Bilateral FDI flows in four major Asian economies: a gravity model analysis

2019 ◽  
Vol 46 (1) ◽  
pp. 71-89 ◽  
Author(s):  
Bikash Ranjan Mishra ◽  
Pabitra Kumar Jena
Keyword(s):  
Interest Rate ◽  
Gravity Model ◽  
Host Country ◽  
Economic Freedom ◽  
Economic Policies ◽  
Source Country ◽  
Policy Environment ◽  
Content Type ◽  
Asian Economies ◽  
Country Specific

PurposeThe purpose of this paper is to examine the determinants of foreign direct investment (FDI) flows from some leading developed countries (the USA, Japan, Germany, the Netherlands, the UK and France) into major four Asian economies (China, Korea, India and Singapore).Design/methodology/approachUsing one basic and four augmented versions of gravity model technique, the authors tried to examine the determinants of bilateral FDI flows in four major Asian economies. The study used World Development Indicators, CEPII, KOF and Heritage Foundation data for period 2001–2012.FindingsThe results revealed that besides the market size for host and source country, other criteria such as distance, common language and common border also influence foreign investors. Other macroeconomic factors such as inflation rate and real interest rate are among the key factors that attract more FDI. In addition to economic factors, institutional and infrastructural factors such as telecommunication, degree of openness, index of globalisation and index of economic freedom also stimulate the international investors from the developed world to the major Asian countries.Research limitations/implicationsIt is altogether possible that only a set of home country specific characteristics or host country specific characteristics does not matter when determining FDI. Most empirical studies using indices such as the index of globalisation and economic freedom are subject to certain methodological limitations such as model selection, parameter heterogeneity, outliers and moral hazard.Practical implicationsMore distance between the host and source country would result in less FDI flows due to more managerial and raw material supply chain cost. Similarly, more gross domestic product (GDP) and per capita income (PCI) are leading to more FDI flows into Asian economics. Therefore, major Asian economies should frame their economic policies in such a manner where these counties can strengthen their GDP as well as PCI. Furthermore, above countries should open its economy more and more for better FDI flows as it seems that economic globalisation and economic freedom are major determinants of bilateral FDI flows. The negative impact of inflation and interest rate should be controlled.Social implicationsFrom policy perspective, higher scores of economic, social and political globalisation also attract high FDI to the host country. On the same line higher scores in economic freedom mean that less restrictions in terms of economic policies and the policy environment are conducive for free trade and resource transfers. Higher scores in trade freedom, investment freedom and freedom from corruptions also show more developed and conducive policy environment. In the same reasoning higher scores in the composite index of economic freedom which takes information from trade freedom, investment freedom and freedom from corruption and others also encourage flow of FDI in to the host country.Originality/valueThis is the first paper which combines the globalisation index, economic freedom index and distance along with some major macroeconomic variables.

Rethinking the literature on “multiple embeddedness” and subsidiary-specific advantages

2014 ◽  
Vol 22 (1) ◽  
pp. 15-33 ◽  
Author(s):  
Alberto Ferraris
Keyword(s):  
Host Country ◽  
Design Methodology ◽  
Home Country ◽  
Complex Phenomenon ◽  
Content Type ◽  
The Creation ◽  
Entire Network ◽  
Over Time ◽  
Country Specific

Purpose – This paper aims to synthesize the literature on embeddedness of MNE subsidiaries, rethinking the concept of “multiple embeddedness” in order to clarify the importance of the subsidiary-specific advantages. Design/methodology/approach – A new and innovative framework based on four key relationships: home country-specific advantages (CSAs)-Headquarters (HQ); HQ-subsidiary; subsidiary-host CSAs; and subsidiary-HQ. This framework is used to discuss the complex phenomenon of “multiple embeddedness”. Findings – The framework proposed sheds light on the subsidiary's need to develop and sustain over time its subsidiary-specific advantages (SSAs) and, where possible, to “upgrade” these SSAs and to integrate them across the entire network of the MNE. The framework is based on two pillars. The first one is the “creation and development” of firm-specific advantages (FSAs) (in the home country) and SSAs (in the host country); the second one is the “transfer” of these advantages from the parent to the subsidiary and vice versa. In addition, several interesting interrelations are found between the four main relationships, and the central role of the recombination capabilities and the importance of distance are highlighted. Originality/value – This paper is one of the first to develop a framework incorporating all the relevant relationships in multiple embeddedness. The framework is innovative and “embeddedness” is analyzed in a novel way, as many studies only partially analyze this complex phenomenon and neglect one or more of these relationships.

