The determinants of location choice

2016 ◽  
Vol 11 (3) ◽  
pp. 333-356 ◽  
Author(s):  
Ping Lv ◽  
Francesca Spigarelli
Keyword(s):  
Human Capital ◽  
Foreign Direct Investment ◽  
Host Country ◽  
Direct Investment ◽  
Location Choice ◽  
Capital Asset ◽  
Foreign Investments ◽  
Firm Level ◽  
Content Type ◽  
Eu Countries

Purpose – The purpose of this paper is to analyze the role of institutional distance and host country attractiveness in location determinants of Chinese Foreign investments in EU in the renewable energy sector, taking into account bilateral political and economic relations. Design/methodology/approach – A firm-level Ministry of Commerce (MofCom) database of greenfield and non-greenfield Chinese investments abroad is used. A six fixed-effects logit analysis is performed. Findings – Chinese firms tend to invest in EU countries with reduced rule of law; market affluence is an attraction factor for them, but they do not seem to be human capital asset-seekers. Countries with politically stable environment are most attractive to sales/services subsidiaries; while countries with good control of corruption, low trade barriers and encouraging foreign ownership are most attractive to manufacturing subsidiaries. A large market is the most attractive factor for R & D subsidiaries, and a rich market is the most attractive factor for manufacturing subsidiaries. Manufacturing subsidiaries are more technological asset-seekers. R & D subsidiaries are the most non-human capital asset-seekers. Research limitations/implications – The study extends the state of the art of the literature by developing a theoretical framework, grounded on the influence of host country institutional factors and on endowment of resources on the location choice of Chinese investors. Further variables should be included in the future (industrial specialization of host country, cultural distance, bilateral ties). Practical implications – Policy implications are relevant. They are related both to outward foreign direct investment attraction policies and to Europe-China cooperation dialogue. With reference to attraction policies, as Chinese green firms are technological asset-seekers, more than human capital asset-seekers, EU countries interested in partnering with Chinese investors should develop specific measures targeting encouraging technology spillover. Even R & D subsidiaries should be tempted with technology-oriented measures. With reference to Europe-China cooperation, the paper findings support suggestions for a more active European position on foreign investments in key European energy sectors. Originality/value – The paper is grounded on an improved theoretical model, tested through a unique Mofcom firm-level database. Originality lies in the fact that the authors provide a sectoral insight. The need for sectoral analysis is fundamental as Chinese industrial development and internationalization path vary extensively across industry, due to policy interventions, supportive measures and prioritized initiatives. Zhang et al. (2011, p. 229) found that – specifically – the energy sector is highly sensitive to host country institutional context, therefore Chinese foreign direct investment are more likely to be exposed to regulatory and competitive pressure compared to other industries.

Natural resource-seeking intent and regulatory forces

2016 ◽  
Vol 39 (10) ◽  
pp. 1313-1335 ◽  
Author(s):  
Yuanfei Kang ◽  
Yulong Liu
Keyword(s):  
Foreign Direct Investment ◽  
Conceptual Framework ◽  
Host Country ◽  
Natural Resource ◽  
Direct Investment ◽  
Location Choice ◽  
Political Risk ◽  
Government Support ◽  
Content Type ◽  
Strategic Intent

Purpose This study aims to investigate how natural resource-seeking as a type of strategic intent influences foreign direct investment (FDI) location choice. Grounded in the strategic intent approach and institution theory, the authors developed an interactive conceptual framework by integrating natural resource-seeking intent (NRI) with regulatory institutional factors. Design/methodology/approach The authors developed an interactive conceptual framework by integrating NRI at a firm level with regulatory factors of governmental support, political risk and economic freedom at country level. Using empirical data from a sample of 137 Chinese outward foreign direct investment (OFDI) projects in 19 Asian countries, statistical analysis was conducted using a conditional logistic regression technique. Findings Empirical findings from our study suggest that NRI has a strong influence on OFDI location choice of the Chinese firms. More importantly, the results demonstrate that influence of NRI on location choice is contingent on the regulatory forces both in the home and host countries settings. NRI is more likely to influence FDI location choice when government support from the home country is stronger and/or when political risk in a host country FDI is higher. Originality/value This is an empirical-based original study, and it contributes to the literature in several ways. First, the study enriches the strategic intent approach by demonstrating the contingency conditions from regulatory factors, especially home government support on a firm’s pursuit of NRI. Second, the study provides an explanation for the behaviour pattern of Chinese OFDI regarding their response to political risk in a host country. Third, the study demonstrates the influence of “institutional embededness” on the firm’s strategic intent. Managerial and policy implications are also discussed.

Is the Ukrainian economy’s absorptive capacity appropriate to attract foreign direct investment and facilitate economic growth?

