Determinants of outward FDI from emerging economies




foreign direct investment, knowledge-capital model, emerging multinationals, pseudo-Poisson maximum likelihood


Research background: The last four decades have witnessed an upsurge of multi-nationals from emerging markets alongside a narrowed gap in growth prospects between developed and emerging economies. UNCTAD statistics show that FDI flows from emerging economies have gone steady since 1980 and occupied more than one fifth of global FDI stock in 2015. Japan led the reverse FDI trend when it started to invest abroad in the 1960s and 1970s. Two decades later, in the 1980s-1990s, the reverse FDI trend was continued by so-called Asian tigers, then recently by those rapidly-industrializing economies in Southeast Asia as well as China and India in East and South Asia.

Purpose of the article: The main goal of this paper is to contribute empirically to the study of the determinants of FDI outflows from emerging economies.

Methods: In order to derive empirically testable hypotheses this paper refers to theoretical Knowledge-Capital model developed by Markusen (2002). The model is estimated using the Poisson-Pseudo Maximum Likelihood estimation technique. The specific research hypotheses derived from the theory are verified using a panel dataset of 38 home emerging countries and 134 host countries over the period 2001?2012.

Findings & Value added: In this paper, we distinguish between horizontal and vertical reasons for FDI. Our estimation results support the hypothesis that main-stream theory of multinational enterprise can explain FDI flows from emerging economies, implying the significant roles of total market size, skilled-labor abundance, investment cost, trade cost as well as geographical distance between two countries.


Download data is not yet available.


Amal, M. (2011). Foreign direct investment from emerging economies: determinants and strategies. In P. Pachura (Ed.). The economic geography of globalization. London: InTech.

Amal, M., Raboch, H., & Tomio, B. (2009). Strategies and determinants of foreign direct investment (FDI) from developing countries: case study of Latin America. Latin American Business Review, 10(2).

Arbix, G. (2010). Structural change and the emergence of the Brazilian MNEs. International Journal of Emerging Markets, 5(3/4).

Bano, S., & Tabbada, J. (2015). Foreign direct investment outflows: Asian developing countries. Journal of Economic Integration, 30(2).

BCG (2009). The 2008 BCG 100 new global challengers: how top companies from rapidly developing economies are changing the world. Boston: Boston Consultancy Group.

Bonaglia, F., Goldstein, A., & Mathews, J. (2007). Accelerated internationalization by emerging markets’ multinationals: the case of the white goods sector. Journal of World Business, 42(4). doi: 10.1016/j.jwb.2007.06.001.

Chittoor, R., Ray, S., Aulakh, P., & Sarkar, M. (2008). Strategic responses to institutional changes: ‘Indigenous growth’ model of the Indian pharmaceutical industry. Journal of International Management, 14(3). doi: 10.1016/j.intman. 2008.05.001.

Cieślik, A. (2013). Horizontally integrated MNE and plant heterogeneity. Bank i Kredyt, 44(6).

Cieślik, A. (2015a). North-North FDI, exporting and the first mover advantage. Bank i Kredyt, 46(2).

Cieślik, A. (2015b). Imperfect competition, productivity differences and proximity-concentration trade-offs. Ekonomia, 40.

Cieślik, A. (2016). Exports versus FDI in Smith-Motta framework. Equilibrium. Quarterly Journal of Economics and Economic Policy, 11(2). doi: 10.12775/ EQUIL.2016.009.

Cieślik, A. (2018). Leader-follower model of reciprocal FDI and international trade. Argumenta Oeconomica, 41(2). doi: 10.15611/aoe.2018.2.04.

Collie, D. R. (2011). Multilateral trade liberalization, foreign direct investment and the volume of world trade. Economics Letters, 113(1). doi: 10.1016/j.econlet. 2011.05.032.

Cuervo-Cazurra, A., & Genc, M. (2008). Transforming disadvantages into advantages: developing-country MNEs in the least developed countries. Journal of International Business Studies, 39(6). doi: 10.1057/palgrave.jibs.8400390.

Dunning, J. (1981). Explaining the international direct investment position of countries: towards a dynamic or developmental approach. Weltwirtschaftliches Archiv, 117(1).