scholarly journals The index of economic freedom: methodological matters

2018 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Issaka Dialga ◽  
Thomas Vallée
Keyword(s):  
Economic Freedom ◽  
Specific Weight ◽  
Weight System ◽  
Equal Weight ◽  
Content Type ◽  
Heritage Foundation ◽  
Public Debates ◽  
Components Analysis ◽  
Composite Indexes ◽  
Country Specific

Purpose The purpose of this paper is to deal with methodological issues in the Index of Economic Freedom (IEF) building by using principal components analysis (PCA) and benefit of the doubt (BOD) methods to generate component- and country-specific weights in computing the scores. Design/methodology/approach The paper uses endogenous model and country-specific weight system to generate country-specific score unlike the equal weight used by the Heritage Foundation. Findings The PCA and BOD analyses provide consistent results that differ dramatically with the baseline ones (results using equal weights). Research limitations/implications The limitation of the paper is that the results change depending on the method used. Practical implications Given results provided by the PCA and BOD analysis, the IEF would receive broad legitimacy basing the calculation of its scores on endogenous weighting models. Social implications As composite indicators are essential in public debates and policies, their construction must be objective and well-known by a large public, making the methodological matters in composite indexes building one of the big challenge to researchers and a major democratic issue. Originality/value The originality of the paper is to use endogenous approach to generate weights and countries’ scores.

scholarly journals Financial derivatives use and multifaceted exposures

2018 ◽  
Vol 25 (1) ◽  
pp. 86-108
Author(s):  
Kim Huong Trang
Keyword(s):  
Interest Rate ◽  
Host Country ◽  
Home Country ◽  
Random Effect ◽  
Financial Derivatives ◽  
Market Model ◽  
Data Set ◽  
Content Type ◽  
Domestic Firms ◽  
Foreign Affiliates

PurposeThe purpose of this paper is to assess the effect of financial derivatives use on different exposures by comparing domestic firms, domestic multinational corporations (MNCs) and affiliates of foreign MNCs using a unique hand-collected data set of derivatives activities from 881 non-financial firms in eight East Asian countries over the period of 2003-2013.Design/methodology/approachIn this paper, the authors apply a two-stage approach. In the first stage, exposures to country risks, exchange rate and interest rate risks are estimated by using the market model. In the second stage, potential effects of firms’ derivatives use on multifaceted exposures are investigated by carrying out pooled regression model, and panel data regressions with random effect specifications.FindingsThe authors provide novel evidence that financial hedging of domestic firms and domestic MNCs reduces exposure to home country risks by 10.91 and 14.42 percent per 1 percent increase in notional derivative holdings, respectively, while affiliates of foreign MNCs fail to mitigate exposure to host country risks. The use of foreign currency and interest rate derivatives by domestic firms and domestic MNCs is effective in alleviating such firms’ exposures to varied degrees, while foreign affiliates’ use of derivatives can only lower interest rate exposures.Originality/valueThe primary theoretical contribution of this study is applying the market model to estimate exposures to home and host country risks. Regarding empirical contributions, the authors provide strong evidence that the use of financial derivatives by domestic firms and domestic MNCs significantly contributes to a decline in exposure to home country risks, and evidence the outperformance of domestic MNCsvis-à-visdomestic firms and foreign affiliates.

scholarly journals Host country experience, institutional distance and location choice of Chinese MNEs

2019 ◽  
Vol 26 (1) ◽  
pp. 24-45 ◽  
Author(s):  
Diego Quer ◽  
Laura Rienda ◽  
Rosario Andreu ◽  
Si Miao
Keyword(s):  
Host Country ◽  
Risk Taking ◽  
Home Country ◽  
Location Choice ◽  
Institutional Distance ◽  
Government Official ◽  
Chinese Government ◽  
Content Type ◽  
Chinese Mnes ◽  
Country Specific

