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Article
Publication date: 27 July 2011

Lamia Ben Hamida

The purpose of this paper is two‐fold: to discuss the key factors determining foreign direct investment (FDI) intra‐industry spillovers and to examine the presence and the…

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Abstract

Purpose

The purpose of this paper is two‐fold: to discuss the key factors determining foreign direct investment (FDI) intra‐industry spillovers and to examine the presence and the extent of these spillovers in Switzerland, by testing them for the services/construction industry, where there is currently a scarcity of evidence.

Design/methodology/approach

The assessment of spillovers calls for a detailed analysis of these effects according to the mechanisms by which they occur (namely, the increase in competition, demonstration effects, and worker mobility), and whether the size and the extent of spillovers depend on the interaction between their mechanisms and the existing technological capacities of domestic firms.

Findings

The regression results are affirmative, in that domestic firms with high technological capacities appear to gain spillover benefits from FDI heightening competition, while mid‐ and low‐technology firms benefit a lot from demonstration effects. In addition, spillovers for high‐ and mid‐technology firms appear to be largely co‐determined by the level of their human capital. Only domestic firms that invested heavily in absorptive capacity benefit from spillovers.

Research limitations/implications

The evidence on spillover effects has not yet been conclusive. Hence, this paper proposes some components for a research agenda on FDI and intra‐industry spillovers.

Practical implications

The study provides insights for Swiss policy makers about how to promote the beneficial spillover effects of FDI.

Originality/value

The process of spilling over is correctly described in a more satisfactory model and then the impact of this process is accurately identified.

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Book part
Publication date: 1 January 2008

Lamina Ben Hamida and Philippe Gugler

This chapter examines intra-industry spillover effects from inward foreign direct investment (FDI) in Swiss manufacturing firms. It suggests that (a) the assessment of…

Abstract

This chapter examines intra-industry spillover effects from inward foreign direct investment (FDI) in Swiss manufacturing firms. It suggests that (a) the assessment of spillovers calls upon a detailed analysis of these effects according to the mechanisms by which they occur (viz. the increase of competition, demonstration effects, and worker mobility), and (b) spillovers depend on the interaction between their mechanisms and the levels of domestic absorptive capacity. Results are affirmative in that high-technology firms benefit from FDI heightening competition, while mid-technology firms benefit from demonstration effects. And low-technology firms, which are not able to benefit from foreign affiliates via demonstration effects alone, manage to reap the benefit via the recruitment of MNCs labor. In addition, only firms which largely invest in absorbing foreign technology benefit from spillovers.

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New Perspectives in International Business Research
Type: Book
ISBN: 978-1-84855-279-1

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Article
Publication date: 29 November 2018

Young Chul Song and Han Young Lie

The purpose of this paper is to estimate the direct effects of foreign direct investment (FDI) on domestic target firms’ profitability gains, in India, post-acquisition…

Abstract

Purpose

The purpose of this paper is to estimate the direct effects of foreign direct investment (FDI) on domestic target firms’ profitability gains, in India, post-acquisition. In particular, it focuses on identifying the importance of firms’ heterogeneities on the effects, taking into account the source of FDI, the intensity of firm interaction, and the target firms’ technology-absorptive capacity. Most importantly, the paper investigates whether the estimates depend on a combined rather than single impact of these heterogeneities.

Design/methodology/approach

To control for the possibility of selection bias and endogeneity, this empirical analysis uses a methodology that combines propensity score matching and difference-in-differences (PSM–DID) in adopting a comprehensive data set of both foreign- and Indian-acquired firms that were purchased through mergers and acquisitions in India between 1991 and 2013.

Findings

The analysis reveals four major findings. First, overall, the post-foreign acquisition target firms’ performance gains were positive and varied by the heterogeneous technology transfer capacity of the foreign investor. Second, it is possible that target firms located in industrial clusters with more foreign agglomeration experienced larger profitability gains through more dynamic firm interactions in terms of spillovers. Third, Indian targets with higher technology-absorptive capacity benefitted in higher profitability gains from acquiring and assimilating the superior technology that is transferred from foreign investors. Finally, an optimal combination of Indian target firms with higher technology-absorptive capacity and foreign investors with higher technology transfer capacity maximizes profitability gains, post-acquisition. This synergy effect is particularly prominent in clusters where more foreign firms agglomerate.

