Grow to Internationalise or Internationalise to Grow: Essays on Drivers and Effects of Outward Foreign Direct Investment

  • Swati Virmani

Student thesis: Phd


This thesis explores three important factors that have been central to the pursuit of economic growth, particularly in the developing and emerging economies. These are Outward Foreign Direct Investment, Reverse Technology Spillovers, and Total Factor Productivity. Chapter 2 examines whether India's Outward Foreign Direct Investment (OFDI) pattern is consistent with Dunning's Investment Development Path (IDP) sequence using macro data over the period 1980-2010. It tests whether the level of development - proxied by GDP per capita - is the main factor explaining OFDI, and augments the IDP by studying other major determinants such as exports, Inward FDI, human capital, and R and D using the Cointegration and Error Correction Model techniques. The results support the main proposition of the IDP, but also highlight the importance of other factors. We also find that OFDI granger-causes R and D , suggesting a possibility of reverse technology spillover.Chapter 3 analyses the 'feedback effect' of Foreign Direct Investment (FDI) on Total Factor Productivity (TFP) growth of emerging economies via technology spillovers across borders. We study the effect of R and D spillovers resulting from Outward FDI flows from 18 emerging economies into 34 OECD countries over the 1990-2010 period, comparing the impact with that of spillovers resulting from Inward FDI flows. The result confirms that FDI enhances productivity growth in the home country; however the impact is much larger when R and D -intensive developed countries invest in the emerging economies than the other way round. The country-specific bilateral elasticities also support this outcome.Finally, Chapter 4 studies twofold stages of OFDI - determinants and effects - at a disaggregated level, using data on OFDI undertaken by 34 countries in 10 major sectors of US during 1990-2010. The main aim of this essay is to provide micro evidence in support of outcomes of Chapter 2 & 3. The first stage concentrates on the driving forces of OFDI to understand its macroeconomic determinants, by distinguishing the factors into 3 broad categories: country specific, sector specific and time specific variables. In the second stage, we then study how the home countries benefit from the OFDI that they undertake in the US, in terms of the impact of induced reverse technology spillovers. This stage entails the creation of a foreign R and D capital term as the weighted average of R and D intensity of US with the OFDI undertaken by the home countries into US. It investigates both direct and interaction effects of such R and D spillovers on the growth of home country's TFP. The analysis also considers a lag structure to allow for a time lag in the transfer and effect of foreign R and D capital. Results for both the stages confirm the set hypotheses.
Date of Award1 Aug 2015
Original languageEnglish
Awarding Institution
  • The University of Manchester
SupervisorEdmund Amann (Supervisor) & Katsushi Imai (Supervisor)


  • Total Factor Productivity
  • Outward Foreign Direct Investment
  • R and D Spillovers

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