PurposeThe conventional wisdom suggests that the lack of prior host country-specific experience and a higher institutional distance deter multinational enterprises (MNEs) from entering a foreign country. However, past studies report that Chinese MNEs show an unconventional risk-taking behavior choosing foreign locations, where they have no prior experience or there is an increased institutional distance. Drawing on the institutional theory, the purpose of this paper is to argue that Chinese Government official visits to the host country may act as a risk-reduction device, thus providing an explanation for such an unconventional behavior.Design/methodology/approachThe authors develop two hypotheses regarding how Chinese Government official visits moderate the impact of host country-specific experience and institutional distance on the location choice of Chinese MNEs. The authors test the hypotheses using a sample of investment location decisions by Chinese MNEs in Latin America.FindingsThe authors find that government official visits mitigate the lack of firm’s prior host country experience. However, only high-level government visits reduce institutional distance.Originality/valueThe authors contribute to the international business literature by analyzing how home country government diplomatic activities may pave the way of host country institutional environment for foreign MNEs from that home country. In addition, the authors provide an additional explanation for the unconventional risk-taking behavior of Chinese MNEs. Finally, the authors also contribute to a better understanding of the decision-making process of emerging-market MNEs entering other emerging economies.

scholarly journals Macedonia’s exports toward Southeast Europe through the gravity model

2018 ◽  
Vol 34 (2) ◽  
pp. 108-122 ◽  
Author(s):  
Mico Apostolov ◽  
Dushko Josheski
Keyword(s):  
Gravity Model ◽  
Export Performance ◽  
Methodological Approach ◽  
Source Country ◽  
Southeast Europe ◽  
Policy And Practice ◽  
Content Type ◽  
Theoretical Concepts ◽  
Trading Partners ◽  
The Republic

Purpose The purpose of this paper is to examine the export performance of the Republic of Macedonia to its main trading partners from Southeast Europe; hence, the authors focus on the major importing countries which are most present in the Macedonian trade balance. Design/methodology/approach The data used in this paper are analyzed with gravity model, which has good characteristics and very stable performance. Further, the data sample is formed on major importers form the Southeastern Europe region. Findings The results show that the domestic country GDP is positively correlated with the exports from the source country to target countries and that Balkan countries have positive propensities to import from Macedonia, however, it was found that populations of source country and target country are negatively correlated with exports from the source country to target countries. Additionally, the business cycles had no positive effect on Macedonian export to the target countries. Originality/value Based on pertinent theoretical concepts and existing empirical findings, and by applying up-to-date methodological approach, case studies might bring vital contribution to the literature, which eventually leads to solid policy and practice.

Cross-border branching in the Latin American banking sector

2018 ◽  
Vol 36 (3) ◽  
pp. 496-528 ◽  
Author(s):  
Luiz Paulo Lopes Fávero ◽  
Marco Aurélio dos Santos ◽  
Ricardo Goulart Serra
Keyword(s):  
Latin American ◽  
Host Country ◽  
Economic Freedom ◽  
Banking Sector ◽  
Mixed Model ◽  
Negative Binomial ◽  
Foreign Banks ◽  
Strategic Decision ◽  
Content Type ◽  
Cross Border

Purpose Branching is not the only way for foreign banks to enter a national market, and it is impractical when there are informational and cultural barriers and asymmetries among countries. The purpose of this paper is to analyze the determinants of cross-border branching in the Latin American banking sector, a region with regulatory disparity and political and economic instability, offering elements to a grounded strategic decision. Design/methodology/approach This study uses data from six Latin American countries. To account for the preponderance of zero counts, classes of zero-inflated models are applied (Poisson, negative binomial, and mixed). Model fit indicators obtained from differences between observed and estimated counts are used for comparisons, considering branches in each region established by banks from every other foreign region of the sample. Findings Branching by foreign banks is positively correlated with the population, GDP per capita, household disposable income, and economic freedom score of the host country. The opposite holds for the unemployment rate and entry regulations of the host country. Originality/value Few paper address cross-border banking in emerging economies. This paper analyzes cross-border branching in Latin America in the context of the current financial integration and bank strategy. Econometrically, its pioneering design allows modeling of inflation of zeros, over-dispersion, and the multilevel data structure. This design allowed testing of a novel country-level variable: the host country’s economic freedom score.