Dunning, J. (1986). The investment development cycle revisited. Weltwirtschaftliches Archiv, 122(4). doi: 10.1007/BF02707854.

Dunning, J., & Narula, R. (1996). The investment development path revisited: some emerging issues. In J. Dunning & R. Narula (Eds.). Foreign direct investment and governments. London: Routledge.

Eicker, F. (1963). Asymptotic normality and consistency of the least squares estimators for families of linear regressions. Annals of Mathematical Statistics, 34(2).

Enderwick, P. (2009). Large emerging markets (LEMs) and international strategy. International Marketing Review, 26(1). doi: 10.1108/02651330910933177.

Faria, A., & Mauro, P. (2009). Institutions and the external capital structure of countries. Journal of International Money and Finance, 28(3). doi: 10.1016/j. jimonfin.2008.08.014.

Frenkel, M., Funke, K., & Stadtmann, G. (2004). A panel analysis of bilateral FDI flows to emerging economies. Economic Systems, 28(3). doi: 10.1016/j.ecosys. 2004.01.005.

Gammeltoft, P. (2008). Emerging multinationals: outward FDI from the BRICS countries. International Journal of Technology and Globalisation, 4(1).

Gourieroux, C., Monfort, A., & Trognon, A. (1984). Pseudo Maximum Likelihood Methods: Applications to Poisson Models. Econometrica, 52(3). doi: 10.2307/ 1913472.

Helpman, E. (1984). A simple theory of trade with multinational corporations. Journal of Political Economy, 92(3). doi: 10.1086/261236.

Helpman, E., & Krugman, P. (1985). Market structure and foreign trade: increasing returns, imperfect competition and the international economy. Cambridge: MIT Press.

Helpman, E., Melitz, M. J., & Yeaple, S. R. (2004). Export versus FDI with heterogeneous firms. American Economic Review, 94(1). doi: 10.1257/00028280 4322970814.

Helpman, E., Melitz, M., & Rubinstein, Y. (2008). Estimating trade flows: trading partners and trading volumes. Quarterly Journal of Economics, 123(2). doi: 10.1162/qjec.2008.123.2.441.

Horstmann, I., & Markusen, J. R. (1987). Strategic investments and the development of multinationals. International Economic Review, 28(1). doi: 10.2307/ 2526862.

Krugman, P. (1983). The ‘new theories’ of international trade and multinational enterprise. In D. B. Audretsch & Ch. P. Kindleberger (Eds.). The multinational corporation in the 1980s. Cambridge: MIT Press.

Kyrkilis, D., & Pantelidis, P. (2005). A cross country analysis of outward foreign direct investment patterns. International Journal of Social Economics, 32(6). doi: 10.1108/03068290510596998.

Luo, Y., & Tung, R. (2007). International expansion of emerging market enterprises: a springboard perspective. Journal of International Business Studies, 38(4). doi: 10.1057/palgrave.jibs.8400275.

Luo, Y., Xue, Q., & Han, B. (2010). How emerging market governments promote outward FDI: experience from China. Journal of World Business, 45(1). doi: 10.1016/j.jwb.2009.04.003.

Markusen, J. R. (1984). Multinationals, multi-plant economies and the gains from trade. Journal of International Economics, 16(3-4). doi: 10.1016/S0022-1996 (84)80001-X.

Markusen, J. (2002). Multinational firms and the theory of international trade. Cambridge, Mass.: MIT Press.

Markusen, J. R. (2013). Multinational firms. In D. Bernhofen, R. Falvey, D. Greenaway & U. Kreickemeier (Eds.). Palgrave handbook of international trade. Basingstoke: Palgrave Macmillan.

Markusen, J., & Maskus, K. (2002). Discriminating among alternative theories of the multinational enterprise. Review of International Economics, 10(4). doi: 10.1111/1467-9396.00359.

Markusen, J. R., & Venables, A.J. (1998). Multinational firms and the new trade theory. Journal of International Economics, 46(2). doi: 10.1016/S0022-1996 (97)00052-4.

