The Double-Edged Sword of Inward Foreign Direct Investment For Growth and Sustainability of Developing Economies

Guest Editors:

Byung Il Park, Hankuk University of Foreign Studies, South Korea

Lucia Piscitello, Politecnico di Milano School of Management, Italy

Nigel Driffield, Warwick University, Warwick Business School, UK

Purpose and Research Questions:

According to UNCTAD estimates (2007, 2011, 2020), after accounting for fluctuations based on economic conditions, the stock value of (outward) foreign direct investment (FDI) transactions grew from U$1.8 trillion a year in 1990 to U$6.2 trillion in 2000. The figure of U$12.5 trillion for 2006 was twice that of the year 2000 and worldwide FDI activities continued to expand, increasing to U$20.4 trillion in 2010 and to U$34.6 trillion in 2019.

While most of the main sources for such an FDI come from multinational corporations (MNCs) that have headquarters in developed economies (Berrill, Kearney, & O’Hagan-Luff, 2019), the primary economies, which attract FDI, are, namely China, India, and Southeast Asian countries. In addition, the African continent is also often referred to as the last blue ocean for MNCs to stably earn their profits abroad.

Despite the plausible theoretical ground for anticipating positive contributions (e.g. economic growth, innovations, institutional development and the progress of artificial intelligence, etc.) of FDI to these emerging and developing countries, the role of FDI in the issue remains highly controversial (Reiter & Steensma, 2010). While some studies confirm a positive impact of FDI (e.g., Adams, 2009; Salim & Bloch, 2009; Vu, 2008; Woo, 2009), others fail to find such relationship (e.g. Barry, Gorg, & Kosova, 2010; Strobl, 2005; Djankov & Hoekman, 2000; Jin & Zeng, 2017). In contrast, researchers in the third school argue conditions to yield the positive outcomes through FDI. As an example, Chitambara (2021) finds that FDI inflows exert a positive impact on economic growth only in combination with institutional development and trade openness. Hermes and Lensink (2003) and Durham (2004) document that FDI promotes economic development in the case where the host countries have achieved a certain level of financial systems and equipped appropriate financial market regulations. According to Reiter and Steensma (2010), the positive impact of FDI depends on the level of corruption in local markets.

Accordingly, those researchers argue different views on FDI contributions. For example, De Mello (1997) considers FDI as a bundle of foreign capital, technology and know-how. Consequently, host markets (i.e., developing and emerging countries) attracting FDI are anticipated to significantly reduce the technological gap against advanced economies leading to positive innovations. In the same vein, Asheghian (2004) emphasizes that output growth in the developing and emerging countries is dependent upon whether they can enhance efficiency and productivity throughout domestic industries, and argues that FDI inflows commonly result in increasing returns in domestic production and enlarges in the value-added content of FDI-related production. In contrast, some other researchers contend that MNCs extract profits from local markets and give nothing of value in exchange. In addition, they highlight that the relations between core and peripheral economies hamper the latter’s development, perpetuate their subordinate status, transfer economic surplus to the core, and increasingly force them to rely on core countries for investment, employment and technology (Perraton, 2007).

Due to this, we do not yet know enough about the two bright and dark sides of the same coin (i.e., FDI) represented by the statement that FDI is a double edged sword. In this regard, the aim of this special issue is to bring together theoretical and empirical advancements examining the contributions of MNCs and FDI to various areas in relatively underdeveloped markets. We seek conceptual, theoretical and empirical (both quantitatively and qualitatively approached) papers, as well as literature reviews and meta-analyses, that may address, but are not limited to, the following list of potential research questions:

• Which theories of international business or multinational enterprise best explain the apparent implications of FDI for developing countries?

• What are the key factors yielding positive outcomes through FDI in developing and emerging economies? Is there any heterogeneity across the level of economic and social developments in a host country and across industries? What role does distance play?

• How does FDI function as a means for knowledge transfer or knowledge extortion between developed and developing economies? 

• What is the effect of FDI on institutional development in local economies?

• What is the impact of FDI on poverty and inequality in local economies?

• How does FDI influence differently when it is attracted in developed and developing economies for innovation (e.g. De Beule & Van Beveren, 2019)? 

• Who obtains more benefits through FDI between advanced and developing countries?   

• Are there any patterns of social development through FDI in developing countries? What implications can be drawn from countries that have successfully leapfrogged into better economies?

• In the view of emerging and developing countries, what are the primary conditions that retard double negative economic outcomes from inward FDI?

• What is the effect of profit remittance by MNCs on the local market economy? What encourages MNCs to re-invest profits in local markets?

• What are the effects of reorganizing of MNCs’ global value chains (GVCs) by “reshoring” production, diversifying their supplier bases and adopting industry 4.0 revolution on emerging and developing economies, as well as developed economies (e.g. De Marchi, Di Maria, Golini, & Perri, 2020; Van Assche & Lundan, 2020)?

Submission Instructions:

The deadline for submissions is 31 December, 2022. For further information of International Journal of Development Issues, including author guidelines, please visit the International Journal of Development Issues website at: https://www.emeraldgrouppublishing.com/journal/ijdi#author-guidelines.

All submissions will be subject to the regular double-blind peer review process at the International Journal of Development Issues.

More Information:

To obtain additional information, please contact the guest editor:

Byung Il Park, Hankuk University of Foreign Studies, South Korea (leedspark@hufs.ac.kr)

Lucia Piscitello, Politecnico di Milano School of Management, Italy (lucia.piscitello@polimi.it)

Nigel Driffield, Warwick University, Warwick Business School, UK (Nigel.Driffield@wbs.ac.uk)