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A multilateral network perspective on inward FDI

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Abstract

Foreign direct investment (FDI) remains a preferred mode for multinational enterprises to access international markets, resources, and technology. However, there are vigorous debates in the academic literature about the magnitude of inward FDI spillovers and their effect on the economic growth of host countries. In this paper, we argue that these empirical inconsistencies arise from the narrow “home-host” bilateral context in which inward FDI spillovers are analyzed. Further, we show that the inconsistencies can be resolved by adopting a broader, multilateral network perspective to estimate the effects of inward FDI. This perspective allows us to account for the differences in inward FDI spillovers from different investing countries and aggregate these to assess the overall impact of inward FDI. We use quantitative network-centric analysis to model the multilateral connectivity amongst nations engendered by inward FDI. Specifically, we use a panel data set of over 200 host countries spanning two decades to demonstrate that (a) the diversity of inward FDI measured by the number of investing countries and (b) the quality of inward FDI measured by the structural position of investing countries in the global inward FDI network is correlated with higher economic growth of host countries.

Résumé

L'investissement direct à l’étranger (IDE) reste un mode d’entrée privilégié par les entreprises multinationales pour accéder aux marchés internationaux, aux ressources et à la technologie. Il existe cependant de vifs débats dans la littérature académique sur l’ampleur des retombées des IDE entrants et leurs impacts sur la croissance économique des pays d’accueil. Dans cet article, nous argumentons que ces incohérences empiriques découlent du contexte bilatéral étroit "pays d'origine-pays d'accueil" dans lequel sont analysées les retombées des IDE entrants. En outre, nous montrons que ces incohérences peuvent être résolues en adoptant une perspective plus large de réseau multilatéral pour estimer les effets des IDE entrants. Cette perspective nous permet de prendre en compte les différences en matière de retombées des IDE entrants provenant de différents pays investisseurs et de les agréger pour évaluer l'impact global des IDE entrants. Nous utilisons une analyse quantitative centrée sur le réseau afin de modéliser la connectivité multilatérale entre les nations engendrée par les IDE entrants. Plus précisément, nous utilisons un ensemble de données de panel de plus de 200 pays d'accueil couvrant deux décennies pour démontrer que (a) la diversité des IDE entrants mesurée par le nombre de pays investisseurs et (b) la qualité des IDE entrants mesurée par la position structurelle des pays investisseurs dans le réseau mondial des IDE entrants sont corrélées avec une croissance économique plus élevée des pays d'accueil.

Resumen

La inversión extranjera directa (FDI por sus siglas en inglés) sigue siendo el modo preferido para las empresas multinacionales acceder a mercados internacionales, recursos y tecnología. Sin embargo, hay debates agitados en la literatura académica sobre la magnitud de los efectos del derrame de la inversión extranjera directa entrante en el crecimiento económico de los países anfitriones. En este artículo, argumentamos que estas inconsistencias surgen del estrecho contexto bilateral “origen-anfitrión” en el cual se analizan los derrames de la inversión extranjera directa. Además, demostramos que estas inconsistencias se pueden resolver adoptando una perspectiva de red multilateral más amplia para estimar los efectos de la inversión extranjera directa entrante. Esta perspectiva nos permite tener en cuenta las diferencias en los derrames de inversión extranjera directa entrante de diferentes países inversionistas y agregar estos para evaluar el impacto global de la inversión extranjera directa entrante. Utilizamos un análisis centrado en la red cuantitativa para modelar la conectividad multilateral entre naciones generada por la inversión extranjera directa entrante. Específicamente, utilizamos un conjunto de datos de panel de más de 200 países anfitriones que abarcan dos décadas para demostrar que (a) la diversidad de la inversión extranjera directa entrante medida por el número de países inversionistas y (b) la calidad de la inversión extranjera directa entrante medida por la posición estructural de los países inversionistas en la red global de inversión extranjera directa entrante, está correlacionada con un mayor crecimiento económico de los países anfitriones.

