Foreign Direct Investment – Under the Sign of Profit or Sustainable Development?

A special issue of Journal of Risk and Financial Management (ISSN 1911-8074). This special issue belongs to the section "Financial Markets".

Deadline for manuscript submissions: 29 March 2024 | Viewed by 52910

Special Issue Editors

Institute of National Economy, Romanian Academy, Bucuresti, Romania
Interests: economic development; economic analysis; economic policy; analysis economy
Institute of National Economy, Romanian Academy, Bucuresti, Romania
Interests: economic theories at micro and macro level; sustainable development; demoeconomics, economics of human resources; labor market, employment policies employment and wage policies; social politics; population and labor mobility; regional policies; budgetary policies, FDI and export, FDI impact on employment and labour productivity
Special Issues, Collections and Topics in MDPI journals

Special Issue Information

Dear Colleagues,

Foreign direct investment (FDI) is a force shaping the world economy. Initially, FDI was considered a panacea for the economic development of developing countries or in transition to the market economy (cash contribution taking in consideration limited domestic financial funds, job creation, promotion of CSR). Now, FDI are viewed with circumspection, considering the negative effects of foreign capital on the host countries (disturbances of the balance of payments, pollution of the environment, tax evasion, and fueling corruption). The impact of FDI on the host countries can be modeled by the quality of the local public institutions, the legal framework, and the force with which legal regulations are applied. Economic growth in developing or transition countries has generated FDI outflows from these countries, and thus, the emergence of new players on the international financial market, such as state-owned multinational enterprises (MNEs), with specific behavior.

At international level, MNEs and other entities with global involvement can support the efforts to promote sustainable development (through various initiatives, such as Sustainable Development Goals and Global Compact Principles) through the use of environmentally-friendly technologies, the promotion of CSR programs, adopting the principles of corporate governance that ensure the respect of the rights of the stakeholders or the dissociation of the inappropriate behavior of the local authorities through divestments.

This Special Issue follows the publication of original papers, review articles, and theoretical and empirical research considering the challenges generated by sustainable development on FDI flows.

Prof. Dr. Gheorghe Zaman
Prof. Dr. Valentina Vasile
Dr. Mirela Panait
Guest Editors

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Keywords

  • Foreign direct investment;
  • MNEs and Sovereign Wealth Funds;
  • economic growth and sustainabledevelopment;
  • CSR and ESG performance;
  • Investment development path;
  • Divestment;
  • Kuznet curve and low carbon economy;
  • Technological transfer;
  • Special economic zones;
  • transfer prices;
  • crowding-in and crowding-out investment effects;
  • vertical and horizontal FDI;
  • expatriated and re-invested profits;
  • spillover effects;
  • economic crisis impact on FDI inflows and outflows;
  • foreign trade and FDI relationships;
  • labour productivity in FDI and domestic sectors of host countries;
  • FDI and regional sustainable development;
  • FDI, international value chains and specialization;
  • FDI impact on labor force markets and salaries

Published Papers (13 papers)

