trend and pattern of outward foreign direct investment from third

Trend and Pattern of Outward Foreign Direct Investment from third World Countries 209

* Associate Professor & Head in Department of Economics, Central University of Kerala, E-mail:[email protected]

Asian-African Journal of Economics and Econometrics, Vol. 12, No. 1, 2012: 209-234

TREND AND PATTERN OF OUTWARD FOREIGN DIRECTINVESTMENT FROM THIRD WORLD COUNTRIES

P. Abdul Kareem*

ABSTRACT

In the transforming global economic order, the third world countries have started emergingvery fastly particularly since early 1990s. In this emerging third world economic scenario, themain focus is on opening up of the trade sector and foreign investment sector. In due course oftime, these countries have started investing abroad. This paper provides a comparative analysisof the trend and pattern of outward foreign direct investment from countries such as India,China, Malaysia, Philippines and Singapore. The analysis of all these five countries both country– wise and industry – wise revealed low diversification in each country over the period of time.Therefore, from this study, we have drawn the inference that the outward FDI from third worldare fastly emerging in the current periods and there is a huge diversity in both the country –wise and industry – wise outward FDI basket among these countries.

I. INTRODUCTION

Economic development of third world countries had been a long debated issue in the developmentliterature. The uneven development between developed countries and developing countrieswas an economic reality that disturbed the curiosity of intellectual community all over theworld for a very long time. The world was divided into two between rich countries and poorcountries. On the one hand, there is a very prosperous and comfortable section of people whoenjoyed all the fruits in this world. While on the other hand, there is a dispreveleged sufferingsections of the people who did not enjoy the pleasures in this world. This division betweenpeople was evident as far as the economic science makes it sensible. The rich industrial countriesattained economic development. The main features of the economic development in these richcountries are : high level of employment, high per capital income, high human development,lack of poverty, illiteracy and miseries. These developed countries particularly belonged toAmerica and Europe. These developed countries attained huge commanding economic prosperityparticularly through industrial and technological advancement. The poor third world countriesgenerally exhibited economic underdevelopment. The main features of the economicunderdevelopment of these countries are : low level of employment, low per capita, lowconsumption levels, prevalent poverty and illiteracy and economic turmoil.

The economic development of these third world countries had been very vividly discussedall over the world for a very long time (Todaro, 1993). The economic discipline made great

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strides here so as to explain and analyze the economic problems in these third world countriesparticularly since early twentieth century. Many attempts had been made to focus thedevelopmental issues of these poor third world countries. These countries were in the grip ofchronic poverty and unemployment. The per capita income in these particular countries hadbeen abymissaly low. The consumption levels and savings levels of the people had been verylow.

But, particularly after attaining political independence in mid-twentieth Century, manythird world countries have made concerted efforts to develop their economies. Economist likeRaul Prebisch had firstly underlined the dynamics of economic development of poor countries(Singer et al. 1991). The countries like Latin American Countries and Asian Countries initiatedconcerted efforts to develop their industrial sector. The policies and programmes gaveimportance to the development of basic and heavy industries such as iron,steel,cement,electricity, etc. The main programmes and policies gave importance to protectivetype economic rationale. Then, under this umbrella of protection, the domestic industries becameself sufficient. These protective industrial policy was based on imposing of heavy import tariffsand little importance to the export sector. For example, in India the protective closed domesticindustrial policies were initiated with much rigour till mid 1960s. The basic and heavy industriesparticularly in the Public Sector had been developed under this umbrella of protection. OtherAsian countries such as Malaysia, Philippine, Singapore, etc had also followed strong inwardlooking policies in the initial decades. While countries like China was under the State Controland socialistic policies.

The economic development of these third world countries was extensively discussed inthe development literature (see Singer et al., 2007). Many third world countries tried hard toattain self sufficiency and economic development during the decades of 1950s, 1960s, 1970sand 1980s. These countries had passed through many developmental phases. While in thedecades 1950s and 1960s these economies went through the development of basic and heavyindustries under the umbrella of strong protective policies. The decades of 1970s and 1980switnessed outward orientation in many of these third world countries. The export sector becameslowly emerging and the export of manufactures occupied high share in the export basket. Thecountry –wise diversification of the export sector resulted in better economic performance. Inthis second phase of outward orientation and trade performance, these third world countrieshad attained high levels of competitiveness and quality.

After the early 1990s, in many third world countries the focus of economic attention changedtowards economic liberalization and globalization. Many third world countries haveimplemented open trade and investment policies. The economic reform measures emphasizedthe opening up of trade and foreign investment sectors. Thus, the foreign trade sector andforeign investment sector occupied emerging roles in these third world countries, particularly,since early 1990s. For example, in India the trade liberalization measures included heavyreduction of import duty rates and export promotion measures. The countries like Malaysia,Philippines, Singapore, etc were known as newly industrialized countries (NICs). The wonderfuleconomic performance of these NICs had caught the attention of development economistseven during 1980s. The success story of these countries was based on liberal export orientation


policies. While in the case of countries like China, the market based economic reforms wereloud even during 1980s. After these reforms, the trade sector and foreign investment sector inChina had attained achievements of gigantic proportions. During these reform periods theperformance of trade sector and foreign investment sector had thrilled the attention ofdevelopment economists all over the world. The economic performance of these third worldcountries such as China and India for the current periods changed the very fundamentals ofcontemporary world economy.

This discussion of the economic development in the various phases in these third worldcountries reveals us that the earlier economic rigidities of these poor countries had disappeared.The underdevelopment of the third world countries had been an economic reality. But the verysincere and consistent efforts for a long time had resulted in better economic performances inthese countries. Particularly after early 1990s, the foreign trade and foreign investment sectorhad emerged in these countries. These third world countries are now on the path of economicprosperity and welfare. Many third world countries are now attaining wonderful economicsuccesses.

The foreign investment sector is a very important sector in the development experience ofthese world countries (Dunning, 1974). The foreign capital has heavily flown to the thirdworld countries for the recent decades . These foreign capital had resulted in technology spillover, higher skills and development, higher industrial production, etc. There are many studies(Chen, 1981) which reveals the importance of foreign investment in these third world economies.These huge of flow of capital and technology to these third world countries had resulted in thedevelopment of industrial sector in these third world contries. Also, over a period of time,many multinational corporation from these third world countries had emerged. Manymultinational corporation from these third world countries are now operating and makinginvestments abroad. This emergence of third world multinationals had resulted in boomingeconomic prosperity in these home countries (see (Lall 1982). In this context, this paper studiesthe emerging trends and patterns of outward foreign direct investment from five selected thirdworld countries, Five emerging third world countries selected are India, China, Malaysia,Philippiness and Singapore. The paper is divided into six sections. In the first section we giveintroduction of the emergence of third world countries. The second section reviews availableliterature on outward foreign direct investment and economic development in third worldcountries. The trend and pattern of outward fdi in India is analysed in section three. The changingindustry – wise composition and country – wise direction outward fdi in China is studied insection four. The emerging trends and changing patterns of outward fdi in Malaysia, Philippinesand Singapore is analysed in fifth section. The last sixth section provides conclusion.

II. REVIEW OF LITERATURE

Chang, Winston W (1970) discusses the neoclassical theory of technical progress. The mainobjective of this study is to present some new basic sets of parameters associated with Harrod’sand Solow’s classifications in a two – sector economy producing both consumption goods andcapital goods. These parameters are the changes, which result from technical advance, in theprimal variables (input – out co-efficient) with a certain dual variable being held constant.