The impact of globalization on the performance of Banks in South Africa

2016 ◽  
Vol 26 (4) ◽  
pp. 517-542 ◽  
Author(s):  
Fadzlan Sufian ◽  
Fakarudin Kamarudin
Keyword(s):  
South Africa ◽  
Host Country ◽  
Banking Sector ◽  
Generalized Method Of Moments ◽  
Estimation Method ◽  
Bank Performance ◽  
Content Type ◽  
Multinational Banks ◽  
Dynamic Panel Regression ◽  
The Impact

Purpose This paper aims to provide empirical evidence for the impact globalization has had on the performance of the banking sector in South Africa. In addition, this study also investigates bank-specific characteristics and macroeconomic conditions that may influence the performance of the banking sector. Design/methodology/approach The authors use data collected for all commercial banks in South Africa between 1998 and 2012. The ratio of return on assets was used to measure bank performance. They then used the dynamic panel regression with the generalized method of moments as an estimation method to investigate the potential determinants and the impact of globalization on bank performance. Findings Positive impact of greater economic integration and trade movements of the host country, while greater social globalization in the host country tends to exert negative influence on bank profitability. The results show that banks originating from the relatively more economically globalized countries tend to perform better, while banks headquartered in countries with greater social and political globalizations tend to exhibit lower profitability levels. Originality/value An empirical model was developed that allows for the performance of multinational banks to depend on internal and external factors. Moreover, unlike the previous studies on bank performance, in this empirical analysis, we control for the different dimensions of globalizations while taking into account the origins of the multinational banks. The procedure allows us to test for the home field, the liability of foreignness and global advantage hypotheses to deduce further insights into the prospects of banking across borders.

scholarly journals Is Russia successful in attracting foreign direct investment? Evidence based on gravity model estimation

2016 ◽  
Vol 16 (3) ◽  
pp. 245-267 ◽  
Author(s):  
Oleg Mariev ◽  
Igor Drapkin ◽  
Kristina Chukavina
Keyword(s):  
Foreign Direct Investment ◽  
Gravity Model ◽  
Host Country ◽  
Direct Investment ◽  
Recipient Country ◽  
Developed Countries ◽  
Likelihood Method ◽  
Empirical Estimation ◽  
Fdi Inflows ◽  
Russian Economy

Abstract The aim of this paper is twofold. First, it is to answer the question of whether Russia is successful in attracting foreign direct investment (FDI). Second, it is to identify partner countries that “overinvest” and “underinvest” in the Russian economy. We do this by calculating potential FDI inflows to Russia and comparing them with actual values. This research is associated with the empirical estimation of factors explaining FDI flows between countries. The methodological foundation used for the research is the gravity model of foreign direct investment. In discussing the pros and cons of different econometric methods of the estimation gravity equation, we conclude that the Poisson pseudo maximum likelihood method with instrumental variables (IV PPML) is one of the best options in our case. Using a database covering about 70% of FDI flows for the period of 2001-2011, we discover the following factors that explain the variance of bilateral FDI flows in the world economy: GDP value of investing country, GDP value of recipient country, distance between countries, remoteness of investor country, remoteness of recipient country, level of institutions development in host country, wage level in host country, membership of two countries in a regional economic union, common official language, common border and colonial relationships between countries in the past. The potential values of FDI inflows are calculated using coefficients of regressors from the econometric model. We discover that the Russian economy performs very well in attracting FDI: the actual FDI inflows exceed potential values by 1.72 times. Large developed countries (France, Germany, UK, Italy) overinvest in the Russian economy, while smaller and less developed countries (Czech Republic, Belarus, Denmark, Ukraine) underinvest in Russia. Countries of Southeast Asia (China, South Korea, Japan) also underinvest in the Russian economy.