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Research

21 pages, 1703 KiB  
Article
COVID-19—A Black Swan for Foreign Direct Investment: Evidence from European Countries
by Eglantina Hysa, Erinda Imeraj, Nerajda Feruni, Mirela Panait and Valentina Vasile
J. Risk Financial Manag. 2022, 15(4), 156; https://0-doi-org.brum.beds.ac.uk/10.3390/jrfm15040156 - 30 Mar 2022
Cited by 4 | Viewed by 3543
Abstract
This study aims to reconsider the role of foreign direct investment determinants for European national development and to analyze the impacts of the pandemic situation caused by COVID-19. Foreign direct investment is a source of development; therefore, this study includes empirical applications, specifically [...] Read more.
This study aims to reconsider the role of foreign direct investment determinants for European national development and to analyze the impacts of the pandemic situation caused by COVID-19. Foreign direct investment is a source of development; therefore, this study includes empirical applications, specifically the random effect model, for EU countries, during the pandemic period. This study provides some valuable conclusions regarding the changes caused by the main determinants of foreign direct investment, such as unemployment, interest rates, economic growth, inflation, and business confidence. Additionally, the proxies of COVID-19 are the number of cases and number of deaths, both appearing to positively contribute to FDI outflow, the former with a higher impact than the latter. Based on the availability of the data, this paper deals with 22 European Union countries for Q1, Q2, and Q3 of 2020. Data for all the chosen variables were not available for the fourth quarter (Q4); thus, this period was not considered, which constitutes a limitation of this study, but confirms the need for robust FDI inflows to support the sustainable post-pandemic development recovery of less-developed EU countries. As the need for external funding sources, i.e., FDI inflow, grows in times of crisis, governments should take suitable measures to uplift the confidence of socially responsible foreign investors during difficult times generated by black swan events. There is almost no detailed research regarding the impact of COVID-19 on FDI flows received by European Union countries. Full article
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13 pages, 297 KiB  
Article
Determining Factors of FDI Flows to Selected Caribbean Countries
by Sandra Sookram, Roger Hosein, Leera Boodram and George Saridakis
J. Risk Financial Manag. 2022, 15(2), 48; https://0-doi-org.brum.beds.ac.uk/10.3390/jrfm15020048 - 21 Jan 2022
Cited by 5 | Viewed by 3915
Abstract
Foreign direct investment (FDI) is a vital ingredient in achieving sustained growth in the Caribbean region. However, FDI inflows have been affected by issues such as market factors, trade barriers, costs factors, investment climate, political and foreign exchange stability. To this end, this [...] Read more.
Foreign direct investment (FDI) is a vital ingredient in achieving sustained growth in the Caribbean region. However, FDI inflows have been affected by issues such as market factors, trade barriers, costs factors, investment climate, political and foreign exchange stability. To this end, this paper examines the factors affecting FDI flows into Caribbean countries. We argue that Small Island Developing States in the Caribbean (SIDSC) can be affected by issues such as their small market size, high cost of energy, proneness to exogenous shocks from commodity prices, natural disasters and climate change. A point to note is that countries in the Caribbean with natural resources are expected to have biased FDI inflows. Additionally, countries throughout the Caribbean have different economic and productive structures and unique issues that can affect them based on their individual characteristics. To this end, a panel Autoregressive Distributed Lagged (ARDL) model is used to determine the factors affecting FDI inflows in the Caribbean over the period 2000 to 2019. The findings reveal that GDP growth, natural resource rents, gross capital formation and population growth are significant factors influencing growth in the Caribbean region. Full article
13 pages, 321 KiB  
Article
Foreign Direct Investment in GCC Countries: The Essential Influence of Governance and the Adoption of IFRS
by Costas Siriopoulos, Athanasios Tsagkanos, Argyro Svingou and Evangelos Daskalopoulos
J. Risk Financial Manag. 2021, 14(6), 264; https://0-doi-org.brum.beds.ac.uk/10.3390/jrfm14060264 - 10 Jun 2021
Cited by 18 | Viewed by 3263
Abstract
This paper presents an analysis of the factors affecting foreign direct investments, focusing on governance quality and adoption of International Financial Reporting Standards on countries of the Gulf Cooperation Council, which are a special case of study due to their idiosyncratic characteristics, rich [...] Read more.
