, A. (2011). The investment development path and FDI from developing countries: the role of pro-market reforms and institutional voids. Latin American Business Review, 12(3).
DOI: https://doi.org/10.1080/10978526.2011.614174
View in Google Scholar
Stoian, C., & Mohr, A. (2016). Outward foreign direct investment from emerging economies: escaping home country regulative voids. International Business Review, 25(5). doi: 10.1016/j.ibusrev.2016.02.004.
DOI: https://doi.org/10.1016/j.ibusrev.2016.02.004
View in Google Scholar
Swenson, D. (2004). Foreign investment and the mediation of trade flows. Review of International Economics, 12(4). doi: 10.1111/j.1467-9396.2004.00470.x.
DOI: https://doi.org/10.1111/j.1467-9396.2004.00470.x
View in Google Scholar
UNCTAD (2017). World investment report 2016: investor nationality: policy Challenges. Retrieved from http://unctad.org/en/PublicationsLibrary/wir2016_ en.pdf.
View in Google Scholar
White, H. (1980). A heteroskedasticity-consistent covariance matrix estimator and a direct test for heteroskedasticity. Econometrica, 48(4).
DOI: https://doi.org/10.2307/1912934
View in Google Scholar
Wu, J., & Chen, X. (2014). Home country institutional environments and foreign expansion of emerging market firms. International Business Review, 23(5). doi: 10.1016/j.ibusrev.2014.01.004.
DOI: https://doi.org/10.1016/j.ibusrev.2014.01.004
View in Google Scholar
Xing, Y., & Wan, G. (2006). Exchange rates and competition for FDI in Asia. World Economy, 29(4). doi: 10.1111/j.1467-9701.2006.00791.x.
DOI: https://doi.org/10.1111/j.1467-9701.2006.00791.x
View in Google Scholar
Zhang, K. H., & Markusen, J. R., (1999). Vertical multinationals and host-country characteristics. Journal of Development Economics, 59(2). doi: 10.1016/S0304-3878(99)00011-5.
DOI: https://doi.org/10.1016/S0304-3878(99)00011-5
View in Google Scholar
