توسعه مسیر انکشافی سرمایه گذاری دانینگ : نقش عوامل نهادی کشور در توضیح ظاهری سرمایه گذاری مستقیم خارجی

Recent years have seen an increase in outward foreign direct investment (OFDI) from emerging markets and post-communist economies alike. Given the specific institutional fabric of these countries, the question is whether mainstream theory can explain the drivers of foreign direct investment outflows or whether new theories are needed to explain this phenomenon. This paper aims to investigate the home country determinants of OFDI from post-communist economies. We augment the Investment Development Path (IDP) with explanations derived from institutional theory and explain the effects of home country institutional factors on the level of OFDI. We test our hypotheses using random effects estimations on a comprehensive panel dataset comprising of OFDI from 20 Central- and Eastern European countries. Our results support the IDP's main propositions but also highlight the importance of accounting for home country institutional factors when investigating the determinants of OFDI. In particular, we find that the inclusion of institutional variables increases the explanatory power of our models and that competition policy and overall institutional reforms play a crucial role in explaining OFDI from CEE countries with important implications for FDI theory.

The aim of this paper is to investigate the home country determinants of outward foreign direct investment (OFDI) from post-communist economies. In particular, we address the following research questions: To what extent does the Investment Development Path explain OFDI from post-communist economies? How do home country institutional factors affect OFDI from post-communist economies? How can policy makers encourage OFDI? In doing so, we address several research objectives: First, we put forward a novel conceptual framework, extending Dunning's Investment Development Path (IDP) (Dunning, 1981, Dunning, 1986 and Dunning, 1988) by incorporating institutional variables, drawing on institutional theory (Meyer and Nguyen, 2005, North, 1990, Peng, 2002 and Wright et al., 2005). Second, we test this new conceptual framework using a panel data set of 20 post-communist economies for fifteen years (1996–2010). Third, we put forward several contributions to theory and practice. We present below the justification for our paper. Firstly, recent years have seen an increase in outward foreign direct investment (OFDI) from emerging markets and post-communist economies alike (da Silva et al., 2009, Luo et al., 2010 and UNCTAD, 2011). Given the specific institutional fabric of these countries (JIM, 2010), the question is whether mainstream theory can explain the drivers of OFDI outflows or whether new theories are needed to explain this phenomenon (Kalotay and Sulstarova, 2010, Kalotay, 2008, Liu et al., 2005 and Zhang and Dally, 2011). For example, patterns of OFDI from Russia challenge the propositions of the Uppsala School and the Investment Development Path (IDP) and indicate the need to extend the eclectic paradigm (OLI) to include home country institutions (Kalotay, 2008 and Kalotay and Sulstarova, 2010). Moreover, Buckley, Cleg, Cross, Liu, and Voss Zheng (2007: p. 499) argue that in order to explain Chinese outward FDI, three special explanations (capital market imperfection, special ownership advantages and institutional factors) need to be ‘nested within the general theory of the multinational firm’. We follow Ramasamy, Yeung, and Laforet (2012) and Buckley et al. (2007) according to whom, rather than rejecting conventional theories, specific modifications are needed to explain OFDI from emerging economies. The recent increase in FDI from emerging and post-communist economies suggests that these countries have reached levels of economic development and competitiveness that allow them to generate OFDI. In other words, based on the economic development and competitiveness of the home country, local firms have developed ownership advantages that allow them to expand successfully aboard. However, the IDP alone does not explain the surge in OFDI for countries that are technically in stage 2 of their investment development path (Kalotay, 2008 and Kalotay and Sulstarova, 2010). The IDP does not account for the ownership advantages of firms that are ‘embedded’ in the institutional context of their home country and that allow multinational enterprises (MNEs) to overcome the ‘liability of foreignness’ when expanding abroad. This suggests extending the IDP by drawing on institutional theory and accounting for differences in the home countries’ institutional context. By augmenting the IDP to explore the home country institutional determinants of OFDI from post-communist economies we answer calls by Peng, Wang, and Jiang (2008), Dunning and Lundan, 2008a and Dunning and Lundan, 2008b and Eden (2010) for International Business research to focus more on institutions. This is our first contribution to theory. Secondly, in line with Meyer and Peng (2005), we believe that through their distinctive institutional context, the Central and Eastern European countries (CEECs)1 represent an ideal context to test the applicability of extant theories and to develop new ones by exploring the role