Outward FDI from and intraregional FDI in ASEAN : trends and drivers

Developing-country transnational corporations (TNCs) are increasing in importance in the global economy. Outward FDI from developing countries is a proxy indicator to measure how much of an important role enterprises of developing countries have played in the world market and how they benefit from globalization where border barriers are reduced. This study finds that ASEAN enterprises have extended their business activities within ASEAN, East Asia, and then to the world, as both regional and global players.

Financial Aspects of Transactions with FDI: Trade Credit Provision by SMEs in China

This paper will document financial aspects of transactions, and trade credit supply behavior with FDI among small and medium-sized enterprises(SMEs) based on two original surveys, conducted in four cities in China in 2003. The survey was designed to capture the nature of inter-firm transactions, trade credit and other financial conditions. Literature on FDI mainly refers to technology transfer, employment or investment. This paper focuses on the role and significance of FDI in the supply of trade credit due to its trade credit enforcement technology. Yanagawa, Ito and Watanabe [2006] developed a model which indicates that when a seller has higher enforcement technology or a buyer has richer liquidity, both trade credit and transaction volume will be increased. In this paper, we confirmed that FDI and G contributed to the provision of trade credit and had a positive external effect on trade credit enforcement towards China’s economy. (1) Sales towards FDI customers have the power to increase the trade credit ratio,even when controlling other factors such as choice of payment instrument, competitiveness, and expost default management. This implies that FDI does provide trade credit, not only because it has superior liquidity, but because it is also superior in terms of enforcement of trade credit repayment.(2) Cash constraints of the buyer influence the decisions concerning trade credit provided by the seller, as a model in Yanagawa, et al. [2006] predicted, and this implies that strategic default is a serious concern among SMEs in China. (3) Spillover effect exists in payment enforcement technology in transactions with FDI customers.

Complex Vertical FDI and Firm Heterogeneity: Evidence from East Asia

In this paper we statistically test the validity of the mechanics of complex VFDI in Japanese machinery FDI to East Asia; we do this by estimating a multiple-spatial lag model. From the theoretical point of view, in complex VFDI, the production activity of affiliates in a given country is positively related to that in neighboring countries which have large differences in factor prices with the given country. Our empirical results show that such mechanics of complex VFDI work in Japanese FDI to East Asia, and that they work more strongly in the MNEs with higher productivity. These results have an important implication for the policies of developing countries in attracting FDI.

FDI and Export Participation of Local Firms in Africa: The Case of the Kenyan Garment Industry

FDI in the garment sector has been the single case of large-scale manufacturing investment in African low-income countries since the 1990s. While FDI has triggered the development of local industries in many developing countries, it has not yet been realized in Africa. This paper describes the spillover process in the Kenyan garment industry and investigates the background of local firms' behavior through firm interviews and simulation of expected profits in export market. It shows that credit constraint, rather than absorptive capacity, is a primary source of inactive participation in export opportunity. Only firms which afford additional production facilities without sacrificing stable domestic supply may be motivated to start exporting. However, in comparison with successful Asian exporters, those firms were not as motivated as Asian firms due to the large gap in expected profits.

The role of home and host country characteristics in FDI: firm-level evidence from Japan, Korea and Taiwan

There is a large and growing empirical literature that investigates the determinants of outward foreign direct investment (FDI). This literature examines primarily the effect of host country characteristics on FDI even though home country characteristics also influence the decision of firms to invest abroad. In this paper, we examine the role of both host and home country characteristics in FDI. To do so, we constructed a firm-level database of outward FDI from Japan, Korea, and Taiwan. Our empirical analysis yields two main findings. First, host countries with better environment for FDI, in terms of larger market size, smaller fixed entry costs, and lower wages, attract more foreign investors. Second, firms from home countries with higher wages are more likely to invest abroad. An interesting and significant policy implication of our empirical evidence is that policymakers seeking to promote FDI inflows should prioritize countries with higher wages.

A two-dimensional analysis of the impact of outward FDI on performance at home: evidence from Japanese manufacturing firms

This paper empirically investigates two areas of changes in firm behavior and performance at home before and after investing abroad. The first change is dependent upon the type of foreign direct investment (FDI): horizontal FDI or vertical FDI. The second change is dependent upon the firm’s domestic activities: production activities or non-production activities. From a theoretical standpoint, the impact of outward FDIs differs not only by type, but according to the firm’s activities. By exploiting two types of firm-level data that enable us to distinguish between production and non-production activities, our paper provides a detailed picture of the intra-firm changes in behavior and performance that occur as a result of production globalization.

Export platform FDI and firm heterogeneity

This paper investigates theoretically and empirically firms' productivity ranking among traditional horizontal foreign direct investment (HFDI), pure platform FDI (PFDI), and complex platform FDI (CFDI). Using data on Japanese outward FDI, we define firms conducting HFDI or PFDI as those Japanese firms that maintain production affiliates only in the U.S. or Mexico, respectively. The firms for CFDI are defined as having production affiliates in both the U.S. and Mexico. The theoretical illustration shows that the CFDI firms should have the highest productivity when trade costs between the U.S. and Mexico are low. By carefully disentangling firms' self-selection effects from learning-by-investing effects, we find some evidence consistent with this hypothesis for a period of relatively low trade costs. Our results indicate the importance of trade costs in developing countries with neighboring markets in attracting foreign investment by highly productive multinational firms.