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Throughout the paper it is assumed that the production functions are linear homogenous andthat inputs are paid according to competitive imputations. In another paper Dollar (1986) hadstudied technological innovation, capital mobility and the product cycle in North – South trade.According to him, the introduction of new products is a form of technological innovation thatplays an important role in determining the pattern of international trade, particularly the patternof trade between developed and less developed nations. Then, the author explains RaymondVernon’s Product Cycle theory. According to this theory, most new products are introduced inthe developed countries, in the United States in particular, because the markets in these nationsare large and in the early stages of a product’s life production needs to be located close to themarket. After a product become standardized, it is possible to produce it far from the mainmarkets. While Krugman (1979) develops a simple general – equilibrium model of productcycle trade. There are two countries, innovating north and non innovating south. Innovationconsists of the development of new products. These can be produced at first only in North, buteventually the technology of production becomes available to south. This technological lag riseto trade, with North exporting new products and importing old products. Higher Northern percapita income depends on the quasi rents from the Northern monopoly of new products, so thatNorth must continually innovate not only to maintain its relative position but even to maintainits real income in absolute terms. Murphy et al. (2001) explores Rosenstein – Rodan’s idea thatsimultaneous industrialization of many sectors of the economy can be profitable for them alleven when no sector can break even industrializing alone. They analyze this idea in the contextof an imperfectly competitive economy with aggregate demand spillovers and interpret the bigpush into industrialization as a move from a bad to good equilibrium. They present threemechanisms for generating a big push and discuss their relevance for less developed countries.While Keller (2002) studies how trade pattern and technology flows affect productivity growth.The study has used the total factor productivity method to analyse product growth. He explainsthat international trade leads to faster technological diffusion and higher rates of productivitygrowth Xu/R&D and Wang (2002) studies capital goods trade and R&D spillover in OECDcountries. The study explains that capital goods have higher content of technology than non –capital goods and hence are major carriers of R&D spillovers embodied in trade flows. Thestudy by Padoan (2002) stresses the role of knowledge accumulation in determining tradeperformance and competitiveness. Also this study emphasizes the role of trade in enhancingknowledge accumulation through imports.

The study by Baldwin and seghezza (1996) attempts to identify one of the mechanismslinking trade and growth. In particular, the study presents a novel theoretical model thatestablishes a link between trade liberalisation and investment- led growth. Estimating equationsare derived from the model and estimated with three stage least squares on a cross- countrydata sample. They find that domestic protection depresses investment and thereby slows growth.Foreign trade barriers also lower domestic investment, but the anti – investment effect is weakerand is less robust to sample and specification changes.

The paper by Feldstein (1994) analyses the effect of outbound foreign direct investmenton the domestic capital stock. The first part of the paper shows that only about 20 per cent ofthe value of assets owned by US affiliates abroad is financed by cross- border flows of capital


from the United States. An additional 18 per cent represents retained earnings attributable toUS investors. The rest is financed locally by foreign debt and equity. The second part of thepaper analyses data for the major industrial countries of the OECD and finds that each dollarof cross – border flow of foreign direct investment reduces domestic investment byapproximately one dollar. This dollar for dollar displacement of domestic investment byoutbound FDI is consistent with the Feldstein- Horioka picture of segmented capital markets.It suggests that while portfolio funds are largely segmented into national capital markets, directinvestment can achieve cross- border capital flows. A dollar outflow of direct investment reducesdomestic investment by a dollar and this is not offset by a change in international portfolioinvestment. This ability of foreign direct investment to circumvent the segmented nationalcapital markets also appears in the expanded use of foreign debt and equity capital to financethe capital accumulation of foreign affiliates of U.S. firms. Taken together, these estimatessuggest that each dollar of foreign assets acquired by U.S. foreign affiliates reduces the U.Sdomestic capital stock by between 20 cents and 38 cents. Equivalently, this implies that eachdollar of displaced domestic capital in the United States adds between $2.60 and $5.00 to thecapital stock of U.S. foreign affiliates.

Brainard (1993) provides empirical evidence that challenges the factor proportionsexplanation of multinational activity. The same tests on intra- industry ratios and total volumesthat were used to demonstration that a substantial part of trade is explained by factor proportionsand income similarities rather than differences are applied to affiliate sales with surprisinglysimilar results. Some support for the factor proportions hypothesis is derived by comparingaffiliate destined for export to the parent’s market, which is the category of activity most likelyto be motivated by factor proportions considerations, with that destined for sale in the localmarket. Affiliate production destined for export home is moderately more responsive to factorproportions differences. However, the two types of activity differ more in their responses totransport costs and destination market income. Overall, the evidence suggests that only a smallpart of multinational activity into and out of the U.S. in the late 1980s can be explained byfactor proportions differences.

The international production and distribution networks consist of vertical productionchains and distribution networks extended across a number of countries. Ando and Kimura(2003) claim that the international production and distribution networks in East Asia presentdistinctive characters in their significance in the regional economy, their geographicalextensiveness involving a large number of countries in the region, and their sophisticationof both intra- firm and arm’s – length relationships across different firm nationalities. Andoand Kimura start from reviewing crucial changes in policy framework observed in thedeveloping East Asian countries a decade ago and sketching the theoretical thoughtsexplaining the mechanics of international production and distribution networks. Then, in theempirical part of the paper, the authors examine the micro data of Japanese Corporate firmsto make a closer look at the nature of networks through the pattern of FDI after analyzingoverall trade patterns of the major East Asian countries to confirm the importance ofinternational trade of machinery parts and components. In addition, the paper quantifies themagnitude of economic activities of Japanese firms through different channels of transactions,

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using the firm nationality approach. The last part of the paper discusses policy implicationsof the net works.

In the study by Lucas (2007), a model is proposed to describe the evolution of real GDPsin the world economy that is intended to apply to all open economies. The five parameters ofthe model are calibrated using the Sachs- Warner definition of openness and time- series andcross – section data on incomes and other variables from the 19th and 20th centuries. The modelpredicts convergence of income levels and growth rates and has strong but reasonableimplications for transition dynamics.

In Mexico during the 1980s, the wages of more- educated, more- experience workers roserelative to those of less- educated less- experienced workers. Hanson and Harrison (1995)assess the extent to which the increase in the skilled – unskilled wage gap was associated withMexico’s recent trade reform. In particular, they examine whether trade reform has shiftedemployment towards industries that are relatively intensive in the use of skilled labour (Stolper– Samuelson – type effects). The results suggest that the rising wage gap is associated withchanges internal to industries and even internal to plants that cannot be explained by Stolper-Samuelson- type effects. They also find that other characteristics associated with globalisationsuch as foreign investment and export orientation – matter. Exporting firms and joint venturespay higher wages to skilled workers and demand more skilled labour than other firms.

Haskel and slaughter (1998) examine whether the sector bias of skill – biased technicalchange (sbtc) explains changing skill premia within countries in recent decades. First, using atwo- factor, two- sector, two- country model they demonstrate that in many cases it is thesector bias of sbtc that determines sbtc’s effect on relative factor prices, not its factor bias.Thus, rising (falling) skill premia are caused by more extensive sbtc in skill- intensive (unskill- intensive) sectors. Second, they test the sector – bias hypothesis using industry data formany countries in recent decades. An initial consistency check strongly supports the hypothesis.Among ten countries they find a strong correlation between changes in skill premia and thesector bias of sbtc during the 1970s and 1980s. The hypothesis is also strongly supported bymore structural estimation on U.S and U.K. data of he economy- wide wage changes ‘mandated’to maintain zero profits in all sectors in response to the sector bias of sbtc.

Glaser and Kerr (2008) ask the question why are some places more entrepreneurial thanothers? They use Census Bureau data to study local determinants of manufacturing startupsacross cities and industries. Demographics have limited explanatory power. Overall levels oflocal customers and suppliers are only modestly important, but new entrants seem particularlydrawn to areas with many smaller suppliers. Abundant workers in relevant occupations alsostrongly Predict entry. These forces plus city and industry fixed effects explain between sixtyand eighty percent of manufacturing entry. They use spatial distributions of natural costadvantages to address partially endogeneity concerns.