of home country institutional determinants in explaining OFDI. For the greater part of the last two decades these countries have been known as ‘transition economies’ (EBRD, 2010a), a distinctive group of countries (Meyer & Peng, 2005). These countries share a communist legacy and the radical challenges of the political and economic transformation that followed the fall of Communism (Meyer & Peng, 2005). Furthermore, many of the transition reforms have continued even after EU membership and are still in progress, especially in the Commonwealth of Independent States (CIS) and the South-Eastern European countries (EBRD, 2011). These reforms have affected considerably the institutional environment and business strategy in the CEECs (Meyer & Peng, 2005), highlighting the need to account for institutional factors when investigating the determinants of OFDI from this geographical area. Furthermore, the CEECs are distinctive from other emerging economies (Hoskisson et al., 2000, Meyer and Peng, 2005 and UNCTAD, 2011). Andreff (2003) argues that, although there are commonalities between transition economies across various geographical areas, MNEs from [European] transition economies are distinct from third world multinationals. They have different drivers and have different starting points for their internationalisation process. This makes comparisons through longitudinal studies difficult, as third world multinationals have reached higher stages of internationalisation than [European] transition economies and some emerging economies are in a later stage of the IDP than the CEECs (Andreff, 2003). Furthermore, due China's specific institutional characteristics – such as it's one party system, its reliance on state owned enterprises, its guanxi and Confucianism, its size, its different reforms path (Peng et al., 2008) and its heavily regulated economy (Kang & Jiang, 2012) – comparisons between the CEECs and China – another ‘transition economy’ – are also challenging. According to Demekas (2007), European emerging markets are different from other emerging economies because they have different economic fundamentals and different policy challenges. Moreover, unlike other emerging economies, their post-communist transformation has been influenced dramatically by their economic and political relations with the European Union, including the accession to the EU or the prospect of such membership. Political stability, economic convergence and the liberalisation of trade and capital brought by the quest for EU membership have also affected OFDI from these countries (Andreff, 2003 and Demekas, 2007). Furthermore, emerging European economies are more advanced than other emerging economies with regard to institutional factors such as democracy, rule of law, intellectual property rights, regulation quality and financial sector development (Demekas, 2007). All these institutions are likely to affect directly or indirectly OFDI, thus limiting the applicability of extant research on emerging economies to the CEECs (Klein and Wöcke, 2007 and Pananond, 2007). Moreover, at present there is a lack of cross-country studies of determinants of OFDI from post-communist economies and this study aims to fill this gap. By focusing on the CEECs we are able to clarify the boundaries of extant theories, test the limits of the applicability of the IDP to a specific context and demonstrate the need to extend the IDP by drawing on institutional theory. This is our second contribution to theory. In particular, we show that overall institutional reforms and competition reforms increase the competitiveness of the home country and enhance OFDI. In doing so we consolidate and extend existing theory (Meyer & Peng, 2005) and answer the call by Liu et al. (2005) to identify other factors that complement GDP per capita as a reflection of home country development. This is also an empirical contribution of this study. Thirdly, whilst OFDI can lead to depletion of resources in the home country (Witt & Lewin, 2007), it is also associated with increased home competitiveness (Zhao, Liu, & Zhao, 2010), country exports and jobs (Kalotay, 2004) and hence economic benefits (Globeram and Shapiro, 2008, JIM, 2010 and Svetlicic and Rojec, 2003). Thus, investigating the determinants of OFDI allows us to highlight several implications for policy makers so that OFDI is encouraged responsibly. This is our contribution to practice. Thus, we address several gaps in the literature and make several important contributions: firstly, we augment the IDP framework by incorporating institutional theory; secondly, we conduct a cross-country empirical analysis of home country determinants of OFDI from post-communist economies, analysis that allows us to test and augment extant theory and to identify specific institutional factors that affect OFDI from post-communist economies; finally, we put forward policy implications. The remainder of the paper is organised as follows: we first present the literature review, followed by our conceptual framework and our methodology; we then discuss our results, followed by conclusions, including implications for theory, and implications for policy makers; finally, we discuss the limitations of the paper and present avenues for further research.