This paper presents an analysis of the factors affecting foreign direct investments, focusing on governance quality and adoption of International Financial Reporting Standards on countries of the Gulf Cooperation Council, which are a special case of study due to their idiosyncratic characteristics, rich natural resources and geographical position. Panel data analysis was conducted, implementing three different models (Fixed Effect, Random Effect, and Arellano Bond Dynamic Model). The results show that the adoption of International Financial Reporting Standards is a strong determinant that promotes foreign direct investments. As regards the governance quality, the block of Gulf Cooperation Council countries has fulfilled the minimum level of governance pre-conditions relative to foreign direct investments. In addition, governance indicators associated with law, rules, and corruption are more influential determinants for foreign direct investments. Full article
13 pages, 1672 KiB  
Article
Sustaining Economic Growth in Sub-Saharan Africa: Do FDI Inflows and External Debt Count?
by Udi Joshua, David Babatunde and Samuel Asumadu Sarkodie
J. Risk Financial Manag. 2021, 14(4), 146; https://0-doi-org.brum.beds.ac.uk/10.3390/jrfm14040146 - 29 Mar 2021
Cited by 13 | Viewed by 3268
Abstract
The quest for the attainment of economic development is sought after by all global economies, which by effect is expected to transcend to improving livelihoods and standard of living. However, several factors hinder the process of achieving sustained economic development, especially in developing [...] Read more.
The quest for the attainment of economic development is sought after by all global economies, which by effect is expected to transcend to improving livelihoods and standard of living. However, several factors hinder the process of achieving sustained economic development, especially in developing countries. In this regard, assessing the extent of economic expansion orchestrated by foreign direct investment (FDI) inflows in vulnerable economies such as Sub-Saharan Africa (SSA), particularly in the face of the significant fall in global FDI inflow, is worthwhile. In essence, this study ascertains the impact of FDI inflows and external debt on economic growth amidst decline in FDI inflows and excessive foreign borrowings. The mixed order of integration from the stationarity test underpins the adoption of autoregressive distributed lag (ARDL) approach for data covering the period 1990 to 2018. The empirical results found FDI inflows play a crucial role in achieving economic expansion in the region. On average, FDI inflows, external debt, and foreign aids are more useful in expanding the economy compared to trade openness and exchange rate. Thus, this study recommends the need for SSA to open its economic borders for external capital, viz. FDI. A peaceful economic and political environment is a pre-condition to attract and maintain potential foreign investors. Stability in exchange rates is critical in achieving growth in FDI and other foreign resources. However, caution is required, especially in administration of external resources. Particularly, contracting external debt must strictly be driven by economic reasons rather than political motivation. Borrowed funds could be injected mainly into productive streams with the highest investment returns to boost economic development. Full article
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15 pages, 608 KiB  
Article
Foreign Direct Investment and World Pandemic Uncertainty Index: Do Health Pandemics Matter?
by Linh Tu Ho and Christopher Gan
J. Risk Financial Manag. 2021, 14(3), 107; https://0-doi-org.brum.beds.ac.uk/10.3390/jrfm14030107 - 05 Mar 2021
Cited by 30 | Viewed by 6433
Abstract
This paper explores the impacts of health pandemics on foreign direct investment (FDI) using the new world pandemic uncertainty index (WPUI). We investigate the effects of pandemics, including COVID-19, on FDI based on a sample of 142 economies and sub-samples (incomes and regions) [...] Read more.
This paper explores the impacts of health pandemics on foreign direct investment (FDI) using the new world pandemic uncertainty index (WPUI). We investigate the effects of pandemics, including COVID-19, on FDI based on a sample of 142 economies and sub-samples (incomes and regions) from 1996 to 2019. The two-step system Generalised Method of Moments estimation of linear dynamic panel-data model (DPDGMM) is used in this study. The estimation results are robust with the results of the two-step sequential (two-stage) estimation of linear panel-data models (SELPDM) and the two-step system Generalised Method of Moments estimation (BBGMM). The results show that health pandemics have negative impacts on FDI. Significantly, the uncertainty caused by pandemics creates adverse shocks on FDI net inflows in Asia-Pacific countries and emerging economies. Full article