2018 ◽  
Vol 13 (6) ◽  
pp. 1928-1947
Author(s):  
Svitlana Shevelova ◽  
Svitlana Plaskon
Keyword(s):  
Higher Education ◽  
Economic Growth ◽  
Human Capital ◽  
Foreign Direct Investment ◽  
Production Function ◽  
Transition Economies ◽  
Absorptive Capacity ◽  
Direct Investment ◽  
Content Type ◽  
Douglas Production Function

Purpose Despite an increasing volume of literature focussed on foreign direct investment (FDI) in transition economies, there has been little research into FDI in Ukraine. The relationship between the inflows of FDI (IFDI) and absorptive capacity (AC) has been under-researched in the peripheral transition countries like Ukraine. The purpose of this paper is to analyse the appropriateness of the Ukrainian economy’s AC to attract IFDI and facilitate economic growth with a particular focus on AC factors, such as the potential of human resources to absorb innovation and benefit from research and development (R&D) expenditure. Design/methodology/approach This study presents a thoughtful research design: there is an analysis of the AC framework for justification and selection factors that allows a measurement of the potential of Ukraine’s AC to attract and exploit IFDI. The study uses data from 25 regions in Ukraine for the 1996–2015 period. To estimate the effects of IFDI on Ukrainian economic growth, a Cobb–Douglas production function is used. As an appropriate instrumentation technique for dynamic panel data, the Generalised Method of Moments is used to provide unbiased and efficient estimates of the results. The application of the interactive term in this study allows the authors to indicate the existence of complementarities between IFDI and human capital, in particular with higher education, that afford opportunity to absorb new technologies and benefit from IFDI. Findings The resulting model indicates that R&D expenditure benefited very significantly in evolving country’s innovation system due to economic growth. Physical and human capital has not been used effectively in Ukraine to facilitate economic growth and attract IFDI. The number of patents is not significant in all of the regression models. Moreover, IFDI in Ukraine for the 1996–2015 period did not significantly impact on economic growth. However, the AC of human capital, in particular those with a higher education, is relatively relevant to benefit from IFDI. Practical implications The findings have important implications for governmental policy, which should be based on improving the business climate, a strategy for digital development, innovation, migration, institutional and regional policies aimed at the achievement of country’s sustainable economic growth. The government should increase R&D expenditure as an important factor of gross domestic product growth and introduce grants, loans and other financial supports for encouraging students to continue university education. Originality/value The originality and value of this paper is empirical and methodological. The empirical results of this study enable a conclusion about the appropriate level of the country’s absorptive capability required to benefit from IFDI. The paper also contributes to the existing academic debate and proves that despite the well-established theoretical framework for the IFDI–AC economic impact context, a new theorisation is needed to explore the full complexity of the country’s explicit relationship between AC and IFDI. Future research should be focussed on examining not only groups of countries but also distinctly the country’s explicit relationship between AC and IFDI with the particular attention for the under-researched countries: the peripheral transition economies to discover new research niches for theory building. This study presents an original methodological approach with a careful justification of the theoretical framework for hypothesis development, an appropriate sample and an original application of seminal research methods based on the Cobb–Douglas production function. This study proves that the interactive term, which allows indication of the existence of complementarities between IFDI and other variables, is appropriate for measuring AC in countries with smaller amounts of IFDI.

scholarly journals Nation branding for foreign direct investment: an Integrative review and directions for research and strategy

2016 ◽  
Vol 25 (7) ◽  
pp. 615-628 ◽  
Author(s):  
Nicolas Papadopoulos ◽  
Leila Hamzaoui-Essoussi ◽  
Alia El Banna
Keyword(s):  
Decision Making ◽  
Foreign Direct Investment ◽  
Direct Investment ◽  
Location Choice ◽  
Intersection Point ◽  
Nation Branding ◽  
Integrative Review ◽  
Future Research ◽  
Content Type ◽  
New Research

Purpose This study aims to address a heretofore neglected area in research, nation branding, for the purpose of attracting foreign direct investment (FDI). It compares and contrasts the well-established literature on decision-making and location choice in FDI with studies in the nascent field of nation branding, with a view to developing directions for future research that result from the identification of research gaps at the intersection point between the two areas. Design/methodology/approach The study is based on a systematic and integrative review of several streams within the relevant literatures, from the theory of decision-making in FDI to the similarities and differences between advertising, promotion, branding and marketing for investment on the part of nations and sub- or supra-national places. Findings Each of the two areas is characterized by lack of consensus as to the principal factors that affect investor and nation decisions and actions, resulting in several knowledge gaps that need to be addressed by new research along the lines suggested in the study. Research limitations/implications A large number of avenues for potential future research are identified, from assessing the importance of target country image in location choice to the adverse effects arising from the emphasis on “promotion” rather than “marketing” on the part of places engaged in nation branding efforts. Practical implications The study examines several problems that affect the practice of nation branding for FDI and points to alternative approaches that may enhance place marketers’ effectiveness in their efforts to attract foreign capital. Originality/value Notwithstanding the global growth of FDI in volume and importance, and the omnipresence of nation branding campaigns to promote exports or attract tourism and investment, there has been virtually no research to date on the core issue, nation branding for FDI. The study uses a strategic perspective that highlights key nation branding issues related to FDI, and FDI issues related to nation branding, and suggests a comprehensive agenda for research in the future.

