Outward foreign direct investment from emerging economies: Trends, drivers and firm-driven home government policies
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Over the last decade outward foreign direct investment (OFDI) flows and stocks from the emerging economies expanded dramatically. This aggregate trend is reflective of the fact that at the firm level technological capabilities and market share of many TNCs from the emerging economies (ETNCs) have become progressively stronger. Samsung for example has become market leader in the production of the Dynamic Random Access Memories (DRAMs) and Mittal the leading manufacturer of steel.1 The significant increase of FDI from the emerging economies has given cause to revisit existing theoretical as well as policy constructs. Firstly, most theories of foreign direct investment explain flows of capital between developed economies, or from developed to developing economies. The acquisition of firms in developed countries by firms that originate from developing economies has added a new dimension to the understanding of OFDI flows. In addition, experience from foreign investment projects has contributed significantly to the development of emerging economies’ TNC’s revenues, technological capabilities and global market shares (see Monkiewicz, 1986; Hobday, 1997; Mirza, 2000; Sachwald, 2001; Mathews, 2002; UNCTAD, 2005). The purpose of this paper is twofold: first, relying on the received literature and empirical evidence we suggest that for analytical purposes the outflow of FDI from emerging economies can meaningfully be divided into three distinct ‘waves’. We discuss a set of strategic drivers of OFDI and identify their shifting relative importance throughout the period of these three waves. Second, we discuss how policy regimes towards FDI have shifted over the course of the three waves with special emphasis on contemporary home government measures for facilitating OFDI. This paper thus examines emerging economy FDI drivers and home government policies that are complementary towards supporting the activities of ETNCs. The rest of the paper is organized as follows: In section two we divide the historical FDI outflows from emerging economies into three analytical ‘waves’. Section three examines the drivers of OFDI. Section four analyzes the policy implications for home countries. Section five concludes.