Dynamics of Outward Foreign Direct Investment from BRICS: A Study of Home and Host Country Effects

Mohanty, Saileja (2023) Dynamics of Outward Foreign Direct Investment from BRICS: A Study of Home and Host Country Effects. PhD thesis.

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Abstract

Capital is considered as an asset which is used to supply continuing production of goods and services for obtaining profits, and it helps to improve the economic conditions of a developing nation. The role of foreign capital is essential for economic development as it enlarges the competitiveness of the domestic market through transfer of technology, improving infrastructure, reducing unemployment, and involving in more productive activities. The “Foreign Direct Investment” (FDI) is a part of foreign capital which acts as a direct investment made by outsiders in the domestic market. It mainly considers international business operation in home countries. The objective of the research is to investigate the human and economic development in emerging countries. Also, the study will analyse the economic variables that determine the site choices of emerging countries for Outward Foreign Direct Investment (OFDI). Traditional interpretations about FDI are being challenged because of the sustained growth of OFDI in developing and emerging economies all around beginning of the twentieth century. The old theories are based on the experiences of large multinationals from developed and advanced economies and are not applicable to developing and emerging markets. As a result of this issue, there is disagreement about whether the existing theoretical concept of FDI, such as the International Organizational Framework, the Monopolies Advantages Theory, the Internalization Theory, and the Ownership-Location-Internalization (OLI) Concept, should be substituted by current models, maintained the same, or extended and modified to better match the setting of developing and emerging economies. Earlier studies, inspired by the troubling discussion, evaluated the explanatory capacity of traditional-OLI theory and innovative FDI theories Product cycle theory. However, such a strategy is revealed to be theoretically constrained (Buckley et al., 2007). To make traditional FDI theories more relevant for describing the quantity and type of outbound FDI from developing markets, the home country influence in contextual components, especially institutional environment is more important (Dunning and Lundan, 2008; Peng et al., 2008). The home country's macroeconomic and institutional environment, known as "L" advantages, can be used directly to enable OFDI flows. Indirectly, features of the home nation have a significant influence on determining the kind of "O" advantages that its firms have, which defines their capacity to invest overseas (Narula & Kodiyat, 2016). The current study will provide a conceptual framework that combines traditional economic considerations and identifies institutional distance. This study will restrict the sample areas for panel analysis by focusing on BRICS and India from 1990 to 2021 and 2012 to 2021, respectively. The research investigates four objectives to see the dynamic influence of OFDI in the BRICS. The initial goal is to explore the overall performance of OFDI as well as the changing pattern of OFDI. The primary objective is to investigate the achievement of OFDI as well as its changing pattern. The 2nd objective is investigated and explored the direct influence of outward FDI on both the host and the home nation. First and second objectives (2a) were addressed in the research, and the study followed an advanced methodology throughout the first chapter. In the first portion, the first chapter delivered an outline of the major trends and patterns of BRICS OFDI. Using five home countries as case studies, the second objective (2a) is to investigate the influence of macroeconomic performance on the amount of outward foreign direct investment (FDI) in home nations from 1990 to 2019. Using both fundamental and sophisticated methods, the study's findings conclude that most macroeconomic factors are relevant and positively influence outward FDI. Financial development is inversely connected with OFDI, showing that the countries' financial development does not stimulate external FDI, resulting in the countries' development deteriorating. The third chapter explores the influence of informal institutional distance and locational choice on home and host nations as it belongs to the second purpose of this research (2b). The paper uses the BRICS as a sample of investment home countries to examine the institutional effectiveness of OFDI in twenty host countries from 1990 to 2020. To determine the objective, the study used OFDI flows as a dependent variable acquired from UNCTAD and various independent factors for empirical analysis. The study employed a basic and augmented gravity model in which the traditional gravity components are positive and important, indicating that BRICS locational option is favourable. The augmented gravity approach discovered that the regulatory institutional distance (RID) that exists between home nations and selected host countries tends to block OFDI. On the other hand, normative and cognitive institutional distance frequently favour OFDI. The third goal of the research is to look at the linkage between technical innovation, outward FDI, and human capital in the BRICS from 1990 to 2020. This study employs Fixed-effects Regression and threshold Regression for static analysis, and FMOLS and 3SLS for robust results in the empirical portion. The study's outcomes reveal that all the determinants have long-term stable correlations. BRICS FDI has been found to be significantly related to home nation innovation performance, human resources, GDP per capita, and research intensity. Yet, the opposite would not be true for our model. Lastly, the fourth objective of the research investigates the overall performance of the economic variables of outward FDI analysis from India on both the country and firm levels in chapter five. The study investigates two types of analysis: country-level (level-1) and firm-level (level-2). After a diagnosis check, the research performs an augmented gravity analysis, where POLS and F-GLS results have little effect on the variables. The study used PPML to reduce heterogeneity and found that traditional gravity variables are relevant, showing that locational qualities of the host nation attract Indian OFDI. The PPML also discovered that institutional traits, such as regulatory and cognitive institutional distance, attract foreign investment. Nonetheless, there were no particularly noteworthy results from the cultural gap. Hence, language and cultural limitations likely explain India's low FDI to its top seven host nations. Level 2 of the study, which included 21 manufacturing firms, discovered that overall firm-level OFDI is increasing at a rather slow rate. The robust GMM findings indicated that profit and income are higher for Indian OFDI, but company size and foreign participation are unaffected.

Item Type:Thesis (PhD)
Uncontrolled Keywords:OFDI; Location Choice; Institutional Distance; BRICS
Subjects:Humanities & Social Sciences > Financial Economics
Humanities & Social Sciences > International Economics
Humanities & Social Sciences > Environmental Sociology
Divisions: Social Sciences > Department of Humanities & Social Sciences
ID Code:10535
Deposited By:IR Staff BPCL
Deposited On:18 Jun 2025 11:20
Last Modified:18 Jun 2025 11:20
Supervisor(s):Sethi, Narayan

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