scholarly journals Selected macroeconomic determinants and economic growth in Cameroon (1970–2018) “dead or alive” an ARDL approach

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Kesuh Jude Thaddeus ◽  
Chi Aloysius Ngong ◽  
Njimukala Moses Nebong ◽  
Akume Daniel Akume ◽  
Jumbo Urie Eleazar ◽  
...  
Keyword(s):  
Economic Growth ◽  
Human Capital ◽  
Foreign Direct Investment ◽  
Direct Investment ◽  
Government Expenditure ◽  
Human Capital Development ◽  
Content Type ◽  
Capital Development ◽  
Macroeconomic Determinants ◽  
The Impact

PurposeThe purpose of this paper is to examine key macroeconomic determinants on Cameroon's economic growth from 1970 to 2018.Design/methodology/approachData were obtained from the World Development Indicators and applied on time series data econometric techniques. The auto-regressive distributed lag (ARDL) bounds model analyzed the data since the variables had different order of integration.FindingsThe results showed long and short runs’ positive and significant connection between economic growth in Cameroon and government expenditure; trade openness, gross capital formation and exchange rate. Human capital development, foreign aid, money supply, inflation and foreign direct investment negatively and significantly affected economic growth in the short and long-runs. Hence, the macroeconomic indicators are not death.Research limitations/implicationsThe present research paper has tried to capture the impact of nine macroeconomic determinants on economic growth such as the government expenditure (LNGOVEXP), human capital development (LNHCD), foreign aids (AID), trade openness (LNTOP), foreign direct investment (LNFDI), gross capital formation (INVEST), broad money (LNM2), official exchange rate (LNEXHRATE) and Inflation (LNINFLA). However, these variables have the tendency to affect each other in a unidirectional or bidirectional manner. Further, the present research paper is unable to capture the impact of other macroeconomic variable due to the unavailability of data.Practical implicationsThe study recommends that Cameroon should use proper planning and strategic policy interventions to achieve higher sustainable economic growth with human capital development, foreign aid, money supply, foreign direct investment and moderate inflation.Social implicationsMacroeconomic indicators, if managed well, increase economic growth.Originality/valueThis paper to the best of the researcher's knowledge presents new background information to both policymakers and researchers on the main macroeconomic determinants using econometric analysis.

Foreign direct investment, natural resources and economic growth: a threshold model approach

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Arshad Hayat ◽  
Muhammad Tahir
Keyword(s):  
Economic Growth ◽  
Foreign Direct Investment ◽  
Natural Resources ◽  
Host Country ◽  
Natural Resource ◽  
Direct Investment ◽  
Positive Impact ◽  
Threshold Model ◽  
Resource Abundance ◽  
Content Type

PurposeThe aim of this paper is to investigate the contingency effect of natural resource abundance on the foreign direct investment (FDI)–growth relationship in a nonlinear (threshold) model.Design/methodology/approachThe authors use the fixed effect threshold model for panel data with annual frequency for 83 countries and estimate threshold level of natural resource abundance that split the sample and change the FDI–growth relationship.FindingsThe results show that FDI has a strong positive impact on the economic growth of the host country if the host country's natural resources export is below the statistically significant estimated threshold. However, this FDI-induced economic growth is watered-down if the countries natural resources export is larger than the estimated threshold.Originality/valueThe results show that FDI has a strong positive impact on the economic growth of the host country if the host country's natural resources export is below the statistically significant estimated threshold. However, this FDI-induced economic growth is watered-down if the countries natural resources export is larger than the estimated threshold. The results are robust for alternative indicators of natural resources, i.e. natural resources rents.

scholarly journals Foreign direct investment in the G-20: to what extent do institutions matter?