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12 pages, 638 KiB  
Article
Direct and Indirect Effects of Investment Incentives in Slovakia
by Aneta Bobenič Hintošová, František Sudzina and Terézia Barlašová
J. Risk Financial Manag. 2021, 14(2), 56; https://0-doi-org.brum.beds.ac.uk/10.3390/jrfm14020056 - 01 Feb 2021
Cited by 6 | Viewed by 3109
Abstract
Countries trying to attract foreign direct investment often use various tools to influence the foreign investor’s allocation decision including public subsidies in the form of investment incentives. However, the effects associated with providing these incentives are often questioned, especially in light of the [...] Read more.
Countries trying to attract foreign direct investment often use various tools to influence the foreign investor’s allocation decision including public subsidies in the form of investment incentives. However, the effects associated with providing these incentives are often questioned, especially in light of the need to achieve at least a minimum level of attractiveness of the business environment. The primary aim of the present study was to examine the effects of investment incentives on foreign direct investment inflows (direct effect) and on selected macroeconomic variables (indirect effects) under the conditions in Slovakia. Findings showed that the preference of specific forms of investment incentives by the government of the Slovak Republic changed slightly in the observed period of 2002–2019. The results of the regression analysis further suggest that while financial incentives have a positive statistically significant direct effect on foreign direct investment inflows, in the case of fiscal incentives, this effect is the opposite. In terms of indirect effects of investment incentives, only a reduction in the unemployment rate through foreign direct investment was found. The study contributes to the literature by providing evidence on the effects of various forms of investment incentives and by offering some implications for investment promotion policy. Full article
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12 pages, 357 KiB  
Article
European FDI in Ireland and Iceland: Before and after the Financial Crisis
by Helga Kristjánsdóttir and Stefanía Óskarsdóttir
J. Risk Financial Manag. 2021, 14(1), 23; https://0-doi-org.brum.beds.ac.uk/10.3390/jrfm14010023 - 06 Jan 2021
Cited by 9 | Viewed by 4402
Abstract
This paper analyses Foreign Direct Investment (FDI) investment in Ireland and Iceland from other European countries during two periods, i.e., the pre-financial crisis period of 2000–2007 and the financial crisis period of 2008–2010. The aim of this research is to determine what made [...] Read more.
This paper analyses Foreign Direct Investment (FDI) investment in Ireland and Iceland from other European countries during two periods, i.e., the pre-financial crisis period of 2000–2007 and the financial crisis period of 2008–2010. The aim of this research is to determine what made the countries interesting to foreign investors in both good and bad times; and, secondly, to examine whether European Union membership (and the Euro) made a difference in this respect. The results were obtained by using data from the OECD, the World bank, and other sources. The model constructed for the study applies the inverse hyperbolic sine transformation of the gravity model, which is a novel approach. The results demonstrate that before the financial crisis of 2008, European Union (EU) membership did not help Ireland attract more FDI from other EU countries. However, once it had been hit by the crisis, Ireland attracted more FDI from other EU countries. Iceland, on the other hand, which is not an EU country, attracted FDI from non-EU countries rather than from EU countries before the financial crisis. After the crisis, however, the origin within Europe, of FDI in Iceland had no significant effect on the flow of FDI into the country. Full article
12 pages, 475 KiB  
Article
Economic Calculus Qua an Instrument to Support Sustainable Development under Increasing Risk
by Grzegorz Drozdowski
J. Risk Financial Manag. 2021, 14(1), 15; https://0-doi-org.brum.beds.ac.uk/10.3390/jrfm14010015 - 01 Jan 2021
Cited by 22 | Viewed by 2462
Abstract
Investment decisions in the field of sustainable development should be taken based on an economic calculation, taking into account the analysis of a diverse economic environment. The economic calculus of an enterprise is treated as a kind of way of thinking about the [...] Read more.
