FDI Projects

I am currently working on a book project that will include selected chapters from my dissertation.

Protection From FDI and Economies of Scale (Under Review)

Economies of scale are a characteristic feature of modern market competition. Economies of scale that are internal to the firm lead to industrial concentration and radical changes in industries if one firm supersedes another; external economies of scale lead to geographic concentration and disruptive changes in location if one country’s industrial growth surpasses that of another. I argue that these effects play a critical role in shaping attitudes toward restrictions on FDI by domestic producers. Industries with high internal economies of scale are likely to pressurize their government to impose higher restrictions on inbound FDI to avoid fierce new competition; industries with high external economies of scale are more likely to welcome FDI in order to consolidate their country as a production hub. I develop these insights in a formal model of the endogenous determination of barriers to foreign investment, and examine data on barriers to FDI across different industries in 36 OECD countries. I find evidence for both these patterns: economies of scale are a crucial industrial feature for understanding variation in barriers to FDI across both industries and countries.

FDI Entry Modes and the Demand for Regulations on Inward FDI (Under Review)

In this paper, I examine the relationship between the choice of foreign direct investment (FDI) entry modes and inward FDI regulations in high-income countries from the perspective of domestic firms. I argue that domestic firms in industries with more greenfield investment will demand stricter FDI regulations from their government, while domestic firms in industries with more cross-border mergers and acquisitions (M&As) will want looser FDI regulations. Domestic firms are favorable to cross-border M&A deals because M&As often involve no new entries and high technology and information spillovers. However, they are opposed to greenfield investment projects that bring large-scale new entries without positive spillover effects. By examining the FDI Regulatory Restrictiveness Index of the 36 OECD member states, I find that industries with more cross-border M&As have lower FDI restrictiveness, while industries with more greenfield investments have higher FDI restrictiveness. Thus, FDI regulation policy reflects how different types of FDI entry mode affect domestic producers.

Talent Bidding War: Labor Market Competition and Demand for FDI Protectionism

This paper explores an inherent contradiction that exists when the governments in high-income countries promote inward foreign direct investment (FDI) activities. Governments seek large FDI projects for job creation, but this also results in the war-for-talent between domestic firms and foreign multinational corporations in the labor market. Such competition will be more intense if the labor market is highly regulated and the source of new labor force is blocked. Therefore, I argue that industries that tend to have large FDI projects, which create many new jobs, are more likely to face FDI oppositions from domestic rival companies, and thus, have higher FDI regulatory restrictiveness. The demand for FDI regulation by domestic producers, however, will be mitigated if the country has a higher degree of labor market flexibility and is more open to immigrants. By examining data on the FDI restrictiveness index in thirty-seven member states of the Organization for Economic Cooperation and Development, I find evidence that increase in labor market competition is associated with stricter FDI regulation. In conclusion, this paper highlights the importance of labor market competition in promoting liberal policies toward inward FDI.