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Do Local Firms Benefit from Foreign Direct Investment? An Analysis of Spillover Effects in Developing Countries  [cached]
Stephan Gerschewski
Asian Social Science , 2013, DOI: 10.5539/ass.v9n4p67
Abstract: Developing countries are increasingly recipients of foreign direct investment (FDI). In this regard, governments are attempting to attract FDI due to the expected spillover effects, which relate to benefits in terms of increased productivity of local firms and technology diffusion from multinational enterprises (MNEs) to the domestic economy. However, it is generally not clear whether there are positive or negative spillover effects from FDI to local firms in developing economies. The purpose of this paper is to provide a review of the literature on spillover effects and linkages that arise from FDI in developing countries. Our review suggests that there tends to be negative intra-industry productivity spillover effects (i.e., spillovers between MNEs and local firms in the same industry). This may be explained by the fact that MNEs crowd out local competitors that are not able to compete against MNEs, and by the concept of “absorptive capacity” which implies that local firms may not be able to assimilate and absorb knowledge of MNEs. However, we find evidence for positive inter-industry spillovers through linkages between MNE affiliates and suppliers in different industry sectors which may be attributed to the benefits for MNEs in transferring knowledge and technology to their local suppliers. The study offers suggestions for future research.
The Effect of Foreign Capital on Domestic Investment in Togo  [cached]
Akilou Amadou
International Journal of Economics and Finance , 2011, DOI: 10.5539/ijef.v3n5p223
Abstract: Theoretically, openness to foreign capital can stimulate domestic investment in developing countries’ or harm their economies by raising the risks of financial crises. It’s why in this paper, we have analyzed the impact of foreign capital on domestic investment in Togo over the period 1970-2008. The results we have obtained by using error correction models indicate that overall foreign capital affects positively and significantly domestic investment. It also appears that foreign direct investment (FDI) and loans are the main channels through which foreign capital has a positive impact on domestic investment in Togo. The impact of portfolio investment is negative, but not significant.
Research on China’s Regional Differences of Crowding-In or Crowding-Out Effect of FDI on Domestic Investment  [PDF]
Yang Xu, Xiaoling Yuan
Modern Economy (ME) , 2012, DOI: 10.4236/me.2012.37111
Abstract: Since the reform and opening up, FDI has made a significant contribution to China’s economic development; however, the crowding-out phenomenon appears inevitably in some districts and industries where FDI enters intensively. Confronted with the new environment of foreign capital use after the international financial crisis, our country has begun to adjust investment attraction work from the policy level and needs to specify the work the next step according to every region’s situation. Based on this background, this paper examined how foreign investment impact domestic investment over the 30 years, especially contrasted regional differences of crowding-in or crowding-out effect of FDI on domestic investment in eastern, central and western China, then made further analysis of the causes, in order to supply the policy makers and investors with effective references.
FDI and Economic Development: Evidence from Mainland China  [PDF]
Liyan Liu
Journal of Service Science and Management (JSSM) , 2011, DOI: 10.4236/jssm.2011.44047
Abstract: Endeavors have been made in this paper to discern the long-run relations between FDI (Foreign Direct Investment) and economic development in China in the comprehensive framework, which incorporates determinants as output, FDI, capital formation, employment, human capital and international openness. VAR (vector autoregressive models)Impulse Response, Variance Decomposition, Johansen Co-integration and VECM (vector error correction) have been estimated, focusing on the long-run structural relations; findings indicate that in the long run, FDI tends to decrease economic growth; economic development in China seems to be fueled by domestic capital accumulation and employment growth; FDI inflows do crowd out domestic capitals, and reduce employment growth.
Impact of Foreign Direct Investment, Trade Openness, Domestic Demand, and Exchange Rate on the Export Performance of Bangladesh: A VEC Approach  [PDF]
Bishnu Kumar Adhikary
Economics Research International , 2012, DOI: 10.1155/2012/463856
Abstract: This paper investigates the impact of foreign direct investment (FDI), trade openness, domestic demand, and exchange rate on the export performance of Bangladesh over the period of 1980–2009 using the vector error correction (VEC) model under the time series framework. The stationarity of the variables is checked both at the intercept and intercept plus trend regression forms under the ADF and PP stationarity tests. The Johansen-Juselius procedure is applied to test the cointegration relationship between variables followed by the VEC regression model. The empirical results trace a long-run equilibrium relationship in the variables. FDI is found to be an important factor in explaining the changes in exports both in the short run and long-run. However, the study does not trace any significant causal relationship for the cases of trade openness, domestic demand, and exchange rate. The study concludes that Bangladesh should formulate FDI-led polices to enhance its exports. 1. Motivation Although the global financial meltdown curtailed the share of world’s foreign direct investment (FDI) into the developed economies to 50.79% in 2009 from its peak at 86.13% in 1980, the share of developing economies increased substantially during the same time, from 13.83% in 1980 to 48.93% in 2009 (Figure 1). Similarly, the participation of developing economies in world’s exports increased considerably from 26.56% in 1990 to 32.54% in 2000, leveling off at 39.89% in 2007, while the same index decreased for the industrialized economies from 72.11% in 1990 to 58.95% in 2007 (Figure 2). These facts, in general, motivate to investigate the FDI-export relationship of a developing economy. Figure 1: Decade-wise average trend in exports, FDI, exchange rate, trade openness, and domestic demand in Bangladesh. Source: constructed by author from the WDI database 2010. Figure 2: FDI Distribution between developed and developing economies (1980–2009). Constructed by author from the WDI database 2010 World Bank. Bangladesh, being a member of the developing economies, deserves attention. Since the early 1980s, Bangladesh adopted the “export-led growth” model by changing its import-substitution-led industrial growth model to resolve macroeconomic problems such as a trade deficit, unemployment, and a low foreign exchange reserve. As a major vehicle of the export-led growth model, the government enacted the Foreign Private Investment (Promotion and Protection) Act in 1980 to provide a legal protection for FDI supplied in Bangladesh against state expropriation and nationalization. To boost
