Introduction

CHAPTER 3

Spotlight on Outward Foreign Investment and Foreign Direct Investment Policies

Introduction

Multinational firms based in developing economies are an important and growing phenomenon in the foreign investment landscape. These so-called Southern multinationals have found that outward foreign direct investment (OFDI) is an important strategy for gaining competitiveness.1 In post–global recession China, OFDI has become an important component of a strategy to increase the returns on its international assets, compared with traditionally held, low-yielding international reserves (Aizenman, Jinjaarak, and Zheng 2017). This report builds on other research undertaken to improve the understanding of these multinational enterprises from emerging economies (Dixit 2011; Gomez-Mera et al. 2015; Perea and Stephenson 2018), which is important because most theories of multinational enterprises are based on the behavior of multinationals originating from advanced economies.

An outward investment perspective is taken to study South Asian intraregional investment. OFDI involves cross-border investment in which the investor or parent company is a resident entity, whereas inward FDI (IFDI) involves investment when the parent company is a nonresident entity (see box 3.1). This is in line with the study’s approach to investigating firm decision-making over a range of globalization options—trade, other nonequity modes, and direct foreign investment abroad. In this framework, inward investment would be a joint decision with a foreign firm, and thus is not the focus of this study. The OFDI approach also provides an opportunity