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Outward FDI from small developing economies: Firm level strategies and home-country effects

Ramon Padilla-Perez (Economic Development Unit, United Nations Economic Commission for Latin America and the Caribbean, Mexico City, Mexico)
Caroline Gomes Nogueira (International Trade and Industry Unit, United Nations Economic Commission for Latin America and the Caribbean, Mexico City, Mexico)

International Journal of Emerging Markets

ISSN: 1746-8809

Article publication date: 19 September 2016

2378

Abstract

Purpose

Foreign direct investment (FDI) from developing economies has increased sharply since the beginning of the 2000s. While most investment flows correspond to firms from large economies, small developing economies have also witnessed the increase of outward investment flows from their domestic companies. The literature on outward FDI (OFDI) from developing economies has focused mainly on large emerging countries, such as China and India. In the case of small developing economies, for which there is scant empirical evidence, firms willing to invest abroad face a different business environment with several barriers such as a small domestic market to achieve economies of scale and a limited supply of specialised resources. In this setting, the purpose of this paper is to examine firm-level strategies and the home-country effects in a small developing economy.

Design/methodology/approach

A research case study is conducted through a representative sample of Costa-Rican firms investing abroad. Costa Rica makes a strong case since it stands out among small developing economies investing abroad in terms of both the number of operations and the amount of OFDI.

Findings

The main findings are: outward investment is not only for large and mature firms, as medium and small-sized firms are actively investing abroad; most firms pursue a market-seeking strategy; the benefits for the firm and the home country are stronger when companies follow a clear outward investment strategy; and there is a positive relationship between international trade and OFDI.

Originality/value

This paper provides novel empirical evidence to better understand an emerging trend in OFDI: in an increasingly integrated world economy, even SMEs from small developing economies are compelled to internationalise their operations in order to compete successfully.

Keywords

Citation

Padilla-Perez, R. and Gomes Nogueira, C. (2016), "Outward FDI from small developing economies: Firm level strategies and home-country effects", International Journal of Emerging Markets, Vol. 11 No. 4, pp. 693-714. https://doi.org/10.1108/IJoEM-11-2015-0236

Publisher

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Emerald Group Publishing Limited

Copyright © 2016, Emerald Group Publishing Limited

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