Evenett and Keller (1998) analysed two main theories of international trade, the Heckscher-Ohlin theory and the Increasing Returns trade theory, by examining whether they can accountfor the empirical success of the so- called Gravity Equation. Since versions of both models cangenerate this prediction, they tackle the model identification problem by conditional bilateral


trade relations on factor endowment differences and the share of intra- industry trade, becauseonly for large factor endowment differences does the Heckscher- Ohlin model generatespecialization of production and the Gravity Equation, and it predicts inter-, not intra – industrytrade.

Many of the lessons from foreign direct investment (FDI) research on manufacturing andextractive resource industries are applicable to financial – sector FDI. The study by Goldberg(2004) reviews the main findings and policy themes of FDI research, with a primary focus onthe host country implications of FDI for emerging market economies. Evidence on technologytransfers, productivity spill overs, wage effects, macro economic growth, and fiscal and taxconcerns are emphasized. Throughout this review , the researcher stress that parallel findingoften arise independently in the separate research programs that focus on general and financialsector FDI. The researcher also emphasizes that some important differences between the resultsof FDI into these sectors are apparent, especially with respect to their implications for localinstitution building and business cycles. These differences, more so than the similarities shouldbe the focus of concentrated research efforts.

Kojima (1989) has studied the theory of internationalization by multinational corporation.A theorization of multinational corporation activities or the theory of internationalizationdeveloped by the Reading School (England) economists culminated in a sunk- cost model.They stress that to reduce variable cost of transaction through transfer pricing is the source ofgain from internalization through multinational operations. They reach to wrong conclusionssuch as that MNCs have many advantages from making internal prices lower; that it is justifiablefor the MNCs to take monopolistic behaviour with the aim of maximizing quasi- rent; and thatit is profitable for the MNCs to switch from exporting to overseas production. In contrast, it isshown here that the real gain of internationalization depends on economies of scale of theplant, the firm and the agglomeration which the MNCs design and utilize.

The main research problem dealt with in the paper by Voinea (2003) is the type ofspecialization (and the type of industrial structure) induced by FDI- driven technology transfer.The paper discusses some issues linked to the FDI- driven technology transfer, especially inEuropean Union accession economies. Then the study makes an assessment on the FDI impacton productivity and specialization in the Romanian manufacturing sector. Secondary sourcesof information are used to calculate financial and statistical indicators, while survey data gatheredin the Global competitiveness Report (covering 80 countries) are also compounded.

According to Ruffin and Jones (2000), there is much concern over these days over thetransfer of technology and jobs to countries such as China and India, instances in whichAmerican companies move production facilities to areas of low labour costs. Leaving asideissues of overall employment levels, the authors focus here on the effects of internationaltechnology transfers in a single general competitive equilibrium model. Indeed, bypassing thepeculiar characteristics of multinational corporations, the researchers ask a simple question: Ifa country’s superior technology is given away to procedures abroad, what are internationaldistribution consequences? Ignoring the possible longer term effects on the incentive to innovate,it is clear that the world as a whole benefits if better technology is spread abroad, so that itshould be possible to arrange side- payments so that everyone benefits. In the absence of such

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compensation, however, who gains and who loses from such international technology transfer?According to Ruffin and Jones, the literature on the transfers internationally of purchasingpower or commodities suggest that in all likelihood the giver loses and the recipient gains. Buttechnology is different - it is like a public good in that the giver still has its resources andtechnology.

Saggi’s (2002) paper examines two type of technology transfer by a multinational firm(MNC) In the case of horizontal technology transfer, the MNC ‘s incentive for technologytransfer is higher under a joint venture than under direct entry if and only if it owns a substantialportion of the joint venture. Both under direct entry and a joint venture, the MNCs does nottransfer the welfare- maximizing level of technology to the local market. Further more, thedegree of market failure shrinks as costs of technology transfer become more convex. If thereare technology spillovers to the local firm, there exists a negative feed back between technologytransfer and spillovers. Under vertical technology transfer, the MNC transfers technology to alocal firm that supplies an intermediate input to the MNC. When the local supplier and theMNC are not vertically integrated, spillovers from the local supplier to another potential supplierbenefit the MNC since such spillovers lower the price of the intermediate good. Thus, undervertical technology transfer there can be a positive feed back between spillovers and technologytransfer.

Technology and innovatory capabilities are key sources of competitive strength for firmsand countries. As a developing country, China seems to build its capabilities for technologyand innovation through foreign direct investment (FDI) by multinational corporations. Domultinational corporations transfer technology ? While the topic is quite important, thequantitative analyses on the issue in the literature have been limited. Zhao and Zhang (2000)attempt to close the gap by empirically investigating the issue with the Chinese industrial data.The estimates indicate that the Chinese industries benefit from the presence of FDI mainlyfrom spillovers and no obvious technology transfers are made directly from multinationalcorporations. The results also suggest a key role of an industry’s absorptive capability incapturing potential benefits from FDI.

According to Emde (1999), since 1991, India has experienced a dramatic increase in thepresence of multinational corporations (MNCs) and with it, a tremendous expansion in theamount of foreign direct investment (FDI) inflows to the Indian economy. This study analysesthe effects which this change has had on Indian society. In particular, three questions areaddressed. How and why did this dramatic change occur? What are the costs and benefits toIndia associated with this change ? and what must India do to continue its development ? Theoverall conclusion reached is that the increased presence of MNCs has had a positive impacton India However, India has not even come close to reaching its potential, and thus, muchmore change needs to occur.

The burgeoning literature on outward foreign direct investment from emerging marketshas largely focused on analysing the motives of investors as reported by parent companies.The study by Henley, Kratzsch , Kulur and Tandogan (2008), instead, focuses on firm- levelinvestments originating from China, India or South Africa in fifteen host countries in sub –Saharan Africa (SSA). The analysis is based on a sub – set of firms drawn from the overall


sample of 1,216 foreign – owned firms participating in the UNIDO Africa Foreign investorsSurvey, carried out in 2005. The sample of investments originating from China, India andsouth Africa is analysed in terms of firm characteristics, past and forecast performance in SSAover three years and management’s perception of ongoing business conditions. Comparisonsare made with foreign investors from the North. The paper concludes that while investors inSSA from the three countries are primarily using their investments to target specific markets,they are largely operating in different sub – sectors. While there appear to be specific featuresthat firms from a given country of origin share, there are no obvious operating – level featuresthey all share apart from market seeking.

There is limited research on the internationalization processes, strategies and operationsof Asian multinational corporations (MNCs), particularly MNC’s based in Malaysia. Theemergence and development of an MNC from this developing country represents a significantaddition to literature on this topic which augments and supplements the information alreadyavailable with regard to nascent MNCs from Asian Newly Industrialised countries (NIC’s).Drawing on primary data from in depth interviews with 12 key executives from Sine DarbyBerhad (SDB), a developing Malaysian – based MNC, Ahmed and Kitchen (2008), examineand investigate the firms internationalisation process, its characteristics and strategies, includingmotivations, patterns, and sources of competitive advantage.

The study by Tolentino (2008), examines relationships between several home country-specific macro economic factors and the level of the outward FDI of China and India usingmultiple time- series data from 1982 to 2006 and from 1980 to 2006, respectively. With theuse of a vector autoregressive model assessing the causal relationships of the endogenousvariables, the empirical research proves that Chinese national characteristics associated withincome per capita openness of the economy to international trade, interest rate, human capital,technology capability, exchange rate and exchange rate volatility do not Granger cause thelevel of outward FDI of China. By contrast, the national technological capability of IndiaGranger causes their level of outward FDI. The level of outward FDI of China doest not Grangercause any of the home country- specific macro economic factors considered, while the level ofoutward FDI of India Granger causes their national interest rate.