Markusen, J., & Venables, A. (2000). The theory of endowment, intra-industry and multi-national trade. Journal of International Economics, 52(2). doi: 10.1016/ S0022-1996(97)00052-4.

Martínez-Zarzoso, I. (2013). The log of gravity revisited. Applied Economics, 45(3). doi: 10.1080/00036846.2011.599786.

McMillan, J. (2007). Market institutions. In L. Blume & S. Durlauf, S. (Eds.). The new Palgrave dictionary of economics. Hampshire: Palgrave Macmillan.

Mudambi, R., & Navarra, P. (2002). Institutions and international business: a theoretical overview. International Business Review, 11(6).

OECD (2008). OECD benchmark definition of foreign direct investment. France.

Pangarkar, N., & Lim, H. (2003). Performance of foreign direct investment from Singapore. International Business Review, 12(5). doi: 10.1016/S0969-5931(03) 00078-7.

Peng, M., Wang, D., & Jiang, Y. (2008). An institution-based view of international business strategy: a focus on emerging economies. Journal of International Business Studies, 39(5). doi: 10.1057/palgrave.jibs.8400377.

Ramamurti, R., & Singh, J. (2009). Emerging multinationals from emerging markets. Cambridge: Cambridge University Press.

Rasiah, R., Gammeltoft, P., & Jiang, Y. (2010). Home government policies for outward FDI from emerging economies: lessons from Asia. International Journal of Emerging Markets, 5(3/4).

Seo, J., & Suh, C. (2006). An analysis of home country trade effects of outward foreign direct investment: the Korean experience with ASEAN 1987–2002. Asean Economic Bulletin, 23(2).

Silva, J. M. C. S., & Tenreyro, S. (2006). The log of gravity. Review of Economist and Statistics, 88(4). doi: 10.1162/rest.88.4.641.

Silva, J. M. C. S., & Tenreyro, S. (2011). Further simulation evidence on the performance of the Poisson pseudo-maximum likelihood estimator. Economics Letters, 112(2). doi: 10.1016/j.econlet.2011.05.008.

Silva, J. M. C. S., & Tenreyro, S. (2013). Trading partners and trading volumes: implementing the Helpman-Melitz-Rubinstein model empirically. Oxford Bulletin of Economics and Statistics, 77(1). doi: 10.1111/obes.12055.

Sinha, U. B. (2010). Strategic licensing, exports, FDI, and host country welfare. Oxford Economic Papers, 62(1). doi: 10.1093/oep/gpp014.

Stal, E., & Cuervo-Cazurra, A. (2011). The investment development path and FDI from developing countries: the role of pro-market reforms and institutional voids. Latin American Business Review, 12(3).

Stoian, C., & Mohr, A. (2016). Outward foreign direct investment from emerging economies: escaping home country regulative voids. International Business Review, 25(5). doi: 10.1016/j.ibusrev.2016.02.004.

Swenson, D. (2004). Foreign investment and the mediation of trade flows. Review of International Economics, 12(4). doi: 10.1111/j.1467-9396.2004.00470.x.

UNCTAD (2017). World investment report 2016: investor nationality: policy Challenges. Retrieved from en.pdf.

White, H. (1980). A heteroskedasticity-consistent covariance matrix estimator and a direct test for heteroskedasticity. Econometrica, 48(4).

Wu, J., & Chen, X. (2014). Home country institutional environments and foreign expansion of emerging market firms. International Business Review, 23(5). doi: 10.1016/j.ibusrev.2014.01.004.

Xing, Y., & Wan, G. (2006). Exchange rates and competition for FDI in Asia. World Economy, 29(4). doi: 10.1111/j.1467-9701.2006.00791.x.

Zhang, K. H., & Markusen, J. R., (1999). Vertical multinationals and host-country characteristics. Journal of Development Economics, 59(2). doi: 10.1016/S0304-3878(99)00011-5.




How to Cite

Cieślik, A., & Hien Tran, G. . (2019). Determinants of outward FDI from emerging economies. Equilibrium. Quarterly Journal of Economics and Economic Policy, 14(2), 209–231.




Most read articles by the same author(s)

1 2 > >>