Transnational Corporations - Volume 28, Issue 1, 2021

Building on a sociology theory of space, we conceptualize physical geography as separated from its constructed connotations and suggest that the impact of geographic location on countries’ attraction for foreign direct investment (FDI) is contingent upon their constructed qualities – that is, their unilateral characteristics and connectivity to other countries. Quantile regression analyses confirm these predictions and show notable variations across the distribution of FDI. The findings show that geography is not destiny and should rather be treated as an endogenous country characteristic whose consequences for FDI are subject to actions of policymakers and firms. Subsequent analyses show that the level of economic development affects the relationships between the physical and constructed consequences of geography on FDI, introducing significant differences between developed and developing countries. We outline the role for policy in shaping the contingencies that affect the relationships between geographic location and FDI.

This paper evaluates the Common Consolidated Corporate Tax Base (CCCTB) recently proposed by the European Commission. We find that if the CCCTB is introduced as it is currently proposed (including loss consolidation), then it is likely to impose large tax revenue costs of about one fifth of the corporate tax base. Second, we show that an application of the CCCTB proposals at only the European Union (EU) level would overlook the extent of profit shifting out of the EU and could lock in further unnecessary revenue losses. Third, major EU profit-shifting countries such as Luxembourg, Ireland and the Netherlands may experience significant revenue losses. Based on our analysis, the main policy recommendation is to consider extending the approach to a worldwide system, which would simultaneously deal with profit shifting within and out of the EU, and appears to offer the best prospect for revenue-positive, welfare-enhancing reform. For this to be viable, an immediate priority is to collate cross-country-comparable data and provide precise assessments of the range of policy scenarios.

This research explores the enablers of emerging-market firms (EMFs) leapfrogging in the internationalization process. Although many studies on rapid internationalization focus on exporting activities, we expand the concept to a higher-commitment entry mode: foreign direct investment (FDI). In addition, we investigate the role of an understudied force, foreign multinational enterprises (MNEs) in emerging markets, in enabling rapid internationalization of EMFs. Our hypotheses are tested using 1,612 first-time outward FDI projects from China between 2000 and 2014. The largely supported results suggest that minority foreign ownership and colocation with foreign MNEs allow EMFs to leapfrog certain stages in the establishment chain. Our findings offer alternative explanations, besides the government steward logic, to EMFs’ international expansion and contribute to the understanding, from a policy standpoint, that encouraging foreign-local partnerships is conducive to host-country industrial upgrading.

We study cultural spillovers from multinational corporations (MNCs) to domestic companies in the information technology (IT) sector of Costa Rica. Using firm-level panel data for 2001–2011, we explore to what extent domestic firms’ female labour share increases as a result of business operations of MNCs. We find evidence of two channels for cultural spillovers from foreign direct investment (FDI) to domestic IT firms influencing higher shares of female employment: learning (imitation) effects through labour mobility, which allows former MNC employees working in domestic firms to apply skills and gender practices from their previous work experience, and demonstration effects with the presence of MNCs (through competition in the labour market), which include imitation of social norms and values of MNCs by local firms. No evidence was found for a relationship between backward linkages (purchases) of MNCs from domestic suppliers and female labour share. To promote greater participation by women in labour markets through FDI attraction, strengthening cultural spillovers would require implementing FDI promotion policies to (i) enhance the absorptive capacity of domestic IT firms, (ii) attract IT MNCs with greater potential to generate spillovers, and (iii) foster a favourable national investment climate for enhancing business interactions between IT MNCs and domestic IT firms.

The future patterns of foreign direct investment (FDI) are important inputs for policymakers, even more so during severe economic downturns, such as the one caused by the COVID-19 pandemic. Yet, there is neither empirical consensus nor significant ongoing empirical research on the most appropriate tool for forecasting FDI inflows. This paper aims to fill this gap by proposing an approach to forecasting global FDI inflows based on panel econometric techniques – namely the generalized method of moments – accounting for the heterogeneous nature of FDI across countries and for FDI dependence across time. The empirical comparison with alternative time-series methods confirms the greater predictive power of the proposed approach.