Indian and Chinese enterprises have emerged as important outward investors in recenttimes with their involvement in a number of prominent Greenfield investments and acquisitions.The theory of international business posits that the ownership of some unique advantageshaving a revenue generating potential abroad combined with the presence of internalizationand locational advantages leads to outward FDI. Conventional MNCs based in the industrializedcountries have grown on the strength of ownership advantages derived from innovatory activitythat is largely concentrated in these countries. The paper by Kumar and Chadha (2008) examinesthe case of Steel industry that has become an important sector of overseas activity for Chineseand Indian companies with a string of major acquisitions of foreign MNCs for acquiringfootprints and natural resources in order to identify the sources of ownership advantages andstrategies of outward investments from emerging countries.

While India has become an attractive destination for foreign capital, the country is alsobecoming a significant source of outflows. Many Indian enterprises view outward investments

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as an important dimension of their corporate strategies. The paper by Rajan (2009) presentssome data on the magnitude and composition of Indian outward foreign direct investment(OFDI). It also discuses the rationale for and the empirical determinants of overseas acquisitionsby Indian companies. The paper concludes with a broader discussion of the impact of theglobal rise of Indian companies on the Indian economy.

Pradhan (2005) provides an overview of the changing pattern of O-FDI (Outward ForeignDirect Investment) from India over 1975 -2001. It shows that the increasing number of IndianMNCs during 1990s has been accompanied by a number of changes in the character of suchinvestment. These, notably include over whelming tendency of Indian outward investors tohave full or majority ownership, expansion into new industries and service sector, and theemergence of developed country as the most important host region for trans – border activity.

Ariff and Lopez (2008) analyse the trends, patterns and determinants of outward foreigndirect investment (OFDI) by Malaysian companies. It shows that Malaysian OFDI had taken aquantum leap since 1993 and the number of Malaysian TNCs investing abroad since the 1990shas increased significantly. The OFDI is focused mainly in services (finance, banking, insuranceand tourism) and natural resources (oil and gas) with manufacturing a distant third. This alsoincludes the emergence of offshore financial centers and developed countries as the mostimportant host region for trans- border activity although investments in developing countriesespecially within ASEAN have shown tremendous growth. The key drivers of OFDI havebeen to increase efficiency, to access resources and to access markets.

Anwar and Rabbi (2000) seek to examine the location determinants of outward foreigndirect investment (OFDI) considering the case of Indian multinational national corporations(MNCs) using disaggregates country level data for the year 1970- 1990. According to them, arich body of literature and empirical studies exists on specific ownership advantages of IndianMNCs and their reasons of internationalisation . Nevertheless, still there exists a knowledgegap in the literature on the question of choice of investment destination and motives behindinvestment, especially in the case of Indian MNCs. The paper explains the motives behind theinvestment of multinationals with a focus on Indian firms. Based on the theory, six importantvariables are considered in the analysis on the data set during 1970 -1990 and an ordinary leastsquare (OLS) regression and censored, Tobit model are employed to empirically analyse thehost country specific characteristics that give an incentive to Indian multinationals to choosetheir investment destinations in the world. The empirical results have indicated that realGDP, real GDP per capita income, geographic distance and real GDP deflator of the hostcountry are the significant determinants in the case of Indian outward foreign directinvestment. The theoretical part shows that over time a shift has ocured in Indianmultinationals investmentfrom developing to developed economies. As a policy guideline,countries ambitious of attracting foreign direct investment need to prioritise these factorswhile formulating policies and programs as the trend in the investment of the Indian MCswould leave a big impact on the growth of the both the host country and Indian economy aswell. The successful emergence of third world multinational corporations (TWMNCs) likeIndian firms sets an example for other developing countries in the world and therefore beincorporated into the policy paradigm.


The study by Athukorala (2009) examines emerging patterns and economic implicationsof Indian foreign direct investment against the backdrop of the evolving role of developingcountry firms (emerging multinational enterprises) as an important force of economicglobalization. The novelty of the analysis in this paper lies in its specific focus on the implicationsof changes in trade and investment policy regimes and the overall investment climate forinternationalization of domestic companies and the nature of their global operations. The findingscast doubt on the popular perception of the recent surge in outward foreign direct investmentfrom India as an unmixed economic blessing, given the remaining distortion in the domesticinvestment climate.

Pradhan’s (2009) study deals with the outward FDI (OFDI) behaviours of the emergingmultinationals from India and China. In the backdrop of changing public policies and economicperformance of the home country, it traces the evolution of OFDI by these emergingmultinationals over a long period, from early 1950s to the present decade. Indian and Chinesemultinationals, in addition to their similarity of achieving high growth rates OFDI with longterm sectoral and geographical diversification, are observed to have a number of importantdifferences in terms of characteristics of outward investing firms and their locational motivations.

According to pradhan (2007), the importance of Indian Multinations in the world economyhas been growing significantly since 1990s. An increasing number of Indian firms across widerange of sectors are undertaking large overseas projects and their focus is gradually shiftingtowards developed countries. Until then OFDI from India was confined to a small number offamily owned firms primarily investing in developing countries through joint - ownershiparrangement. These changing natures of Indian OFDI are likely to have a number of implicationsfor the development of both host and home country. This study had explored some of theseissues relating to the growth of Indian MNCs.

Indian FDI has been rapidly growing into developed region. As a result, developed regionemerged as the largest host to Indian investment during 2000 – 07. An increasing number offirms from a wide range of economic activities are now undertaking FDI projects into developedcountries. Considering this, Prdhan (2008) has explored the growth of developed region boundIndian FDI since 1960s and explored various developmental impacts they have on hosteconomies. It is argued that Indian FDI can make contribution to development by making hostcountry markets more competitive, reducing cost of products and services and increasing therange of consumer choice. However, the negative short run impact of brown field form ofIndian FDI on local R &D and employment is clearly acknowledged.

The rise of service sector outward FDI (OFDI) activities has emerged as one of the mostimportant aspects of Indian economy during nineties. Pradhan (2003) reviews the recent trendsand patterns and tries to identify determinants of such investment. As compared to the eighties,the character of service sector OFDI flows has gone through several transformations . In theseventies it was largely a phenomenon led by firms from hotels & restaurants, fiancé andmarketing segments and is being directed at developing regions in overwhelming cases and ismostly minority owned. In contrast, during nineties it was predominantly led by the softwaresegment of the service sector, locationally developed country oriented and is largely majority– owned ventures. The rising trends in the service sector Investment development Path (IDP)

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of Indian economy has been found to be related to the stylized aspect of economic growthexpressed in terms of structural shift in economic activities. At the firm level the OFDI behaviourof service sector firms is observed to be non- linearly related to the firm age and size bothrelationships following inverted U- Shape curves. Firm’s innovation, export orientation andprofitability are also found to be important explanators in the rise of OFDI at the firm level.The import of capital goods, however, appears to have a negative impact on trans – borderexpansion of service sector firms.

In the paper, Kumar (2006) has analyzed the trends, patterns and determinants of outwardinvestments by Indian enterprises that have increased notably since the onset of reforms. Itfinds that the sharp rise in outward investments since 1991 has been accompanied by a shift ingeographical and sectoral focus of Indain investments. It develops an analytical framework forexplaining the probability of an Indian enterprise investing abroad in an exclusive large dataset of Indian enterprises. The findings suggest that Indian enterprises drawn their ownershipadvantages from their accumulated production experience, cost effectiveness of their productionprocesses and other adaptation to imported technologies made with their technological effort,and some times with their ability to differentiate product. Firm size exerts a positive but a non– linear effect. Enterprises that are already in export markets are more likely to be outwardinvestors. Finally, policy liberalization of 1990s turns out to have pushed Indian enterprisesabroad.

The recent spate of large cross- border acquisitions, eg. Tata Steel Corus, Hindalco- Novelis,and Tata Motors – Jaguar / Land Rover, among others and Greenfield investments by Indian &Companies have helped in focusing attention on the emergence of new corporate players onthe global scene. India’s emergence as a sources of FDI outflows is impressive for its level ofdevelopment. It is argued that the destinations, sectoral composition, motivations, entry strategiesof Indian investments have been changing with magnitudes. The paper by Kumar (2008)examines the source Indian companies ownership advantages trends, patterns and implications.It has been argued that the source of their ownership or competitive advantage lies in theiraccumulation of skills for managing large multi- location operations across diverse cultures inIndia and in their ability to deliver value for money with their frugal engineering skills honedup while catering to the larger part of income pyramid in India.