This paper aimed to investigate the home country institutional determinants of recent outward foreign direct investment from post-communist societies. The motivation behind this aim is to test the extent to which mainstream theory is applicable to other contexts such as post-communist economies. As discussed earlier, and in line with Meyer and Peng (2005), we believe that post-communist economies offer an ideal context to test the applicability of extant theory, given their unique institutional fabric. We join recent research that argues that in order to explain OFDI from emerging economies (including post-communist economies) extant theoretical frameworks need to be extended (Buckley et al., 2007, Kalotay and Sulstarova, 2010 and Kalotay, 2008). Drawing on institutional theory, we extend the IDP to account for the home country institutional determinants of OFDI from emerging economies, including post-communist economies. We then test this new conceptual framework in a new context, by using an up to date and comprehensive panel data set for 20 CEECs and employing a wide range of independent variables in our regression analysis. Our first research question asked: To what extent does the Investment Development Path explain OFDI from post-communist economies? We find support for the Investment Development Path theory, as OFDI is positively associated with both GDP per capita and inward foreign direct investment. Based on the economic development of their home country, local firms develop ownership advantages that they can exploit through investing abroad. Furthermore, these firms also benefit from spill over effects from foreign investors and are able to capitalise on these through OFDI. Moreover, multinationals that invest in post-communist economies often establish regional centres there and thus generate OFDI for the countries they target. We thus complement findings by Andreff, 2002 and Andreff, 2003, who also focuses on OFDI from transition economies and also contribute to the transition literature ( Kolodko, 2000, Lavigne, 1999, Lavigne, 2000 and Stiglitz, 1999). However, contrary to the IDP's propositions, we find that OFDI is negatively associated with the technological level of the home country. This suggests that MNEs from CEECs have developed other ownership advantages rather than those based on R&D, perhaps advantages based on economies of scope, economies of scale or operating within institutional voids. This may also suggest that MNEs from the post-communist economies have less advanced technologies that are easier to transfer into other post-communist economies through OFDI (Salehizadeh (2007). In doing so, multinationals from post-communist economies turn ownership (technological) disadvantages into advantages. In tune with Andreff (2002), these results suggest that the OFDI from the CEECs challenge to some extent the IDP as the structural features inherited from the former centrally-planned system still prevail in the economy and affect OFDI. Hence, in answer to our first research question, these results support the view that in order to account for the determinants of OFDI from emerging and in particular post-communist economies the IDP needs to be augmented and contextualised. As the IDP is an extension of the eclectic paradigm – which is a ‘holistic yet context specific framework’ (Stoian & Filippaios, 2008b) – contextualising the IDP appears a valid proposition. Our second research question asked: How do home country institutional factors affect OFDI from post-communist economies? To answer this question, we augment and contextualise the IDP by drawing on institutional theory and including in our model several institutional factors such as trade and foreign exchange liberalisation reforms, large scale privatisation reforms, enterprise restructuring, competition reforms and overall institutional reforms. As institutional reforms were necessary to enhance the economic development of the former communist states and drive their transition to market economy, we believe that institutional variables facilitate a natural extension of the IDP. This is because institutions in the CEECs differ significantly from developed economies and affect business strategy ( Hoskisson et al., 2000 and Meyer and Peng, 2005), including OFDI. By extending the IDP and drawing on institutional theory we contribute to extant literature that has already extended the IDP, albeit mainly in the context of developed economies ( Bellak, 2001, Dunning et al., 2001 and Durán and Ubeda, 2001) and without drawing on institutional theory. By