FDI and Firm Productivity: A Comprehensive Review of Macroeconomic and Microeconomic Models

Abstract

This paper reviews the literature on foreign direct investment (FDI), productivity, and technology upgrading, with a focus on macroeconomic and microeconomic models. It compares the performance of various models used to study FDI and its effects on firms’ productivity, via skill and technology upgrading, offshoring, institutional quality, and other related factors. This review highlights the differences and similarities between macroeconomic and microeconomic models, their empirical strategies, and their ability to provide a comprehensive understanding of the mechanisms through which FDI affects productivity and other variables. The empirical literature on the impact of FDI on the productivity of local firms is derived from association studies, which use a neoclassic production function and an augmented Solow-type equation. These models have been shown to be inadequate in capturing the dynamic and complex nature of FDI and the associated externalities, particularly vertical externalities. This paper identifies three criticisms of the literature on pecuniary externalities, including a lack of models that focus specifically on the mechanism of forward linkages, inadequate measures to assess linkage effects, and the failure to include crucial determinant factors in empirical models. Overall, this paper calls for more comprehensive and nuanced models that incorporate the dynamic and complex nature of FDI and its externalities.

Impact of Environmental Regulation on Export Technological Complexity of High-Tech Industries in Chinese Manufacturing

“…From an economic perspective, regulation, as a concrete institutional arrangement, represents the management or constraint imposed by the government on economic activities. To address inherent issues in market mechanisms and promote better economic development, the government employs various policy regulations to intervene in the behavior of entities such as enterprises (Oginni and Omojowo 2016;Phuoc 2022;Santos 2023). Governments enact laws and regulations to regulate and intervene in microeconomic activities based on legal foundations, all aimed at achieving economic growth (Manatovna et al 2023;Oginni and Omojowo 2016).…”

“…Major Findings (Fuadah et al 2022;Gnangnon 2022;Huang et al 2022) Explanations of the term "regulation" (Oginni and Omojowo 2016;Phuoc 2022;Santos 2023) Regulation as a concrete institutional arrangement from an economic perspective (Manatovna et al 2023;Oginni and Omojowo 2016) Government regulations aimed at achieving economic growth (Nõmmela and Kõrbe Kaare 2022;Novitasari and Tarigan 2022;Sapta et al 2021) Environmental regulation is a force aimed at constraining entities responsible for pollution (Blundell et al 2020;Jin et al 2019;Naime 2017) Environmental regulation effectively controls the generation of new pollution (Novitasari and Tarigan 2022;Oginni and Omojowo 2016) The government is responsible for formulating the specific implementation details of environmental regulation policies and ensuring their effective implementation (Blundell et al 2020;Borenstein et al 2019) Strengthening environmental constraints would increase the cost of pollution control for enterprises, imposing a greater burden on production (Bigerna et al 2019;Kee and Tang 2016;Reynaert 2021) The implementation of environmental regulation inhibits export trade in EU countries (Graham and Wada 2002;Malecki 2003;Yang et al 2022a) Investigating the relationship between environmental regulation and China's export trade (Alexander and Schwandt 2022;Assunção et al 2023;Barrage 2020;Iverson and Karp 2021;Reynaert 2021) The implementation of environmental regulation policies has a positive impact on economic development (Aversa and Guillotin 2018;Mbanyele and Wang 2022;Saqib et al 2023;Ullah et al 2023;Xu 2023) The implementa...…”

Determinants Of Corporate Income Tax Revenue In Latin America

“…Latin America as a region with very rich natural resource potential shows that one way for policymakers to increase the stability of corporate tax revenue is to ensure the stability of FDI inflows. Foreign capital flows, especially these FDI flows play an important role for the country's economic development through, among others, technology transfer, job creation, and economic growth which in turn can increase firm productivity (Santos, 2023). Increased firm productivity will be in line with firm profits (The Donor Committee for Enterprise Development, n.d.) which in turn attracts greater corporate income tax revenue.…”

Do Foreign Direct Investment Inflows in the Producer Service Sector Promote Green Total Factor Productivity? Evidence from China

“…Additionally, their market entry expands the demand for related inputs by upstream enterprises, stimulating production scale expansion and potentially yielding economies of scale. Furthermore, the impact of SFDI is influenced by external technological disparities, human capital, and institutional levels [28,29]. Generally, smaller technological gaps, a relaxed market environment, and favorable human capital conditions are conducive to harnessing its positive externalities.…”