The 45 years of foreign direct investment research: Approaches, advances and analytical areas

• Date: 01 November 2017
• Author: Gurmeet Singh,Justin Paul
• DOI: http://doi.org/10.1111/twec.12502
• Published date: 01 November 2017

INVITED REVIEW

The 45 years of foreign direct investment research:

Approaches, advances and analytical areas

Justin Paul

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Gurmeet Singh

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1

Graduate School of Bus, University of Puerto Rico, San Juan, USA

2

Banasthali University, Tonk, Rajasthan, India

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INTRODUCTION

Foreign direct investment (FDI) is the most researched field in the area of international manage-

ment (Werner, 2002). The presence of literature which evaluates the impact of FDI on home coun-

tries is fairly substantial (e.g., Anwar & Nguyen, 2011; Bergsten, Horst, & Moran, 1978; Bhasin

& Paul, 2016; Dunning, 2000; Horst, 1976; Mudambi & Mudambi, 2002; Rugman, 1987, 2011).

In the recent years, outward foreign direct investment (OFDI) has attracted increasing attention

among researchers, policymakers and transnational corporations headquartered in emerging mar-

kets, especially in the BRIC (Brazil, Russia, India and China) countries (Gaffney, Kedia, & Clam-

pit, 2013; Hattari & Rajan, 2010; Sauvant, 2005). Econometric literature on the host country

determinants of FDI also exists in significant quantity and they argue that the countries which

attract FDI are those which have good institutions. (Globerman & Shapiro, 2002).

Those who argue in terms of capital arbitrage explain FDI as an international flow of capital.

Hymer (1976) presents a full microeconomic model of FDI which helps a more detailed study of

these arguments. His assumption is that firms which invest abroad aim to maximise their total

profit. Kindleberger (1969) and Knickerbocker (1973) argue that as multinational enterprises are

logically inconsistent with pure competition, additional effects are needed to give a convincing

explanation to their existence. Researchers, even in the last century, have considered FDI as a way

to achieve technology spillovers, which also significantly contribute towards economic growth.

(Borensztein, Gregorio, & Lee, 1998; Findlay, 1978). The benefits to be derived from FDI are

dependent on the quality of FDI rather than the quantity (Enderwick, 2005), and also on its

absorptive capacity (Alfaro, Chanda, Kalemli, & Sayek, 2004; Durham, 2004). There is also an

increasing amount of literature on FDI flows from emerging economies (e.g., Filatotchev, Strange,

Piesse, & Lien, 2007; Liu, Buck, & Shoo, 2005).

To the best of the authors’knowledge, this study is the first comprehensive review on FDI cov-

ering all areas and 45 years of research. Our article seeks to provide a more comprehensive analy-

sis of empirical research performed to date on FDI. For this, we have examined empirical articles

published in leading business and economics journals between the years 1970 and 2014. This

study enriches the existing literature, mainly in three ways. First, we examine the theoretical

approaches and methodologies, which are empirically tested in the literature on FDI, in a broad

DOI: 10.1111/twec.12502

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©2017 John Wiley & Sons Ltd wileyonlinelibrary.com/journal/twec World Econ. 2017;40:2512–2527.

manner that makes the review different from previous studies. Second, we try to fill the gap in the

literature by reviewing and classifying FDI studies for highlighting the major contributions that

have been made as publications in journals. Third, we highlight knowledge gaps and offer promis-

ing directions for future research.

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RESEARCH DOMAIN

Foreign direct investment occurs when a firm invests in real assets in a foreign country to produce

or market a product. According to the United States Department of Commerce, foreign investment

is considered as FDI whenever an organisation takes a stake of 10% or more in a foreign company

(Paul, 2013). FDI includes foreign subsidiaries and equity joint ventures. FDI takes place through

acquisitions or green-field investments made by multinational enterprises. Although research on

country-level determinants (e.g., regulatory, political, economic and cultural institutions) has con-

siderably matured and progressed, there remain varied definitions and institutions. Similarly,

researchers differ on the effects of FDI and multinational enterprises on host countries (e.g., Akbar

& McBride, 2004; Asiedu, Jin, & Nandwa, 2009; Lipsey, 2002). However, Alvarez and Marin

(2013) conclude that though there are positive effects, a consistent relationship between FDI stock

and economic growth does not exist.

Even though recent notable studies (e.g., Buckley, Clegg, Cross, Liu, Voss, & Zheng, 2007;

Chan, Makino, & Isobe, 2006) provide new dimensions to FDI research, there are some unex-

plored areas where researchers need to pay more attention. Despite the fact that hundreds of arti-

cles have been published on FDI, some of them are limited in scope as they examine repeatedly

just one of the conceptual frameworks or their measures in a different country context (Figure 1).

Taking into account the importance of the topic and available literature, this paper has adopted a

totally different approach. This review provides a host of information including the theories and

constructs which have been used in studies, the countries which provide and receive besides the

main variables of interest and statistical methodologies adopted in the studies, and the articles

related to FDI published between the years 1970 and 2014. Although we found a classic review

paper on international entry modes (Canabal & White, 2008), a comprehensive review-based study

on FDI still could not be found. There are researches that partly review one of the aspects of FDI

(e.g., Blonigen, 2005; Meyer, 2003), but no single paper has covered all the aspects of FDI

research till now, despite the fact that FDI is the most researched field in the area of international

business. With this article, we are attempting to fill this gap in the literature.

120

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80

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40

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JIBS

JIE

IBR

JWB

JEWB

AMJ

CER

JIM

IJBM

MBR

TIBR

APBR

IER

SMJ

JCE

Articles published

Articles published

FIGURE 1 Journal Distribution of Published articles on foreign direct investment [Colour figure can be viewed

at wileyonlinelibrary.com]

PAUL AND SINGH

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