focusing on the CEECs, we also confirm extant theory in a new context ( Meyer & Peng, 2005), thus making a contribution to theory. In doing so we also contribute to the debate anchored in the institution based view of strategy ( Peng et al., 2008 and Peng et al., 2009) and answer Peng et al.’s (2008) call to examine how institutions affect strategy, including the firm's internationalisation strategy. Extant literature argues that institutional change matters for OFDI but only a few studies ( Kang and Jiang, 2012 and Wang et al., 2012) show what institutional reforms influence OFDI and how. In answer to our second research question, we find that that overall institutional reforms and reforms related to competition policy enhance OFDI, whilst large scale privatisation, enterprise restructuring or trade liberalisation do not influence OFDI, as follows. Reforms related to competition policy increase competition in the market and hence lead to higher competitiveness of firms and industries, also reflected in increased OFDI. These findings support the extension of the IDP by drawing on institutional theory and contrast with Khanna and Palepu (2006) who argue that MNEs from emerging economies invest abroad as a result of monopolistic or oligopolistic advantages obtained by operating in uncompetitive environments in their home countries. Our results are in tune with Porter (1990) and Yamakawa et al. (2008) but the operationalisation of this relationship represents a unique theoretical and empirical contribution of this paper. Previous literature has accounted for policy change using dummies (Buckley et al., 2007 and Kalotay and Sulstarova, 2010), proxies (Goh & Wong, 2011) or has used alternative measures of institutional factors (Salehizadeh, 2007), such as the ICRG risk variables, for example (Kang & Jiang, 2012). Further answering our second research question, we also find that large scale privatisation, enterprise restructuring or trade liberalisation alone do not enhance OFDI. Instead, we find that OFDI is enhanced by the home country's progress in overall reforms – including large scale privatisation, small scale privatisation, enterprise restructuring, price liberalisation, trade and foreign exchange, competition policy, banking reform and interest rate liberalisation, securities markets and non-bank financial institutions. These overall institutional reforms reflect the level of competitiveness and economic development of the home country and enhance the ownership advantages of MNES originating from post-communist economies, allowing them to invest abroad. By reflecting the economic development and competitiveness of CEECs, overall institutional reforms may also attract FDI from multinationals that can use advanced CEECs as springboards for FDI into other CEECs. Extending the IDP by including institutional reforms is consistent with Liu et al.’s (2005) argument that GDP per capita is an incomplete measure of economic development and thus supplementary factors that contribute to economic development should be included in the IDP. These findings support the theoretical extension of the IDP by incorporating institutional theory and answer calls by Dunning and Lundan (2008a) to account for institutional factors when examining OFDI from emerging economies. This is another theoretical, as well as an empirical contribution of the present study. The EBRD indicators have been used before to account for the institutional context of host countries and its impact on FDI (Mishra and Dally, 2007 and Stoian and Vickerman, 2006), but to our knowledge this is the first study to employ these indicators to account for the home country determinants of OFDI. Contrary to expectations, we find that neither trade liberalisation reforms, nor EU membership (as a proxy for trade and capital liberalisation) enhance OFDI. However, it is widely accepted that many of the promised benefits of EU membership occurred before countries actually joined the EU, as the liberalisation of trade and capital was incremental and started in the 1990s (Stoian, 2007). Furthermore, EU membership was conditional on countries conducting internal institutional reforms (Stoian, 2007) and these appear to have enhanced OFDI. Moreover, as FDI inflows enhance OFDI, FDI can be considered a proxy for capital liberalisation, showing that capital liberalisation affects OFDI positively. This understanding is in tune with findings for emerging economies by Goh and Wong (2011). The investigation of the impact of EU membership on OFDI represents another empirical contribution of this paper.