Resumo

FDI continua sendo o modo preferido para empresas multinacionais acessarem mercados, recursos e tecnologia internacionais. No entanto, existem debates vigorosos na literatura acadêmica sobre a magnitude das consequências de recebimento de FDI e seu efeito no crescimento econômico de países anfitriões. Neste artigo, argumentamos que estas inconsistências empíricas surgem do estreito contexto bilateral “país de origem-anfitrião”, no qual são analisadas as consequências de recebimento de FDI. Além disso, mostramos que as inconsistências podem ser resolvidas através da adoção de uma perspectiva de rede multilateral mais ampla para estimar os efeitos do FDI entrante. Esta perspectiva permite-nos ter em conta as diferenças das consequências de recebimento de FDI de diferentes países investidores e agregá-las para avaliar o impacto global da entrada de FDI. Utilizamos análise quantitativa centrada em rede para modelar a conectividade multilateral entre nações gerada pelo FDI entrante. Especificamente, usamos um conjunto de dados em painel de mais de 200 países anfitriões abrangendo duas décadas para demonstrar que (a) a diversidade de FDI entrante medida pelo número de países investidores e (b) a qualidade do FDI entrante, medida pela posição estrutural de países investidores na rede global de FDI entrante, está correlacionada com um maior crescimento econômico de países de acolhimento.

摘要

外国直接投资(FDI)仍然是跨国企业获取国际市场、资源和技术的首选模式。然而， 学术文献中关于内向FDI溢出程度及其对东道国经济增长的影响存在激烈争论。在本文中， 我们认为， 这些实证上的不一致源于对内向FDI溢出效应分析的狭隘的“本国-东道国”双边情境。此外， 我们表明， 不一致问题可以通过采用更广泛的多边网络视角来估计内向FDI的影响来解决。这种视角使我们能够解释不同投资国的内向FDI 溢出效应的差异， 并将这些差异汇总起来以评估内向FDI 的总体影响。我们使用以网络为中心的定量分析对由内向FDI所引起的国家之间的多边连通性建模。具体来说， 我们使用跨越二十年的 200 多个东道国的面板数据集来证明： (a) 以投资国数量来衡量的内向 FDI 的多样性和(b)以投资国在全球内向 FDI 网络中的结构位置来衡量的内向 FDI 的质量与东道国较高的经济增长相关。

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Notes

  1. As mentioned earlier, a network is a graph consisting of a set of entities called nodes that are connected by relationship linkages called edges. When analyzing a network, the focal node is called the ego and the nodes to which it is connected are called its alter nodes or alters. In our paper, we treat the focal host country as the ego node or ego, and the countries that invest into the focal host country as its alter nodes or alters.

  2. The UN has been the most widely accepted and ubiquitous intergovernmental organization and thus the most apt to define the boundaries of the global FDI network. It is possible that a few countries are either not members of the UN or not accorded the country status and thus are not part of our analysis. However, given this lack of global recognition, such entities are unlikely to have any significant FDI stocks and are often isolated, which should not alter our results.

  3. We selected these years for analysis because exhaustive bilateral FDI statistics were only available for these years. In 2013, UNCTAD discontinued this tradition and adopted a reporting structure where the focal country’s highest FDI partners by volume only were reported.

  4. Formulae have been provided in the online appendix.

  5. We also test the effects in full models and find consistent results.

  6. Fagiolo, Reyes, & Schiavo (2010) contend that network characteristics remain stable over the years even though the network positions of the individual nodes change from year to year. It is important to verify this assertion as our empirical specification does not account for the endogenous dynamism in the overall network. For example, if the network density increases, the average path length decreases and changes the nodes’ structural properties (Borgatti, 2009) without an exogenous intervention, leading to bias in our regression estimates. We observe from the whole network analysis presented in Table A4 of appendix that the clustering coefficient and the average path length statistics are relatively stable over the years, and thus our concern about endogenous dynamism in the network is minimized.

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Acknowledgments

We thank Professors Alain Verbeke and John Cantwell, the editorial team at JIBS, seminar participants at the Fox School of Business (Temple University), and the Haskayne School of Business (University of Calgary), as well as the attendees at the AIB Conference in Warsaw 2023, and the AIB-NE chapter conference 2021 for providing valuable feedback on the earlier versions of this manuscript.

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  1. Department of Strategic Management, Fox School of Business, Temple University, Alter Hall, Philadelphia, PA, 19122, USA

    Soni Jha

  2. Purdue University - Fort Wayne, 2101 East Coliseum Boulevard Fort, Wayne, IN, 46805, USA

    Soni Jha

  3. Shailesh J. Mehta School of Management, Indian Institute of Technology Bombay (IIT-Bombay), Powai, Mumbai, 400076, India

    Snehal Awate

  4. Fox School of Business, Temple University, Alter Hall 548, Philadelphia, PA, 19122, USA

    Ram Mudambi

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  1. Soni Jha
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Jha, S., Awate, S. & Mudambi, R. A multilateral network perspective on inward FDI. J Int Bus Stud 55, 303–325 (2024). https://doi.org/10.1057/s41267-023-00650-x

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