According to Kumar and Chadha (2008) Indian and Chinese enterprises have emerged asimportant outward investors in recent times with their involvement in a number of prominentGreenfield investments and acquisitions. Conventional MNCs based in the industrializedcountries have grown on the strength of ownership advantages derived from innovatory activitythat is largely concentrated in these countries. This study examines the case of Steel industrythat has become an important sector of overseas activity for Chinese and Indian companieswith a string of major acquisitions of foreign MNCs, for acquiring foot prints.

Pananond (2008) sets out to explore whether and how the rise of outward FDI from Southeast Asia could contribute to the region’s further integration. As a region with an ever expandingoutward FDI, from mere recipient countries to host economies, could further deepen the region’smain regional integration scheme- the Association of Southeast Asian Nations. The paperconcludes that while regional integration among Asian members has been instrumental in


attracting inward FDI to the region, outward FDI from Asian has emerged not as a result of thelarger market of the integrated region but more from the differences of factor endowment ofmember countries and from home countries supporting policy. From the analysis of outwardFDI from South east Asia, there are a variety of factors both going for and against furtherregional integration. What is certain is that outward FDI from the region can certainly becomeanother force that drives regional economies closer together. The uncertainty however, iswhether South east Asian countries can perceive these benefits and go ahead with plans tofurther deepen their integration in order to encourage intra regional investment. As past recordsshow, it may be the case that outward FDI from the region continues no matter how regionalintegration fares. Mendoza and Inamura (1996) present an analytical framework to measurethe effects of foreign direct investment (FDI) on the economy of the host country, particularlythe technological structure, amount of domestic production and imports and the level ofemployment, wages and prices. This frame work is applied to study the effects of U.S. andJapan direct investments made in the 10 year period 1982 -1991 on the Philippine economy in1991.

III. OUTWARD FDI FROM INDIA

Indian residents are permitted to make investment in overseas Joint Ventures (JV) and Whollyowned Subsidiaries (WOS) under automatic route and approval route. Under automatic route,all proposals are routed through disgnated authorised dealer banks. Under the automatic route,and Indian party does not require any prior approval from the Reserve Bank of India (RBI) forsetting up a JV/WOS abroad. Proposals not covered by the conditions under the automaticroute require the prior clearance of the RBI and are coming under approval route.

Outward FDI are funded through sources such as, drawal of foreign exchange in India,capitalisation of exports, funds raised through external commercial borrowings, foreign currencyconvertible bonds and ADRs /GDRs and also through leveraged buyouts by way of setting upof special purpose vehicles (SPVs). Thus, financing of outward FDI by Indian entities arebroadly in the form of equity, loan and guarantee. India’s overseas investment which beganinitially with the acquisition of foreign companies in the information technology and relatedservices sector has, of late, spread to wider areas like manufacturing, financial and non- financialservices. Over the years, the number of proposals approved for outward FDI from India in JVsand WOSs increased from 1,214 in 2003-04 to 1,817 in 2006-07. The amount of approvedproposals increased from US $ 1,466.33 million in 2003-04 to US $ 15,060 million in 2006-07. It increased to US $ 20,947.16 million in 2007-08. Then this is approved proposals amountgalloped to US $ 43929.18 million in 2010-11. In April to May 2011, the amount of approvedproposals were US $ 5090.88 million. This quantum increase was particularly due to the suddenjump of Guarantee amount. In 2009 – 10 the guarantee amount of approved proposals was US$ million 7603.79 and this jumped to US $ million 27,230.52 in 2010-11. While the loanamount of approved proposals increased from US $ million 229.80 in 2003-2004 to US $million 7346.89 in 2010-2011. Similarly the equity amount of approved proposals also madean increase from US $ million 822.40 in 2003-2004 to US $ million 9351.77 in 2010-11. (seetable 1). The data given in this table shows that in India the amount of Outward FDI approved

222 P. Abdul Kareem

proposals, recorded very high increase, especially after the year 2006 -2007. This data onIndian Outward FDI clearly tells us that FDI is heavily flowing out of India at a very consistenttrend especially for latest years. This trend clearly reveals that FDI will continue to outflowfrom the country in the future years to come. So, the outward FDI is a very significantphenomenon in India during the recent years.

The company – wise Outward FDI from India is also available from RBI sources. HereRBI provides the detailed data over the period from August 2007 onwards. This company –wise data are available on financial commitment of respective companies in terms of equity,loan and guarantee issued in US $ million. At our disposal we also have the information regardingthe name of Indian party, name of the JV/WOS, the name of overseas country and majoractivity. In table 2, we give details of 10 leading Indian MNCs as on period from 01/4/2010 to30/4/2010. This data clearly tells us the process of outward FDI from India. The sector – wiseactivity and overseas country –wise diversification of Indian companies, provide us the emergingpatterns of FDI from India over the period of time. In this table 2, we have given the 10 leadingcompany details and their amount of financial commitment. The overseas country to whichIndian Outward fdi flows is Mauritius, followed by Singapore, Netherlands, Hong Kong, etc.Mauritius receives the fdi from India most, For example, Reliance Industries LTD made aninvestment of US $ million 2221.92 in the month of April 2010. Aban offshore LTD made aninvestment of US $ million 136.9 in Singapore. This table also clearly tells that manufacturingsector receives the most of fdi from India. The Indian MNCs such as Reliance Industries LTD,Kirloskar Brothers LTD, Suflon Energy LTD, Bajaj Auto LTD, JSW Steel LTD etc makeinvestment in the manufacturing sector. Then the trade & restaurant sector, real estate sector,etc also received higher outward FDI from India. Another notable feature is that much ofIndian MNCs are WOS type. The grand total fdi outflow from India in April 2010 is US $million 3656.98 of which US $ million 713.1798 was equity, US $ million 482.7526 wasloan amount and the remaining US $ million 2461.0 was from Guarantee issued. This tableprovides us a clear indication that a large number of Indian MNCs are emerging in theglobal economy, especially in the current years. From the table 3, the total sector – wisedistribution of India’s outward FDI is available. The data is available during April – December,2007. Sector – wise manufacturing sector received the outward FDI most, ie US $ million7634.00, followed by non-financial services, ie US $ 1677.71 million. The trading sectorreceived US & million 620.48. others received an amount of total approvals worth US $million 7681.9. This table also shows that the structure of sector – wise distribuition continueto be dominated by the manufacturing sector over the period. So, analysis of the sector –wise distribution continue to be dominated by the manufacturing sector over the period. So,analysis of the sector – wise distribution of outward fdi shows that the manufacturing sectorhas received the fdi most followed by non-financial and trading services. Thus, from table 2and table 3, we can – clearly draw the inference that the manufacturing sector receive the fdioutflow most from India. The trade and restaurant sector also receive significant amount ofoutward Indian FDI. The analysis of country – wise direction of outward FDI show thatMaurituis gets the most, followed by other Countries such as Singapore, Netherlands, Hongkong, etc.