Originality/value

This study captures the true direct effect of FDI by adjusting the combined causal effects of various inherent heterogeneities in the target firms’ performance, thus correcting any possible bias, which few previous studies have addressed.

Details

International Journal of Emerging Markets, vol. 13 no. 6
Type: Research Article
ISSN: 1746-8809

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Book part
Publication date: 4 January 2014

Rajneesh Narula

This chapter examines the role of foreign direct investment (FDI) in promoting industrial development, and asks, if FDI is such an important avenue to promote development…

Abstract

Purpose

This chapter examines the role of foreign direct investment (FDI) in promoting industrial development, and asks, if FDI is such an important avenue to promote development, why is there little evidence on concomitant industrial development in most developing countries?

Methodology/approach

I look at the secondary evidence on FDI and development and explore some of the causes for this ambiguity.

Findings

The complexities of global value chains and networks have begun to trivialise the simplistic principle that increased multinational enterprise (MNE) activity automatically implies a proportional increase in spillovers and linkages.

Value/originality

Policies towards MNEs need to be closely linked and integrated with industrial policy. MNE activity needs to be evaluated by considering the kinds of externalities that are generated; whether and how domestic actors can internalise them, and building up absorptive capacities to achieve this.

Details

International Business and Sustainable Development
Type: Book
ISBN: 978-1-78190-990-4

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Article
Publication date: 12 December 2016

Desmond Tutu Ayentimi, John Burgess and Kerry Brown

The authors propose a strategic-balance approach to local content laws in which less developed economies in sub-Sahara Africa can develop investment incentive policies for…

Abstract

Purpose

The authors propose a strategic-balance approach to local content laws in which less developed economies in sub-Sahara Africa can develop investment incentive policies for attracting multinationals and direct foreign investment but, at the same time, have a structured and operational framework for the enforcement of local content laws. The purpose of the paper is to identify the elements involved in the equation: the incentives, the potential spillovers and the criteria for evaluation.

Design/methodology/approach

The approach involves a review of the literature and the operational details and limitations of local content laws in sub-Sahara Africa.

Findings

The paper develops a conceptual model for a holistic understanding and management of this dilemma by policymakers and development practitioners to maximize the benefits of natural resources to less developed countries in sub-Sahara Africa towards the fight against poverty and underdevelopment.

Research limitations/implications

This paper provides the opportunity to influence policy direction in relation to the adoption of investment incentive policies and programs and the enforcement of local content policy guidelines and regulations in sub-Sahara Africa.

Practical implications

Multinational companies (MNCs) operating in less developed and emerging economies in sub-Sahara Africa should consider how their economic and corporate social responsibility activities can help develop the capabilities of the local workforce through training and development activities; develop domestic firms’ capabilities via enterprise development programs; and develop local firm’s absorptive capacities through knowledge transfers and innovation systems to support development activities.

Social implications

Policymakers in less developed and emerging economies in sub-Sahara Africa need to strike a balance in adopting investment incentives policies towards attracting foreign investments and the enforcement of local content regulations to make sure they derive the maximum benefits from their strategic resources. It is important for policymakers to understand that the mere attraction of MNCs into an economy does not explicitly guarantee domestic job creation; rather, it depends on how MNCs respond to local content policy regulations through their business strategies. Linking investment incentives with local content policy regulations at a critical point could potentially support and strengthen industrial development in sub-Sahara Africa.

Originality/value

This paper is among the first to examine the challenges of both attracting foreign direct investment and enforcing local content laws and regulations in sub-Sahara Africa. This paper contributes to the understanding of this dilemma and how less developed economies can manage such a crucial and important issue using our proposed strategic-balance approach. The contribution of local content laws and the design and adoption of investment incentives policies and programs to attract foreign investment to promoting sustainable domestic growth and development must depend on the balance between the enforcement of local content policy guidelines and the provision of such investment incentive packages to attracting foreign investment.