Investment decisions in the field of sustainable development should be taken based on an economic calculation, taking into account the analysis of a diverse economic environment. The economic calculus of an enterprise is treated as a kind of way of thinking about the rationality of decisions made by an entrepreneur. In the case of sustainable development, the economic calculus serves as an instrument to support the selection of the investment measure. The result of the economic calculus is based on various types of economic parameters, which are subject to frequent changes and high risk. A risk-based financial account may be of little use in the context of the unpredictability of the forecasted situations. In the article, I attempted to determine the importance of a variable interest rate in the economic calculus of a company as an instrument to support sustainable development. For this purpose, I modified the Net Present Value (NPV) meter, which contains actual (variable) discount rates. Full article
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14 pages, 1395 KiB  
Article
Impact of Macroeconomic, Governance and Risk Factors on FDI Intensity—An Empirical Analysis
by K. S. Sujit, B. Rajesh Kumar and Sarbjit Singh Oberoi
J. Risk Financial Manag. 2020, 13(12), 304; https://0-doi-org.brum.beds.ac.uk/10.3390/jrfm13120304 - 02 Dec 2020
Cited by 5 | Viewed by 4089
Abstract
The study analyzes the impact of macroeconomic, governance and risk factors on foreign direct investment (FDI) intensity with respect to the US market during the period 1960–2019. The study adopted regression methodology. The FDI, macroeconomic and risk data were sourced from the Federal [...] Read more.
The study analyzes the impact of macroeconomic, governance and risk factors on foreign direct investment (FDI) intensity with respect to the US market during the period 1960–2019. The study adopted regression methodology. The FDI, macroeconomic and risk data were sourced from the Federal Reserve Economic Data (FRED) database. The governance data were collected from the World Bank Governance Database. The study suggests that infrastructural investments lead to higher FDI. A stronger Euro leads to higher FDI activity in the United States. Research & Development investments is a significant factor which contributes towards enhanced FDI activity. The higher the corporate profitability, the greater the FDI inflows. Exports and imports are significant factors which determine FDI in markets like USA. Inflation has a negative impact on FDI flow regulations, which are aimed to promote private sector development is negatively related to FDI intensity. FDI activity by firms tend to be lower when corruption levels are higher in the country. The higher the governance perception in terms of voice and accountability of citizens, the greater the propensity to attract FDI. The perception of the effectiveness of a government’s commitment towards the quality of public and civil services is directly related to FDI investment. Full article
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15 pages, 266 KiB  
Article
Global FDI Inflow and Its Implication across Economic Income Groups
by Udi Joshua, Mathew Ekundayo Rotimi and Samuel Asumadu Sarkodie
J. Risk Financial Manag. 2020, 13(11), 291; https://0-doi-org.brum.beds.ac.uk/10.3390/jrfm13110291 - 22 Nov 2020
Cited by 6 | Viewed by 3492
Abstract
Foreign direct investment (FDI) as a driver of growth is important in today’s globalized economy. It is extremely difficult for economies to grow sustainably without economic interactions outside their borders. However, there has been a debate on the impact of FDI inflow on [...] Read more.
Foreign direct investment (FDI) as a driver of growth is important in today’s globalized economy. It is extremely difficult for economies to grow sustainably without economic interactions outside their borders. However, there has been a debate on the impact of FDI inflow on economic expansion. Hence, this study investigated the influence of FDI on economic growth for a selection of 200 economies around the world for the period 1990–2018. We subdivided the sample into World Bank income group clusters to aid comparison across income blocs. The study employed panel estimation techniques including pooled ordinary least squares (POLS), dynamic panel estimation with fixed-effects and random-effects and generalized method of moments (GMM). The study found that FDI, debt stock and official development assistance are promoters of growth in the selected countries—although debt stock weakly impacts economic growth. In contrast, trade openness and exchange rates had a mixed (negative and positive) influence on economic growth. The study suggests that the creation of a conducive business environment and economic policies will attract FDI inflows. Additionally, borrowing from external sources could be minimized despite its perceived positive influence on growth to achieve financial independence. Full article
17 pages, 308 KiB  
Article