IV. TREND AND PATTERN OF OUTWARD FDI FROM CHINA

China’s outward FDI net flows in 2009 reached US $ 56.53 billion, increasing by 1.1% comparedto the last year. Among the outflows, US $ 17.25 billion was incremental equity investment, US$ 16.13 billion was reinvested earnings and US $ 23.15 billion was other investment, accountingfor 30.5%, 28.5% and 41% of total respectively. By the end of 2009, nearly 12,000 domesticinvesting entities had established about 13,000 overseas enterprises, spreading in 177 countries(regions) globally. The accumulated outward FDI net stock stood at US $ 245.75 billion. Amongthe stocks, US $ 76.92 billion was equity investment, US $ 81.62 billion was reinvested earningsand US $ 87.21 billion was other investment, accounting for 31.3%, 33.2% and 35.5% of totalrespectively. The total assets of foreign affilattes had exceeded US $ 1 trillion. The worldinvestment report 2010 by UNCIAD indicates that, global FDI outflows reached US $ 1.1trillion in 2009 with US $ billion 18.98 of stocks by the end of 2009. Based on the above report,China’s outward FDI flows and stocks in 2009 took global shares of 5.14% and 1.3%. Chineseoutward FDI flows ranked 5th in all economies and 1st among developing economies. The outflowsof financial FDI reached US $ 8.73 billion in 2009, among which US $ 7.69 billion belongs tothe banking sector, taking of 88.1%. By the end of 2009, the financial outward FDI stocks stoodat US $ 45.99 billion, among which US $ 36.6 billion belongs to the banking sector, US $ 510millions belongs to the insurance sector, US $ 1.44 billion belongs to other financial institutions,taking up 79.6%, 1.1%, 3.1% and 16.2% of total respectively. By the end of 2009, the ChineseState – owned Commercial banks had established 50 branch offices, 18 affiliated institutions in28 countries (regions) including the USA, Japan and the UK. 30 thousand workers are employedin these affiliates, including 29.3 thousand foreign employees. The non-financial outward FDIflows reached US $ 47.8 billion in 2009, making an increase of 14.2 % compared to the previousyear. (See Table 4).

Now let us analyse the country-wise and commodity – wise diversification of outwardFDI from China. Table 5 gives China’s outward FDI by regions, for the period 2003 -2009.The latest data is given so as to explain the recent patterns. The various regions given are Asia,Africa, Europe, Latin America, North America and Oceania. The Asian region continues toreceive most outward FDI from China for almost all the years. In 2003, Asia region received1505.03 million US $ out of total 2854.65 million US $. In 2009 the same Asian region receivedoutward FDI from China, US $ million 40,407.59 out of a total of US $ million 56528.99. TheLatin American region received next the outward FDI from China. In 2003, Latin Americareceived US $ 1038.15 million, US $ million 1762.72 in 2004, US $ million 6466.16 in 2005,US $ million 8468.74 in 2006, US $ million 4902 in 2007, US $ million 3677.25 in 2008 andUS $ 7327.9 in 2009. Then Oceania region received most the outward from China. This Oceaniaregion received outward FDI Flow to the extent of US $ million 2479.98. This country –wisedirection of outward FDI flows is the same as that of China’s outward stocks by regions. Theoutward FDI stock is given in Table 6. In this case also table 6 clearly shows that the Asianregion received most of Chinese outward FDI stocks. Moreover, this prominence of Asianregion is almost consistent over the period under study. In 2003, Asia received FDI outwardstock of US $ million 26,603.46 out of a total of US $ million 33,222.00. This is so in the years2004, 2005, 2006, 2007, 2008 and 2009. For example, in the year 2008, Chinese outward

224 P. Abdul Kareem

stock went to Asian region to the extent of US $ million 1,85,547.2 out of a total of US $million 2,45,755.4. In the year 2009, out of a total of US $ million 1,83,970.71. Asian regionreceived US $ million 1,31,316.99. The Latin American region stands second in the list, asevidenced by higher shares over all the years under study. The amount of Chinese FDI stocksin Latin America are US $ million 4619.32, US $ million 8268.37 US $ million 11469.61, US$ million 19,694.37, US $ million 24,700.91, US $ million 3240.89 and US $ million 30,595.48,for the years 2003, 2004, 2005, 2006, 2007, 2008 and 2009 respectively. The Oceana regionand North American region also received outward FDI significantly, over the period 2003-2009. This analysis reveals us that there has not been much diversification with respect toregion – wise fdi out from China, over the recent periods. And much of outward FDI flow andstock goes to Asian region and Latin American region. The role of European region and NorthAmerican region is not very much there.

The distribution of China’s outward fdi stocks by industry is given in table 7. The latestdata are available for the period 2004-2009. The leasing & business service sector has beenreceiving continuously the outward FDI stock from China most, for almost all the years. Forexample in 2003, this sector got US $ million 16,428 worth FDI stock. In 2009, the samesector received an outward fdi stock worth US $ million 72,949.0 out of a total US $ million2,45,755.38. Then, the mining sector got fdi stock most, for most of the years. The outwardFDI stocks are US $ million 17,901.62 in 2005 and US $ million 40,579.69 in 2009. Thewholesale & retailing sector has played dominant in China outward FDI stock. In 2006, thissector received US $ million 12,955.20. While the same sector got US $ million 35,694.99 in2009. The analysis of these industry – wise composition of outward FDI from China alsoreveals that there has been much industry – wise diversification, for the recent periods. Fromthis analysis, we can clearly draw the inference that the industrial sectors like leasing andbusiness services, mining and wholesale & retailing dominate the total fdi outward. However,the finance sector has also emerged in China since 2006.

V. TREND AND PATTERN OF OUTWARD FDI FROM MALAYSIA, PHILIPPINESAND SINGAPORE

Now let us analyse the changing trend and patterns of outward FDI from the leading NewlyIndusrialised Countries (NICs) such as Malaysia, Phillippines and Singapore. The foreigndirect investment plays very important role in these Newly Industialised Countries. FDIsignificantly outflows from these countries, especially for the very recent years. The outwardoriented liberal trade and investment policies in these countries had resulted in big role ofFDI in the economic development. There are many Newly Industralised Countries (NICs)such as Singapore, Kongkong, Phillippines, South korea, Malaysia, etc. Due to the significanceof FDI we have selected three countries such as Malaysia, Phillippines and Singapore. Now,firstly let us analyse the case of Malaysia. Table 8 provides outward FDI from Malaysia byblock of countries, for the latest Period 2008-2011. The South East Asia region leads the listin all the years under consideration. In 2010, this region got RM million 24754 out of a totalRM million 66,073. In 2008, an amount of RM million 25,956 worth fdi outflown fromMalaysia to this South East Asia region. For the Quarter of 2011 the FDI outflow was RM


million 6767. Next, Africa region received the FDI outflow. This region has consistentlyoccupied second position, followed by Oceana region. For example, in 2010, this Oceanaregion had attached FDI work RM 7574 million. In the Second Quarter of 2011, Oceanaregion attached FDI worth RM million 2815. While other blocks of countries such as NorthAmerica, West asia, North East Asia, etc attracted lower amounts. In 2008, only Rm million800 went to North America and in the Second quarter of 2011, only RM million 40 went tothis same region. However, the European region, figured much in the year 2010, ie an amountof RM million 12,032. So, from this analysis we can drawn the inference that there has notbeen much Country – wise diversification of outward FDI from Malaysia during the recentyears. The South – East Asian region continue to attract much of outward FDI from Malaysia(see table 8). Table 9 provides data on outward FDI from Malaysia by sector. The data isgiven for 2008-2011. This analysis reveals that the sectors such as mining & quarrying,financial & insurance, and other services figure prominently for the years under study in2008, out of a total of RM million 72,018, mining & quarrying sector attracted US $ million23,883. In 2009 also this particular received RM million 12,702 out of a total RM million12,702 out of a total RM million 66,073. In the second quarter of 2011 also this sector receivedthe largest outward FDI. While the sectors like information & community, agriculture, forestry& fishing, construction etc exhibited declining share. For example, in the construction sector,outward FDI was RM million 1712 in the year 2008. This has declined to RM million 1362 in2009 and further declined to RM million 501 in 2010. However, wholesale & retail tradesector has emerged since 2010. In 2010, this sector received RM million 11,880 and in thesecond quarter of 2011, this sector had attracted a big share of RM million 4729. In themanufracturing sector, the outflow of FDI stood at a stable low levels. So, this analysis alsoreveals that there has not been much diversification with respect to sector – wise outflow ofFDI from Malaysia.