Heterogeneous multinational firms and productivity gains from falling FDI barriers

During the past decade of declining FDI barriers, small domestic firms disproportionately contracted while large multinational firms experienced a substantial growth in Japan’s manufacturing sector. This paper quantitatively assesses the impact of FDI globalization on intra-industry reallocations and aggregate productivity. We calibrate the firm-heterogeneity model of Eaton, Kortum, and Kramarz (2011) to micro-level data on Japanese multinational firms. Estimating the structural parameters of the model, we demonstrate that the model can strongly replicate the entry and sales patterns of Japanese multinationals. Counterfactual simulations show that declining FDI barriers lead to a disproportionate expansion of foreign production by more efficient firms relative to less efficient firms. A hypothetical 20% reduction in FDI barriers is found to generate a 30.7% improvement in aggregate productivity through market-share reallocation.

Can FDI promote export diversification and sophistication of host countries? : dynamic panel system GMM analysis

Recent trade literature highlights the importance of export diversification and upgrading in fostering faster and sustainable economic growth. This study investigates the impact of FDI inflow and stock on the level of export diversification and sophistication in host country's export baskets. By utilizing the dynamic panel data model, we find that the five-year lagged FDI inflow correlates positively with both export diversification and sophistication, and FDI stock makes the positive contribution to export sophistication. These findings provide support for the possibility of successful capabilities transfer to and building by local firms. We also find that these positive impacts of FDI exist only in developing countries.

Spatial spillovers from FDI agglomeration : evidence from the Yangtze River Delta in China

Foreign firms have clustered together in the Yangtze River Delta, and their impact on domestic firms is an important policy issue. This paper studies the spatial effect of FDI agglomeration on the regional productivity of domestic firms, using Chinese firm-level data. To identify local FDI spillovers, we estimate the causal impact of foreign firms on domestic firms in the same county and similar industries. We then estimate a spatial-autoregressive model to examine spatial spillovers from FDI clusters to other domestic firms in distant counties. Our results show that FDI agglomeration generates positive spillovers for domestic firms, which are stronger in nearby areas than in distant areas.

Outward FDI from developing countries : a case of Chinese firms in South Africa

Outward foreign direct investment (FDI) from developing countries is increasing. In the research on FDI, it has been considered that only competitive and productive firms can invest in foreign countries. However, since the differences in competitiveness and productivity between multinational enterprises (MNEs) from developed and developing countries have not been explicitly investigated, we cannot say whether MNEs from developing countries can or cannot survive in competition with MNEs from developed countries as well as against competitive and productive indigenous firms in host countries. To examine the activities of MNEs from developing countries, this study investigates Chinese firms in South Africa. It reveals that in order to compensate for the weak brand recognition of Chinese products and to expand sales, Chinese firms have mainly been making products that are sold under the brand names of indigenous South African firms. Chinese firms have expanded their business in South Africa relying on the business resources of indigenous firms in the host country. This indicates that business with indigenous firms is significant for MNEs from developing countries in boosting competitiveness.

FDI and investment barriers in developing economies

Does investment liberalization in developing economies affect FDI decisions differently across individual firms? To address this question, we simulate the response of individual firms to reductions in investment costs across developing economies. We explore two policy experiments: elimination of setup-procedure requirements for foreign investors and a reduction in corporate tax rates on foreign-owned multinationals. We find that a relaxing of discriminatory foreign investment procedures induces middle productive firms to increase their entry and production in developing economies substantially, but the most productive firms to expand moderately. Multinationals expand their entry and production in developing economies more substantially following a decline in entry barriers than following a decrease in corporate tax rates.

Assessment of FDI impact on Thailand's production sectors : implications for investment promotion activities

This paper examines the overall and sectoral economic impact of foreign direct investment (FDI) on the Thai economy using the economic data from 2005-2013. In assessing the overall economic impact, it is found that FDI has contributed positively to Thailand's economic growth. However, when analyzing the sectoral details, the empirical results indicate that FDI has a varying impact on the productive sectors in Thailand. Out of the 9 sub-sectors covered by this study, 5 sub-sectors (manufacturing, construction, financial, wholesale, retail trade, and agriculture) show strong statistically-significant positive effects of FDI on the relevant sector's value-added output. Based on these findings, it is suggested that policy-makers, including the Board of Investment, should aim to promote FDI with special consideration of the sectoral impact that would enable Thailand's FDI promotion policies to be more productive and beneficial for the Thai economy.

FDI inflows and outflows, intellectual property rights, and productivity growth

Using panel data of 57 countries during the period of 1995-2012, this study investigates the impact of intellectual property rights (IPR) processes on productivity growth. The IPR processes are decomposed into three stages, innovation process, commercialization process, and IPR protection process. Our results suggest that better IPR protection is directly associated with productivity improvement only in developed economies. In addition, the contribution of IPR processes on growth through foreign direct investment (FDI) appears to be very limited. Only FDI inflows in developed countries which help to create a better innovative capability lead to a higher growth. And in connection with FDI outflows, only IPR protection and commercialization processes are proven to improve productivity in the case of developing countries, particularly when the country acts as the investing country.