The categorization of expatriates and the support offered by host country nationals

2016 ◽  
Vol 4 (1) ◽  
pp. 18-43 ◽  
Author(s):  
Shirley C. Sonesh ◽  
Angelo S. DeNisi
Keyword(s):  
Host Country ◽  
Small Sample Size ◽  
Small Sample ◽  
Content Type ◽  
Host Country Nationals ◽  
Group Members ◽  
Expatriate Assignments ◽  
The Right ◽  
National Stereotypes

Purpose – Although several authors have suggested that host country nationals (HCNs) play an important role in the management of expatriates (e.g. Toh and DeNisi, 2003; Farh et al., 2010), research has also suggested that this relationship is not always good, and the flow of critical information to expatriates can be limited. This is especially true when HCNs categorize the expatriates as “out-group” members. The purpose of this paper is to examine potential determinants of categorization decisions as well as potential outcomes related to expatriate socialization. Design/methodology/approach – The paper employs a dyadic survey approach to determine the antecedents to expatriate categorization and HCN socialization behaviors from the perspective of both the expatriate and HCN. Findings – The results of survey data from 65 expatriate-HCN dyads indicated that expatriate ethnocentrism and the salience of the expatriates’ nationality were important predictors of categorization, but that categorization was related to only one dimension of socialization. However, affect was found to play a role in predicting socialization behaviors. Research limitations/implications – There is potential selection bias since expatriates chose HCNs as respondents, but results suggested this was not a serious problem. Other limitations include a relatively small sample size and the fact that a number of contextual issues such as national stereotypes and MNC strategy, are not controlled for. Practical implications – Implications of these findings for the successful management of expatriate assignments include sending over expatriates with the right relational skills, and those low in ethnocentrism, rather than just the right technical skills. Originality/value – The present study was one of the first to empirically test the potential role of categorization in the process of socialization.

Volatility integration of gold and crude oil prices with the interest rates in India

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Shailesh Rastogi ◽  
Adesh Doifode ◽  
Jagjeevan Kanoujiya ◽  
Satyendra Pratap Singh
Keyword(s):  
Interest Rate ◽  
Crude Oil ◽  
Interest Rates ◽  
Global Economy ◽  
Spillover Effect ◽  
Price Volatility ◽  
Volatility Spillover ◽  
Content Type ◽  
Crude Oil Prices ◽  
The Impact

PurposeCrude oil, gold and interest rates are some of the key indicators of the health of domestic as well as global economy. The purpose of the study is to find the shock volatility and price volatility effects of gold and crude oil market on interest rates in India.Design/methodology/approachThis study finds the mutual and directional association of the volatility of gold, crude oil and interest rates in India. The bi-variate GARCH models (Diagonal VEC GARCH and BEKK GARCH) are applied on the sample data of gold price, crude oil price and yield (interest rate) gathered from November 30, 2015 to November 16, 2020 (weekly basis) to investigate the volatility association including the volatility spillover effect in the three markets.FindingsThe main findings of the study focus on having a long-term conditional correlation between gold and interest rates, but there is no evidence of volatility spillover from gold and crude oil on the interest rates. The findings of the study are of great importance especially to the policymakers, as they state that the fluctuations in prices of gold and crude oil do not adversely impact the interest rates in India. Therefore, the fluctuations in prices of gold and crude may generally impact the economy, but it has nothing to do with interest rate in particular. This implies that domestic and foreign investments in the country will not be affected by gold and crude oil that are largely driven by interest rates in the country.Practical implicationsGold and crude oil are two very important commodities that have their importance not only for domestic affairs but also for international business. They veritably influence the economy including forex exchange for any nation. In addition to this, the researchers believe the findings will provide insights to policymakers, stakeholders and investors.Originality/valueGold and crude oil undoubtedly influence the exchange rates but their impact on the interest rates in an economy is not definite and remains ambiguous owing to the mixed findings of the studies. The lack of studies related to the impact of gold and crude oil on the interest rates, despite them being essentials for the health of any economy is the main motivation of this study. This study is novel as it investigates the volatility impact of crude oil and gold on interest rates and contributes to the existing literature with its findings.

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