The outward FDI scenario of Philippine is evident from table 10. This table show thedirect investment abroad in Phillippines, in million US dollars, for the period 2001-2009. Thistable provides an increasing trend of outward FDI from Philippines. The direct investmentabroad can be decomposed into equity capital and reinvested earnings. Claims on affiliatedenterprises, liabilities to affiliated enterprises, etc. In Philippines, the total FDI outflow wasUS $ million 892 in 2001. It increased to US $ million 2131 in 2006 and finally stood at US $million 6095 in end of 2009. So, we can see that there is an increasing trend of direct investmentabroad in Philippines too. Next, let us explain the FDI outflow scenario from Singapore. Thisis given in table 11 and table 12. Table 11 provides data on stock of Singapore’s direct investmentabroad by region/country, for the period 1999-2009. From the table we can see that the Asianregion gets Singapore’s FDI most, followed by ASEAN region. This pattern is more or lesssame throughout the period under study. In 2009, the Asian region got US $ million 1,89,800.7worth outward FDI from Singapore. In 2009, in the case of ASEAN region the same is US $million 84,747.8. The Asian region consistently received Singapore’s FDI throughout the period1999-2009. Actual FDI stock of Singapore flown to Asian region stood to:US $ million 53,699.9in 1999, US $ million 104,504.8 in 2005, US $ million 1,48,323.4 in 2007 and US $ million1,73,084.2 in 2008. Similarly the ASEAN region received very high level outward FDI fromSingapore through out the period under study. The actual amounts are: US $ million 21,802.8

226 P. Abdul Kareem

in 1999, US $ million 55,130.7 in 2006, US $ million 68,271.2 in 2007 and US $ million75,629.2 in the year 2008. The European region, however, has attracted Singaporean FDI inthe year particularly after 2006. In 2009, the European region is in receipt of an amount worthUS $ million 59,233.6. Within Asian region, the countries such as China, Malaysia and Indonesialead the list. While in 2009, China received US $ million 58,125.1, Malaysia received US $million 28,696.8 and Indonesia received US $ million 26,264.3. These leading trends are almostconsistent over the period. Within European region the countries such as United Kingdom &Australia are ahead While U. K’s receipt is US $ million 41,920.5 in 2009 and Australia’sreceipt is US $ million 22,952.3 in 2009. This region –wise and country – wise direction ofSingapore’s outward FDI reveals that Singapore has not exhibited much geographicaldiversification. Because few countries such as China, United Kingdom, Malaysia, Indonesia,etc attracted larger shares of outward FDI. The stock of Singapore’s Direct Investment abroadby industry, for the period 1999-2009, is given in the last table 12. The amount is given inmillions of US Dollars. This table also clearly tell us that there was not much industry – wisediversification of outward FDI basket, in Singapore, during the period under study. Here, inthe case of Singapore, the financial & insurance services sector occupied huge dominant positionthrough out the period. Because, in 1999, this sector received an amount worth US $ million44,717.5 worth Singaporean FDI. This has risen to US $ million 1,34,128.4 in 2006, US $million 1,78,650.1 in 2007, and finally to US $ million 1,77,912.9 in 2009. This is followed bythe manufacturing sector, ie US $ million 22,869.5 in 1999, US $ million 54,761.3 in 2006, US$ million 77,247.1 in 2008 and US $ million 84,052.9 in 2009. The real estate activities sectoralso is in receipt of significant outward FDI, ie to the tune of US $ million 17,405.4 in 2008and US $ million 20,201.1 in 2009. The least sectors in descending order are constructions,food & service sectors, professional & administrative sector, etc. From this analysis also wemay draw the inference that the industry – wise diversification of outward FDI from Singaporeis very low as two or three sectors occupy the dominant shares.

VI. CONCLUSION

In the transforming global economic order, the third world countries have started emergingvery fastly particularly since early 1990s. In this emerging third world economic scenario, themain focus of economic development is on opening up of the trade sector and foreign investmentsector. Due to this policy shift to outward orientation in these third world countries, the tradesector and foreign investment sector had performed wonderfully for the recent decades. Now,there is an amount of consensus among development economists that the emphasis towardsopening up and global integration and the consequent wonderful performance of the trade andforeign investment sectors had resulted in very high macro economic performances particularlyin third world developing economies. The third world countries such as China and India haveespecially surprised many of development economists. China and India are the most fastestgrowing economies in the world in recent decades. The performance of the third world countriesbelonging to Newly Industrialized countries (NICs) also had created economic wonders evenduring 1980s. These NICs such as Malaysia, Philippines, Singapore, etc have rigorouslyimplemented strong outward oriented economic policies. Over the period of time, these thirdworld countries have started investing abroad. The outward foreign direct investment for the


recent periods from third world countries, thus, merited detailed analysis. This detailedcomparative analysis of five third world countries such as India, China, Malaysia, Phillippinesand Singapore has thrown deep light into ongoing process of outward FDI from third worldcountries. The detailed trend analysis of these five selected third world countries clearly showthat the outward FDI is very fastly emerging from these countries. Nowadays, a large numberof multinational corporations are emerging and these corporations are making huge investmentsin all the corners of both developing and developed countries. The pattern of outward FDI isstudied at two levels: country – wise and industry – wise. The detailed analysis of these fivedeveloping countries reveals different patterns each both country – wise and industry – wise.While in the case of India, the countries such as Mauritius and Netherlands received the mostFDI from India. The sector – wise analysis has shown that manufacturing sector receive most ofIndian FDI. But, in the case of China, Asian, Latin American and Oceania regions had receivedFDI most. Industry – wise, finance, mining and whole & retail sectors received outward FDI.While in Malaysia, the regions such as South – East Asia, Africa and Oceania dominantlyreceived FDI. Mining & quarrying, financial & insurance and other services attractedMalaysian FDI, sector – wise. Phillippines has also shown an increasing trend of outwardFDI. At the same time, Asian region and ASEAN region attracted FDI from Singapore. Andwithin Asian region China, Malaysia and Indonesia recorded very high Singapore FDI. UKand Australia registered high shares with European region. The financial & insurance servicessector had dominated the Singapore’s FDI, followed by manufacturing sector. The analysisof all these five countries both country – wise and industry – wise also revealed lowdiversification in each country over the period of time. Therefore, from this study, we candraw the inference that the outward FDI from third world are fastly emerging in the currentperiods and there is a huge diversity in both the country – wise and industry- wise outwardFDI basket among these countries.

Table 1India’s Outward FDI Approved Propsals

(US $ million)

Period (April – Number of Amount of approved proposalsMarch approved

proposals Equity Loan Guarantee Total

2003-04 1214 822.40 229.90 413.83 1466.13

2004-05 1281 2010.03 374.39 409.91 2804.33

2005-06 1395 1887.78 629.74 337.32 2854.84

2006-07 1817 11244.96 1475.28 2339.76 15060.00

2007-08 - 11269.18 2718.02 6959.96 20947.16

2008-09 - 10732.26 3329.00 3104.88 17166.14

2009-10 - 6763.27 3620.19 7603.79 17987.25

2010-11 - 9351.77 7346.89 27230.52 43929.18

April May 2011 - 731.41 3193.24 1166.23 5090.88

Source: Reserve Bank of India

228 P. Abdul Kareem

Table 2Outward FDI from India (In US $ Million)