2018 ◽  
Vol 53 (3) ◽  
pp. 404-421
Author(s):  
Jurema Tomelin ◽  
Mohamed Amal ◽  
Nelson Hein ◽  
Andreia Carpes Dani
Keyword(s):  
Decision Making ◽  
Foreign Direct Investment ◽  
Direct Investment ◽  
Global Financial Crisis ◽  
Economic Factor ◽  
Topsis Method ◽  
Firm Level ◽  
Content Type ◽  
Governance Indicators ◽  
The Impact

Purpose This study aims to identify to what extent the economic factor effect is more salient in shaping inward foreign direct investment (IFDI) than are institutional factors in G-20 inflow patterns. Design/methodology/approach Technique for Order Preference by Similarity to Ideal Solution (TOPSIS) method was applied using the World Bank Governance and Development Indicators, followed by a panel data technique over the period 2005-2015 to estimate the connections between the different dimensions of economics, institutions and IFDI in the G-20. Findings Results showed that countries with better economic performance contrasting with the governance indicators are more effective at attracting IFDI. However, the correlation between FDI intensity and governance indicators has been found relatively weak, which may suggest a more controversial role of institutions as determinants of IFDI. Research limitations/implications This quantitative approach uses a country-level set of variables; therefore, the authors suggest the development of more firm-level analysis of the impact of institutions. Also, the limitation of the TOPSIS method itself is based on heuristic assumptions. Practical implications The main findings point to a relatively low impact of institutions on IFDI. The authors suggest that the global financial crisis has changed the rationale of decision-making by multinational companies. Originality/value The originality of the present study was to apply a multi criteria decision-making technique on FDI’s analysis combined with institutional data.

scholarly journals Does Foreign Direct Investment Increase the Productivity of Domestic Firms? In Search of Spillovers Through Backward Linkages

2004 ◽  
Vol 94 (3) ◽  
pp. 605-627 ◽  
Author(s):  
Beata Smarzynska Javorcik
Keyword(s):  
Foreign Direct Investment ◽  
Direct Investment ◽  
Foreign Ownership ◽  
Foreign Investments ◽  
Firm Level ◽  
Productivity Spillovers ◽  
Level Data ◽  
Firm Level Data ◽  
Foreign Affiliates ◽  
Backward Linkages

Many countries strive to attract foreign direct investment (FDI) hoping that knowledge brought by multinationals will spill over to domestic industries and increase their productivity. In contrast with earlier literature that failed to find positive intraindustry spillovers from FDI, this study focuses on effects operating across industries. The analysis, based on firm-level data from Lithuania, produces evidence consistent with positive productivity spillovers from FDI taking place through contacts between foreign affiliates and their local suppliers in upstream sectors. The data indicate that spillovers are associated with projects with shared domestic and foreign ownership but not with fully owned foreign investments.

The contribution of human capital to foreign direct investment inflows in developing countries

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ali Abbas ◽  
Imad Moosa ◽  
Vikash Ramiah
Keyword(s):  
Developing Countries ◽  
Human Capital ◽  
Foreign Direct Investment ◽  
Direct Investment ◽  
Statistical Significance ◽  
Regression Equation ◽  
Basic Question ◽  
Content Type ◽  
Extreme Bounds Analysis ◽  
Determinants Of Fdi

PurposeThis paper is about the effect of human capital on foreign direct investment (FDI). The purpose of this paper is to find out if developing countries with high levels of human capital (educated people and well-trained labour force) are more successful in attracting FDI. The underlying hypothesis has been tested repeatedly without reaching a consensus view or providing an answer to the basic question. This is to be expected because FDI is determined by a large number of factors, making the results sensitive to the selected set of explanatory variables, which forms the basis of the Leamer (1983) critique of the use of multiple regression to derive inference. Furthermore, confirmation bias and publication bias entice researchers to be selective in choosing the set of results they report.Design/methodology/approachThe technique of extreme bounds analysis, as originally suggested by Leamer (1983) and modified by Sala-i-Martin (1997), is used to determine the importance of human capital for the ability of developing countries to attract FDI. The authors use a cross-sectional sample covering 103 developing and transition countries.FindingsThe results show no contradiction between firms seeking human capital and cheap labour. No matter what proxy is used to represent human capital, it turns out that the most important factor for attracting FDI is the variable “employee compensation”, which is the wage bill, implying that multinational firms look for cheap and also skilled labour in the host country.Originality/valueIn this paper, the authors follow the procedure prescribed by Leamer (1983), and modified by Sala-i-Martin (1997), using extreme bounds analysis to distinguish between robust and fragile determinants of FDI, with particular emphasis on human capital. Instead of deriving inference from one regression equation by determining the statistical significance of the coefficient on the variable of interest, the extreme bounds or the distribution of estimated coefficients are used to distinguish between robust and fragile variables. This means that emphasis is shifted from significance, as implied by a single regression equation, to robustness, which is based on a large number of equations. The authors conduct tests on three proxies for human capital to find out if they are robust determinants of FDI and also judge the degree of robustness relative to other determinants.

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