Determinants of foreign direct investment in BRICS economies: Analysis of economic, institutional and political factor
TL;DR: In this paper, the role of economic, institutional and political factors in attracting foreign direct investment (FDI) in BRICS (Brazil, Russia, India, China & South Africa) economy and the comparative weightage of these factors in attract FDI was explored.
About: This article is published in Procedia - Social and Behavioral Sciences.The article was published on 2012-01-01 and is currently open access. It has received 243 citations till now. The article focuses on the topics: BRIC & Foreign direct investment.
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TL;DR: In this article, the causal linkage between institutions and FDI with a special focus on ECOWAS countries was investigated and the results showed the existence of prevalent weak governance structure among the ECOWAs countries.
Abstract: Of the foreign capital flows that are required for stimulating the process of economic growth, foreign direct investment (FDI) has been the most elected candidate that is often sought. This explains why so much effort has been geared towards its attraction thus paving the way for enquiry into its determinants. Arguably, apart from the conventional FDI-drivers, the importance of institutions has been grossly undermined. On this basis, the study sets out to unravel the causal linkage between institutions and FDI with a special focus on ECOWAS countries. The results showed the existence of prevalent weak governance structure among the ECOWAS countries. Further, on component-by-component basis, this result was robust to the decomposition of the governance indicator into the six sub-indices, namely: voice and accountability, political stability, government effectiveness, regulatory quality, rule of law and control of corruption. We split the sample size into low (poor institutions) and high regimes (be...
120Â citations
Cites background from "Determinants of foreign direct inve..."
...In the same spirit, Jadhav (2012) also explored the role of economic, political, and institutional factors in attracting foreign direct investment into the association of Brazil, Russia, India, China, and South Africa (BRICS) countries using panel data for a period of ten years....
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TL;DR: The results show that trade liberalization, weak environmental institutions, exchange rate policy, and legal and property rights affect emissions, and the lack of reform in the utilities sector is an important factor in the rapid increase in embodied emissions.
112Â citations
Cites background from "Determinants of foreign direct inve..."
...Institutional risk and inefficiencies Political and economic risks generally negatively affect the economy (Acemoglu et al., 2005), particularly foreign trade and foreign direct investments (Dunning, 1993; Jadhav, 2012)....
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..., 2005), particularly foreign trade and foreign direct investments (Dunning, 1993; Jadhav, 2012)....
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...Without such institutions, the risk of government interference in the economy or takeovers of private property increases, which reduces foreign trade (Jadhav, 2012; Nunn and Trefler, 2014)....
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TL;DR: In this paper, the potential determinants of FDI, in developed and developing countries, were investigated based on panel data analysis using static and dynamic modeling for 20 countries (11 developed and 9 developing), over the period 2004-2013.
Abstract: The purpose of this paper is to investigate the potential determinants of FDI, in developed and developing countries.,This paper investigates FDI determinants based on panel data analysis using static and dynamic modeling for 20 countries (11 developed and 9 developing), over the period 2004-2013. For static model estimations, Hausman (1978) test indicates the applicability of fixed effect/random effect, while generalized moments of methods (GMM) (dynamic model) is used to capture endogeneity and unobserved heterogeneity.,The outcome across different countries depicts diverse results. In developed countries, FDI seeks policy-related determinants (GDP growth, trade openness, and freedom index), and in developing country FDI showed positive association for economic determinants (gross fixed capital formulation (GFCF), trade openness, and efficiency variables).,The destination of FDI is limited to 20 countries in the present paper. The indicator of the institutional environment, namely economic freedom index, used in this paper has received some criticism in calculations.,The paper enlists recommendations for future FDI policies and may assist government in providing a tactical framework for skill development, thereby increasing manufacturing growth rate. The paper also throws light on vertical and horizontal capital inflows considering resource, strategy, and market-seeking FDI.,FDI may bring significant benefits by creating high-quality jobs, introducing modern production and management practices. It highlights how multinational corporations and government contribute to better working conditions in host countries.,The paper uncovers important features like macroeconomic variables, especially country-wise efficiency scores, policy variables, GFCF, and freedom index, for determining FDI inflows in 20 countries using panel data methods and provides a roadmap for developed and developing countries. The study highlights endogeneity and unobserved heteroscedasticity by applying GMM one- and two-step procedure.
107Â citations
Cites background from "Determinants of foreign direct inve..."
...While considering determinants, literature also postulates country-wise determinants including various pull factor (Onyeiwu and Shrestha, 2004; Jadhav, 2012; de Castro et al., 2013; Bokpin et al., 2015; Masron, 2017)....
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...Jadhav (2012) considered corruption and the rule of law as a proxy for institutional factors and political stability as one of the determinants of FDI....
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TL;DR: In this paper, the authors examined how institutional quality moderated the relationship between macroeconomic volatility and foreign direct investment (FDI) in 40 countries in the Sub-Saharan African region over the period from 1996 to 2011.
75Â citations
TL;DR: In this article, the authors employed panel analysis to examine the factors that determine the direction of FDI to the fast-growing BRICS (Brazil, Russia, India, China, and South Africa) and MINT (Mexico, Indonesia, Nigeria, and Turkey) countries.