Determinants of German Direct Investment in CEE Countries
by Niklas Becker and Andrzej Cieślik
J. Risk Financial Manag. 2020, 13(11), 268; https://0-doi-org.brum.beds.ac.uk/10.3390/jrfm13110268 - 02 Nov 2020
Cited by 9 | Viewed by 2512
Abstract
This paper studies the determinants of German direct investment in the Central and Eastern European countries during the period 1996–2016 using the augmented Knowledge Capital model to identify the main reasons for foreign direct investment (FDI). The empirical results show increasing multinational enterprise [...] Read more.
This paper studies the determinants of German direct investment in the Central and Eastern European countries during the period 1996–2016 using the augmented Knowledge Capital model to identify the main reasons for foreign direct investment (FDI). The empirical results show increasing multinational enterprise (MNE) activity with growth in country-size and with growing similarities of countries, which supports the horizontal reason for FDI; while the difference in the share of skilled labor force associated with the vertical reason has no effect. Furthermore, the estimation results show unimportance of trade costs to the foreign market and the significance of the distance between source and host countries. Full article
11 pages, 457 KiB  
Article
Effects of Foreign Direct Investment and Trade on Labor Productivity Growth in Vietnam
by Hidekatsu Asada
J. Risk Financial Manag. 2020, 13(9), 204; https://0-doi-org.brum.beds.ac.uk/10.3390/jrfm13090204 - 09 Sep 2020
Cited by 12 | Viewed by 4266
Abstract
Among developing Asian countries that have accelerated their integration with the global economy, Vietnam has achieved remarkable economic development. Vietnam’s development strategy prioritizing the promotion of trade and foreign direct investment (FDI) resulted in the rapid transformation of its industrial structure from an [...] Read more.
Among developing Asian countries that have accelerated their integration with the global economy, Vietnam has achieved remarkable economic development. Vietnam’s development strategy prioritizing the promotion of trade and foreign direct investment (FDI) resulted in the rapid transformation of its industrial structure from an agro-based one to one led by the export-oriented manufacturing sector in the past three decades. Given the importance of labor productivity growth on the structural transformation, the study examined the effects of FDI and trade on labor productivity growth in Vietnam in the long run and short run. The study employed the autoregressive distributed lag (ARDL) model of analysis using data from 1990 to 2017. The ARDL model analysis revealed that FDI, capital goods import, and export unanimously contributed to the labor productivity growth in the long run, while the impact in the short run remained ambiguous. The results confirm the theoretical framework augmenting the positive relationship that exists between FDI and trade and labor productivity growth. Vietnam’s experience is expected to provide an important lesson to other developing countries. Full article
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24 pages, 1473 KiB  
Article
An Empirical Investigation on Determinants of Sustainable Economic Growth. Lessons from Central and Eastern European Countries
by Batrancea Ioan, Rathnaswamy Malar Mozi, Gaban Lucian, Fatacean Gheorghe, Tulai Horia, Bircea Ioan and Rus Mircea-Iosif
J. Risk Financial Manag. 2020, 13(7), 146; https://0-doi-org.brum.beds.ac.uk/10.3390/jrfm13070146 - 06 Jul 2020
Cited by 33 | Viewed by 5400
Abstract
The study focuses on the effects of imports, exports, financial direct investment inflow and financial direct investment outflow on sustainable economic growth expressed by various macroeconomic indicators (gross domestic product, gross domestic savings, gross domestic capital) using the least squares panel method. Sample [...] Read more.
The study focuses on the effects of imports, exports, financial direct investment inflow and financial direct investment outflow on sustainable economic growth expressed by various macroeconomic indicators (gross domestic product, gross domestic savings, gross domestic capital) using the least squares panel method. Sample data were selected for ten Central and Eastern European (CEE) countries and the time frame considered was 2005–2016. Generally, transitional economies have to incorporate strong savings and a steady capital formation in order to achieve higher economic growth via foreign direct investment. Results showed that the analyzed factors played a major role in the sustainable economic growth of CEE countries. Another important and valuable insight of this study is that the financial sector steers the process of achieving sustainable economic growth across CEE countries. Full article
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