Details

Multinational Business Review, vol. 24 no. 4
Type: Research Article
ISSN: 1525-383X

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Article
Publication date: 16 May 2016

Naqeeb Ur Rehman

The purpose of this paper is to investigate the relationship between FDI and economic growth. Two models have been used to analyse the time series data on Pakistan from…

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Abstract

Purpose

The purpose of this paper is to investigate the relationship between FDI and economic growth. Two models have been used to analyse the time series data on Pakistan from 1970 to 2012. This paper contributes to the existing literature by examining the different empirical methods to estimate the relationship between FDI and economic growth. The vector error correction model (VECM) results suggest that FDI depends on the economic growth but this relationship is not true vice versa. The second model showed that FDI, human capital and exports are important factors of economic growth. However, the negative relationship between interactive variables (FDI and human capital) and economic growth indicates that low level of human capital affect the economic growth of Pakistan.

Design/methodology/approach

Used time series data (1970-2012) for empirical analysis.

Findings

The VECM results suggest that FDI depends on the economic growth but this relationship is not true vice versa. The second model showed that FDI, human capital and exports are important factors of economic growth. However, the negative relationship between interactive variables (FDI and human capital) and economic growth indicates that low level of human capital affect the economic growth of Pakistan.

Research limitations/implications

The limitations of this empirical paper are as follows: it would be better to use secondary school enrolment (per cent) to measure human capital instead adult literacy rate. Similarly, the non-availability of R & D data on Pakistan limited the scope of the paper to measure the role of absorptive capacity of domestic and its relationship with FDI. The results of this paper are specifically related to Pakistan and cannot be generalized to other countries.

Practical implications

This empirical study implies that Pakistan should improve its economic growth. The robust policies are required to increase the literacy rate of the country. Higher human capital will attract more FDI into the economy and may reduce the unemployment. This would increase the national output of the country and their national income level. Presently, Pakistan is going through war on terror and foreign firms are reluctant to invest. A stable and secure business environment will ultimately inject foreign direct investment into Pakistan.

Originality/value

This paper is first time analyse the time series data to explore the relationship between FDI and economic growth. A new approach has been used called VECM.

Details

Journal of Economic and Administrative Sciences, vol. 32 no. 1
Type: Research Article
ISSN: 1026-4116

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Article
Publication date: 21 February 2020

Oyakhilome Ibhagui

The threshold regression framework is used to examine the effect of foreign direct investment on growth in Sub-Saharan Africa (SSA). The growth literature is awash with…

Abstract

Purpose

The threshold regression framework is used to examine the effect of foreign direct investment on growth in Sub-Saharan Africa (SSA). The growth literature is awash with divergent evidence on the role of foreign direct investment (FDI) on economic growth. Although the FDI–growth nexus has been studied in diverse ways, very few studies have examined the relationship within the framework of threshold analysis. Furthermore, even where this framework has been adopted, none of the previous studies has comprehensively examined the FDI–growth nexus in the broader SSA. In this paper, within the standard panel and threshold regression framework, the problem of determining the growth impact of FDI is revisited.

Design/methodology/approach

Six variables are used as thresholds – inflation, initial income, population growth, trade openness, financial market development and human capital, and the analysis is based on a large panel data set that comprises 45 SSA countries for the years 1985–2013.

Findings

The results of this study show that the direct impact of FDI on growth is largely ambiguous and inconsistent. However, under the threshold analysis, it is evident that FDI accelerates economic growth when SSA countries have achieved certain threshold levels of inflation, population growth and financial markets development. This evidence is largely invariant qualitatively and is robust to different empirical specifications. FDI enhances growth in SSA when inflation and private sector credit are below their threshold levels while human capital and population growth are above their threshold levels.

Originality/value

The contribution of this paper is twofold. First, the paper streamlines the threshold analysis of FDI–growth nexus to focus on countries in SSA – previous studies on FDI-growth nexus in SSA are country-specific and time series–based (see Tshepo, 2014; Raheem and Oyınlola, 2013 and Bende-Nabende, 2002). This paper provides a panel analysis and considers a broader set of up to 45 SSA countries. Such a broad set of SSA countries had never been considered in the literature. Second, the paper expands on available threshold variables to include two new important macroeconomic variables, population growth and inflation which, though are important absorptive capacities but, until now, had not been used as thresholds in the FDI–growth literature. The rationale for including these variables as thresholds stems from the evidence of an empirical relationship between population growth and economic growth, see Darrat and Al-Yousif (1999), and between inflation and economic growth, see Kremer et al. (2013).

