ODI from BRIC Countries

This chapter introduces the reader to the content of our book. It reviews some stylized facts that motivate our interest in Outward Direct Investment (ODI) from Brazil, Russia, India, and China (BRIC). According to UNCTAD (2017), BRIC countries feature prominently in terms of ODI: Their overall outflows increased by 125% and their overall outstocks rose by 338% over the last decade, twice as much the respective growth rates for developing economies, and far above those for developed economies. What is behind these impressive figures? Who is responsible for the outstanding ODI performance of BRIC countries? Nations do not engage in ODI: Firms do. Therefore, aggregated ODI volumes should be discerned through firm-level analysis. This is the challenge we take up in this book, by studying the ODI involvement and the ODI-performance nexus of BRIC enterprises. Our theoretical foundations are based on the International Economics literature on internationalization and firm performance. Our empirical analysis is based on ORBIS (2017) firm-level data. Taking both a multi-country and a single-country perspective, in this chapter, we review a number of robust regularities derived elsewhere in the book. Our results are presented in an intuitive manner and contrasted with previous contributions, to highlight the novelties of our approach.

In this chapter, we overview aggregated Foreign Direct Investment (FDI) originating (directed) from (to) Brazil, Russia, India, and China (BRIC). The last 20 years have witnessed BRIC countries become an important hub for FDI. In 1995, BRIC countries attracted 13.5% of world Inward Direct Investment (IDI) flows and accounted for 4.5% of world IDI stocks. In 2016, they became the destination for 15.7% of world IDI flows and accounted for 10% of world IDI stocks. Regardless of how striking these figures may appear, BRIC countries’ performance in terms of Outward Direct Investment (ODI) has been even more impressive. In 1995, BRIC countries contributed 1.1% to world ODI flows and 1.7% to world ODI stocks. In 2016, they accounted for 14.2% of world ODI flows, and their share in world ODI stocks peaked at 7.4%. We argue that these patterns are consistent with the Investment Development Path model, and help explain how BRIC countries have turned from IDI recipients to ODI promoters. Next, we provide individual country overviews. To this aim, we discuss the evolution of FDI in BRIC countries and highlight the features of FDI policies—if any—governing and supporting FDI.

In this chapter, we review the literature on the internationalization-performance nexus according to the International Economics perspective. The seminal contribution of Bernard and Jensen (1995) drew researchers’ attention to the relationship between exposure to international markets and firm performance. Regardless of the year and the country of analysis, internationalized firms turn out to be “the happy few”, that is, they are the minority, but they outperform domestic enterprises. With the aim of providing a conceptual framework to Outward Direct Investment (ODI) from Brazil, Russia, India, and China (BRIC), we consider the theoretical contributions on self-selection and learning-by-internationalization, and we present the related empirical evidence. Theoretical models and econometric analyses are described in a non-technical manner, without scarifying exhaustiveness for simplicity. Particular emphasis is laid on comparing the previous contributions and identifying the main gaps in the ODI literature. This is key to introducing the novelties of our approach, which are stressed throughout the chapter. References to the International Business literature on ODI and firm-level performance are provided, for sake of completeness. Reading this chapter is essential to frame our empirical exercise because it lays down the theoretical foundations of the regression analysis developed elsewhere in the book.

In this chapter, we study firm performance and Outward Direct Investment (ODI) from Brazil, Russia, India, and China (BRIC) through a multi-country econometric analysis. First, we present our firm-level data, highlighting distinctive features of the ORBIS database that make it particularly suitable for our purposes. Second, we introduce our taxonomy of ODI, detailing the different classes of ODI involvement that mark our main departure from the literature. Third, we study the ODI involvement and the ODI-performance nexus of BRIC enterprises through econometric analysis. Econometric models and specifications are described in detail and estimation results are presented with the help of summarizing tables. This strategy helps in commenting on the empirical evidence and drawing robust regularities from a multi-country perspective. First, BRIC firms engaged in ODI are in the minority. Second, within the group of investors, those firms having more than five foreign subsidiaries, investing in developing countries, or operating in joint ventures are in the minority. Third, the best performing firms engage in ODI. Fourth, within the group of investors, the best performing firms are more likely to rely on a large number of foreign subsidiaries, and less likely to invest in developing countries alone, or to operate exclusively in joint ventures.

In this chapter, we study Outward Direct Investment (ODI) from Brazil, Russia, India, and China (BRIC) through a single-country econometric analysis. To permit comparisons with our previous results, we study the ODI involvement and the ODI-performance nexus of Chinese and Indian firms using ORBIS firm-level data. The reason for focusing on China and India is twofold: On the one hand, these countries feature prominently in terms of ODI and their governments play an active role in promoting outward orientation of local companies. On the other hand, China and India account for the majority of our sample, permitting robust estimations. Econometric models and specifications are the same as in Chap. 4 and the results are consistent. First, Chinese and Indian firms engaged in ODI are in the minority. Second, within the group of investors, those firms having more than five foreign subsidiaries, investing in developing countries, or operating in joint ventures are in the minority. Third, the best performing firms engage in ODI. Fourth, within the group of investors, the best performing firms are more likely to rely on a large number of foreign subsidiaries, and less likely to invest in developing countries alone, or to operate exclusively in joint ventures.

In this chapter, we provide some concluding remarks and suggest future lines of research. To this end, we briefly summarize the content of the previous chapters and comment extensively on the empirical results of our multi-country versus single-country empirical analysis. These results are put in perspective and contrasted with previous studies on related issues, to stress the contribution this book aims to provide to the Foreign Direct Investment (FDI) literature. Empirical posteriors and theoretical priors are matched, to suggest that our findings are not a mere replica of others’ results, but they rather shed some light on previously neglected sides of the Outward Direct Investment (ODI)-performance nexus. In particular, we show that the positive correlation between ODI and firm performance is a matter of both involvement versus non-involvement in ODI and the type of ODI that a firm undertakes. Being true for China and India as well as for the overall group of BRIC economies—embracing also Brazil and Russia—this is a novel contribution of this book. Clearly, this could not be addressed by previous studies as they were based on a more elementary taxonomy of ODI.

At the end of this chapter, policy implications are derived and carefully discussed.