Abstract: The flow of foreign direct investment (FDI) into a country can benefit both the investing entity and host government. This study employed panel analysis to examine the factors that determine the direction of FDI to the fast-growing BRICS (Brazil, Russia, India, China, and South Africa) and MINT (Mexico, Indonesia, Nigeria, and Turkey) countries. First, we used a pooled time-series cross sectional analysis of data from 2001 to 2011 to estimate and model the determinants of FDI for three samples: BRICS only, MINT only, and BRICS and MINT combined. Then, a fixed effects approach was employed to provide the model for BRICS and MINT combined. The results demonstrate that market size, infrastructure availability, and trade openness play the most significant roles in attracting FDI to BRICS and MINT, while the roles of availability of natural resources and institutional quality are insignificant. To sustain and promote FDI inflow, the governments of BRICS and MINT must ensure that their countries remain attractive for investment by offering a level playing field for investors and political stability. BRICS and MINT governments also need to invest more in their human capital to ensure that their economies can absorb substantial skills and technology spillovers from FDI and promote sustainable long-term economic growth. This study is significant because it contributes to the literature on determinants of FDI by extending the scope of previous studies that often focused on BRICS only.
72Â citations
References
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TL;DR: In this paper, the authors focus on international investment and international trade in the product cycle and argue that it is a mistake to assume that equal access to scientific principles in all the advanced countries means equal probability of the application of these principles in the generation of new products.
Abstract: Publisher Summary This chapter focuses on international investment and international trade in the product cycle. It is a mistake to assume that equal access to scientific principles in all the advanced countries means equal probability of the application of these principles in the generation of new products. There is ordinarily a large gap between the knowledge of a scientific principle and the embodiment of the principle in a marketable product. An entrepreneur usually has to intervene to accept the risks involved in testing whether the gap can be bridged. The United States' market offers certain unique kinds of opportunities to those who are in a position to be aware of them. The market consists of consumers with an average income that is higher than that in any other national market, and is characterized by high unit labor costs and relatively unrationed capital compared with practically all other markets. As the demand for a product expands, a certain degree of standardization usually takes place. A commitment to some set of product standards opens up technical possibilities for achieving economies of scale through mass output, and encourages long-term commitments to some given process and some fixed set of facilities.
7,068Â citations
"Determinants of foreign direct inve..." refers background in this paper
...According to product life cycle theory firms set up production facilities abroad for products that had already been standardized and matured in the home markets (Vernon 1966)....
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5,055Â citations
Book•
15 May 1976
TL;DR: The story about the delayed publication of this seminal work is by now probably familiar to most specialists in international business as discussed by the authors, and it is a belated recognition of the brillance of Hymer's thesis.
Abstract: The story about the delayed publication of this seminal work is by now probably familiar to most specialists in international business. As reported in his laudatory introduction, Professor Kindleberger recommended Hymer's doctoral dissertation for publication by the M.I.T. Press in 1960. The publication committee of the Department of Economics at M.l.T. rejected publication of the thesis, one of the reasons being that "the argument was too simple and straightforward." Hymer apparently did not bother to have the thesis chapters submitted for journal publication, and so it was left to Kindleberger to advertise the thesis in his textbook on international economics. Professor Kindleberger is also too modest to mention that his own first rate book on American Business Abroad is a brilliant summary and extension of Hymer's theoretical work. In any case the 1960 Hymer thesis became a basic reference in all subsequent work on the multinational corporation (MNC), but one which many readers found hard to acquire. Its recent publication is to be welcomed, and is a belated recognition by M.I.T. of the brillance of Hymer's thesis.
3,489Â citations
TL;DR: In this paper, the main features of the eclectic theory of international production are discussed and the significance of ownership-and location-specific variables in explaining the industrial pattern and geographical distribution of the sales of U.S. affiliates in fourteen manufacturing industries in seven countries in 1970.
Abstract: This paper first sets out the main features of the eclectic theory of international production and then seeks to evaluate its significance of ownership- and location-specific variables in explaining the industrial pattern and geographical distribution of the sales of U.S. affiliates in fourteen manufacturing industries in seven countries in 1970.
2,895Â citations
"Determinants of foreign direct inve..." refers methods in this paper
...The OLI paradigm (Dunning 1980, 1993) provides an ownership, location and internalization advantage-based framework to analyze why, where and how MNCs would invest abroad....
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TL;DR: In this paper, the effect of corruption on foreign direct investment (FDI) has been studied in twelve source countries to 45 host countries, and two central findings were found: 1) a rise in either the tax rate on multinational firms or the corruption level in a host country reduces inward FDI; and 2) American investors are averse to corruption in host countries but not necessarily more so than average OECD investors, in spite of the U.S. Foreign Corrupt Practices Act of 1977.
Abstract: This paper studies the effect of corruption on foreign direct investment. The sample covers bilateral investment from twelve source countries to 45 host countries. There are two central findings. First, a rise in either the tax rate on multinational firms or the corruption level in a host country reduces inward foreign direct investment (FDI). In a benchmark estimation, an increase in the corruption level from that of Singapore to that of Mexico would have the same negative effect on inward FDI as raising the tax rate by fifty percentage points. Second, American investors are averse to corruption in host countries, but not necessarily more so than average OECD investors, in spite of the U.S. Foreign Corrupt Practices Act of 1977.
2,606Â citations
Additional excerpts
...1999; Asiedu and Villamil 2000; Wei 2000; Asiedu 2006;Ting & Tang 2010)....
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