Overview of Outward FDI Flows of China  [cached]
Lina Lian,Haiying Ma
International Business Research , 2011, DOI: 10.5539/ibr.v4n3p103
Abstract: China is integrated rapidly with the world economy by increasing its foreign investment linkage with other countries. In 2005 China was the 4th largest investor among emerging markets, up from 14th in 2004 with 72.4% of all economies in the world receiving Chinese FDI. Through outward FDI into any sectors, industries or regions, there should be intra-industry productivity spillovers from foreign firms to domestic firms within the same industry, mainly through reduction of production costs, technology transfer and international R& D spillovers. Diffusion channels of technology know-hows and managerial practices induced by higher FDI penetration abroad make the purpose of the increased transparency and access of core technology practical. This article addresses this question through the lens of economics as to three collaborated sets of FDI determinants, the features of FDI outflows as the overall FDI scale, the target sectors, the geographic distribution and the concrete ways of outward FDI of China. The author concludes that there should be a caveat to the non-guided outward FDI but strategically tailored to suit the requirements of multiplying the investment efficiency and climbing up the value ladder of global economy.
Patterns of inward FDI in economies in transition  [PDF]
Kálmán KALOTAY
Eastern Journal of European Studies , 2010,
Abstract: This article analyses the contribution of foreign direct investment to structural change in various groups of economies in transition: new European Union member countries (including Bulgaria and Romania), South-East Europe (excluding Bulgaria and Romania), and the Commonwealth of Independent States. It comes to the conclusion that foreign direct investment has had the deepest impact on structural change in new EU members, and the smallest (in fact negative) impact in the Russian Federation. This is related to differences in timing of investment flows (they started earlier in new EU members; other subregions caught up later on), as well as the sectoral composition of FDI. It also has to be noted that the FDI of new EU member countries, especially in automotive production and electronics proved to be more vulnerable to the crisis of 2008–2009 than FDI in other transition economies. It remains to be seen if these countries in turn will be able to benefit fast from the post-crisis recovery.
Byways and Highways of Direct Investment: China and the Offshore World
William Vlcek
Journal of Current Chinese Affairs , 2010,
Abstract: This paper examines a lacuna in the literature on foreign direct investment (FDI) flows to China: the absence of analysis for the prominent location of small Caribbean and Pacific islands as leading sources of FDI. An indeterminate amount of domestic capital is embedded in these FDI flows, which distorts comparative studies on FDI in developing economies between China and other states. Direct investment from China has also increased in recent years and offshore financial centres (OFCs) often serve as the initial destinations. This paper excavates the rationales behind the presence of OFCs and suggests that Chinese actors will emulate the practices of developed state multinational corporations and high-net-worth individuals. The implications of these investment practices are outlined along with possible trajectories for their impact on the process of financial liberalisation in China. Consequently, it encourages increased Chinese participation in the development of global financial governance.
Factors Contributing to Foreign Direct Investment in Mongolia
Ariunzul Javzandorj,Lu Dehong
European Researcher , 2012,
Abstract: Since the 1980s, globalization has led to a rapid increase in the growth of foreign direct investment (FDI) all over the world. Mongolia for more than a decade has been in the process of radical transformation and has taken significant steps to build a market-based economic structure. Foreign Direct Investment plays a very important role in achieving rapid economic growth in the developing countries. This can be achieved by taking advantage of available mobilizing domestic savings, foreign capital, technology transfers, establishment of new premises and favorable foreign policies It is now widely acknowledged that FDI has potential benefits that can accrue to developing countries. This view is mainly based on the neo liberal and development economists. They suggest that FDI is crucial for economic growth as it provides the much needed capital for investment, increases competition in host countries economies, and helps local firms to become more productive by adopting more efficient technology or by investing in human or physical capital [1]. FDI is also said to contribute to growth in a substantive manner because it’s more stable than other forms of capital flows. This paper investigates the key drivers of foreign direct investment (FDI) in Mongolia.
A Literature Review on the Relationship between Foreign Direct Investment and Economic Growth  [cached]
Xueli Wan
International Business Research , 2009, DOI: 10.5539/ibr.v3n1p52
Abstract: During the last decades, the relation between FDI and economic growth has been extensively discussed in the economic literature. Theories and existing literature provide conflicting results concerning this relationship. On one hand, some scholars argue that foreign direct investment could stimulate technological change through the adoption of foreign technology and know-how and technological spillovers, thus boosting host country economies. On the other hand, other pessimists believe that FDI may bring about crowding out effect on domestic investment, external vulnerability and dependence, destructive competition of foreign affiliates with domestic firms and “market-stealing effect” as a result of poor absorptive capacity. This paper sums up the literature as well as empirical studies on the relationship between foreign direct investment and economic growth, trying to arrive at a meaning revelation eventually.
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