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Outward FDI from small developing economies

Outward FDI from small developing economies PurposeForeign direct investment (FDI) from developing economies has increased sharply since the beginning of the 2000s. While most investment flows correspond to firms from large economies, small developing economies have also witnessed the increase of outward investment flows from their domestic companies. The literature on outward FDI (OFDI) from developing economies has focused mainly on large emerging countries, such as China and India. In the case of small developing economies, for which there is scant empirical evidence, firms willing to invest abroad face a different business environment with several barriers such as a small domestic market to achieve economies of scale and a limited supply of specialised resources. In this setting, the purpose of this paper is to examine firm-level strategies and the home-country effects in a small developing economy.Design/methodology/approachA research case study is conducted through a representative sample of Costa-Rican firms investing abroad. Costa Rica makes a strong case since it stands out among small developing economies investing abroad in terms of both the number of operations and the amount of OFDI.FindingsThe main findings are: outward investment is not only for large and mature firms, as medium and small-sized firms are actively investing abroad; most firms pursue a market-seeking strategy; the benefits for the firm and the home country are stronger when companies follow a clear outward investment strategy; and there is a positive relationship between international trade and OFDI.Originality/valueThis paper provides novel empirical evidence to better understand an emerging trend in OFDI: in an increasingly integrated world economy, even SMEs from small developing economies are compelled to internationalise their operations in order to compete successfully. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Emerging Markets Emerald Publishing

Outward FDI from small developing economies

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References (76)

Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
1746-8809
DOI
10.1108/IJoEM-11-2015-0236
Publisher site
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Abstract

PurposeForeign direct investment (FDI) from developing economies has increased sharply since the beginning of the 2000s. While most investment flows correspond to firms from large economies, small developing economies have also witnessed the increase of outward investment flows from their domestic companies. The literature on outward FDI (OFDI) from developing economies has focused mainly on large emerging countries, such as China and India. In the case of small developing economies, for which there is scant empirical evidence, firms willing to invest abroad face a different business environment with several barriers such as a small domestic market to achieve economies of scale and a limited supply of specialised resources. In this setting, the purpose of this paper is to examine firm-level strategies and the home-country effects in a small developing economy.Design/methodology/approachA research case study is conducted through a representative sample of Costa-Rican firms investing abroad. Costa Rica makes a strong case since it stands out among small developing economies investing abroad in terms of both the number of operations and the amount of OFDI.FindingsThe main findings are: outward investment is not only for large and mature firms, as medium and small-sized firms are actively investing abroad; most firms pursue a market-seeking strategy; the benefits for the firm and the home country are stronger when companies follow a clear outward investment strategy; and there is a positive relationship between international trade and OFDI.Originality/valueThis paper provides novel empirical evidence to better understand an emerging trend in OFDI: in an increasingly integrated world economy, even SMEs from small developing economies are compelled to internationalise their operations in order to compete successfully.

Journal

International Journal of Emerging Markets – Emerald Publishing

Published: Sep 19, 2016

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