Details

Journal of Economic Studies, vol. 47 no. 1
Type: Research Article
ISSN: 0144-3585

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Book part
Publication date: 19 April 2017

Laura Alfaro

Among the prominent economic trends in recent decades is the exponential increase in flows of goods and capital driven by technological progress and falling of…

Abstract

Among the prominent economic trends in recent decades is the exponential increase in flows of goods and capital driven by technological progress and falling of restrictions. A key driver of this phenomenon has been the cross-border production, foreign investment, and trade both final and intermediate goods by multinational corporations. Research has sought to understand how foreign direct investment (FDI) affects host economies. This paper reviews the main theories and empirical evidence of two streams of literature: the mechanisms by which multinational activity might create positive effects and externalities to countries and the role of complementary local conditions, also known as “absorptive capacities,” that allow a country to reap the benefits of FDI paying particular attention to the role of factor markets, reallocation effects, and the linkages generated between foreign and domestic firms. The survey focuses mainly on work related to developing countries.

Details

Geography, Location, and Strategy
Type: Book
ISBN: 978-1-78714-276-3

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Article
Publication date: 3 April 2009

Yufen Chen and Jin Chen

Whether foreign direct investment (FDI) can promote technology progress in the host country, or not, has become an issue in recent decades. The purpose of this paper is to…

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Abstract

Purpose

Whether foreign direct investment (FDI) can promote technology progress in the host country, or not, has become an issue in recent decades. The purpose of this paper is to analyze the impact of FDI on regional technological capabilities.

Design/methodology/approach

This paper first analyzes the spillover effects of FDI with reference to actual conditions in foreign‐funded enterprises in China, then uses correlation analysis and regression analysis to show the impact of FDI on technological capabilities. This paper compares the R&D expenditures in foreign‐funded enterprises and FDI origin countries between three typical regions – Shanghai, Jiangsu, and Guangdong – to show the influencing factors of spillovers.

Findings

The impact of FDI on regional technological capabilities is found to be weak; FDI has little use for enhancing indigenous innovation capability. The regions with higher technological capabilities will attract the higher quality of inward FDI, and the powerful technological capabilities and abundant human capitals in domestic enterprises are essential factors to stimulate the spillover effects of FDI.

Research limitations/implications

The arguments could be discussed more fully if an empirical model could be established to disclose the determinants of spillover effects. How to measure the spillover effects quantitatively is a key problem for future research.

Originality/value

This paper discloses the mutual relationship between domestic and foreign‐funded enterprises. The findings in this paper provide some insights for both the host countries and the foreign investors.

Details

Journal of Knowledge-based Innovation in China, vol. 1 no. 2
Type: Research Article
ISSN: 1756-1418

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Article
Publication date: 5 September 2016

Felicitas Evangelista and Lancy Mac

The purpose of this paper is to determine the relative importance of deliberate learning, learning from experience and relevant learning co-variates in pursuing market…

Abstract

Purpose

The purpose of this paper is to determine the relative importance of deliberate learning, learning from experience and relevant learning co-variates in pursuing market learning, and to assess the impact of market learning on export performance in smaller firms.

Design/methodology/approach

A theoretical model was initially developed and subsequently tested using survey data. The standard two step approach of first testing the measurement model and then estimating the structural model was adopted.

Findings

The results provide concrete evidence that among SMEs, deliberate learning has a greater impact on export market learning as compared to experience accumulation, and that market learning has a significant effect on export performance. The results also show that absorptive capacity and commitment to learning are significant co-variates of market learning.

Originality/value

This paper focuses on the role of deliberate learning vis-a-vis learning by experience in achieving foreign market learning and export performance in smaller firms. It addresses a major limitation of organisational learning studies which tend to focus mainly on experiential learning and organisational learning in large organisations.

Details

International Journal of Entrepreneurial Behavior & Research, vol. 22 no. 6
Type: Research Article
ISSN: 1355-2554

Keywords

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