From 01/04/2010 To 30/04/2010 Financial Commitment

Sr Name of the IndianParty Name of the JV/WOS Whether UV/WOS Overseas Country

1. Reliance Industries Ltd. Reliance oil &Gas Mauritius Ltd. WOS Mauritius2. Aban Offshore Ltd. Aban Holdings PLTD WOS Singapore3. UFlex industries Ltd. Flex Middle East WOS Emirates4. Kirloskar Brothers Ltd. SPP Pumps Ltd. JV Kingdom5. Global Telesystems Ltd. InternationalGlobal Telesystems Ltd. WOS Mauritius6. Suzlon Energy Ltd. ASE Drive TechnicGMBH WOS Netherlands7. Bharat Petro Sources Ltd. BPRL International BV WOS Netherlands8. Indian Hotels Company Ltd. TAJ InternationalHotel’s HK Ltd. WOS HongKong9. JSW Steel Ltd. JSW Steel Holdings(USA) INC JV America10. Bajaj Auto Ltd. Bajaj Auto International Holdings WOS Netherlands

Major Activity Equity Loan Guarantee Issued Total

Manufacturing 0.05 0 2221.87 2221.92Hunting, Forestry 0 136.9 0 136.9Trade, Restaurants 0 0 120.692 120.692Manufacturing 74.1021 0 0 74.1021Communications 0 55.0 0 55.0Manufacturing 0 41.1437 0 41.1437Real Estate 38.444 0 0 38.464Trade, Restaurants 0 37.0 0 37.0Manufacturing 25.285 3775 0 29.06Manufacturing 27.135 0 0 27.135Grand Total 713.1798 482.7526 2461.0 3656.98

Source: Reserve Bank of India, Foreign Exchange Department ,Overseas Investment Division

Table 3Sector – Wise Distribution of India’s Outward FDI during April – December, 2007

(US $ million)

Sector April May June July Aug Sep Oct Nov. Dec TotalApprovals

Trading 54.22 28.25 46.74 40.57 - 24.17 114.98 311.55 - 620.48Manufacturing 149.10 549.00 4122.00 495.40 219.52 1339.11 256.93 345.09 157.78 7634.00Non Financial Services 66.79 234.20 61.20 23.63 364.91 420.61 139.50 248.07 118.78 1677.71Others 52.47 396.90 883.30 172.60 67.20 77.67 4554.26 596.99 879.84 7681.09Financial - - - - - - 7.00 25.46 - 32.46Total 322.60 1208.00 5113.00 732.20 651.63 1861.56 5072.67 1527.161156.40 17645.74

Note: Data pertain to large investments of US $ 5 million and above.Source: Same as for Table 2

Table 4Structure of China’s Outward FDI Flows and Stocks, 2009 (Billion of dollars)

Indicator Flows StocksCategory Sum Change (%) Share (%) Sum Share (%)

Total 56.53 +1.1 100.0 245.75 100.0Financial Outward FDI 8.73 –37.9 15.5 45.99 18.7Non-financial Outward FDI 47.8 +14.2 84.5 199.76 81.3

Source: Statistical Bulletin of China’s Outward Foreign Direct Investment, 2009.


Table 5China’s Outward FDI flows by Regions, 2003-2009

(Millions of US$)

Region 2003 2004 2005 2006 2007 2008 2009

Total 2854.65 5497.99 12261.17 17633.97 26506.09 55907.17 56528.99Asia 1505.03 3013.99 4484.17 7663.25 16953.15 43547.50 40407.59Africa 74.81 317.43 391.68 519.86 1574.31 5490.55 1438.87Europe 145.03 157.21 395.49 597.71 1540.43 875.79 3352.72Latin America 1038.15 1762.72 6466.16 8468.74 4902.41 3677.25 7327.9North America 57.75 126.49 320.84 285.05 1125.71 364.21 1521.93Oceania 33.88 120.15 202.83 126.36 770.08 1951.87 2479.98

Source: Same as for Table 4

Table 6China’s Outward FDI Stocks by Regions, 2003-2009

(Millions of US$)

Region 2003 2004 2005 2006 2007 2008 2009

Total 33222.22 44777.26 57205.62 75025.55 117910.5 183970.71 245755.4Asia 26603.46 33479.55 40954.31 47978.05 79217.93 131316.99 185547.2Africa 491.22 899.55 1595.25 2556.82 4461.83 7803.83 9332.27Latin America 4619.32 8268.37 11469.61 19694.37 24700.91 3240.89 30595.48North America 548.50 909.21 1263.23 1587.02 3240.89 3659.78 5184.17Oceania 427.76 543.94 650.29 939.48 1830.4 3816 6418.95


Table 7Distribution of China’s Outward FDI Stocks by Industry, 2004-2009

(millions of US $)

Industry 2004 2005 2006 2007 2008 2009

A Agriculture, forestry, husbandry, Fishery 834.23 511.62 816.70 1206.05 1467.62 2028.44B Mining 5951.37 8651.61 17901.62 15013.81 22868.40 40579.69C Manufactury 4538.07 5770.28 7529.62 9544.25 9661.88 13591.55D Power and other utilities 219.67 287.31 445.54 595.39 1846.76 2255.61E Construction 817.48 1203.99 1570.32 1634.34 2680.70 3413.22F Transport, warehousing & postal service 4580.55 7082.97 7568.19 12059.04 14520.02 16631.33G IT 1192.37 1323.50 1449.88 1900.89 1666.96 1967.24H Wholesale & retailing 7843.27 11417.91 12955.20 20232.88 29858.66 35694.99I Residential & catering trade 20.81 46.40 61.18 120.67 136.69 243.29J Finance - - 15605.37 16719.91 36693.88 45994.03K Real estate 202.51 1495.20 2018.58 4513.86 4098.14 5343.43L Leasing & business service 16428.24 16553.60 19463.60 30515.03 54583.03 72949M Science research, service & geo survey 123.98 604.31 1121.29 1521.03 1981.89 2874.13N Water, environment & public 911.09 910.02 918.39 921.21 1062.89 1065.08

facility managementO Residential service & other services 1093.14 1323.38 1174.20 1298.85 714.68 961.37P Education - - 2.28 17.40 17.49 21.23Q Public health & social welfares 0.22 0.11 2.81 3.69 3.69 6.1R Cultural, sports & entertainment 5.92 5.38 26.14 92.20 107.33 135.65S Public management & social organization 14.34 18.03 - - - -

Total 44777.26 57205.62 90630.91 117910.50 183970.71245755.38


230 P. Abdul Kareem

Table 8Outward Foreign Direct Investment from Malaysia by block of Countries

(RM Million)

Period Africa Centeral North West South South North Europe Oceana Other Total& South America Asia Asia East East CoutnriesAmerica Asia Asia

2008 11830 5349 800 1127 5760 25956 2493 7397 8547 2760 72,0182009 7651 5619 1073 638 838 16,058 2552 5852 2291 5349 47,9222010 3752 5323 434 5705 804 24754 2222 12,032 7574 3473 66,07320111Q 3869 1736 29 1369 227 6284 152 2001 592 674 169342Q 3767 1417 40 1208 137 6767 972 3456 2815 1100 21,679

Note: 1Q = First Quarter Year, 2Q = Second Quarter YearSource: Central Bank of Malaysia

Table 9Outward Foreign Direct Investment from Malaysia by Sector

(RM Million)

Period Agriculture, Mining & Manufact- Construc- Whole Informa- Financial Other TotalForestry & Quarrying uring tion Sale & tion & & Services

FIshing Retail Communi- InsuranceTrade cation

2008 562 23883 7878 1712 3008 4548 23626 6800 72,0182009 2936 14910 5853 1362 3627 4969 9079 5185 47,9222010 1639 12702 7317 501 11880 2836 21587 7611 66,07320111Q 1284 3535 1705 387 4455 705 3430 1433 169342Q 607 6210 994 399 4729 2740 5907 93 21,679

Source: Same as for table 8

Table 10Direct Investment Abroad in Philippines

(Million US Dollars)

End End End End End End End End End2001 2002 2003 2004 2005 2006 2007 2008 2009

1. Direct Investment abroad 892 957 1260 1839 2028 2131 5667 5736 60951.1 Equity capital and 892 957 1260 1839 2028 2131 5667 5736 6095

reinvested earnings1.1.1 Claims affiliated 892 957 1260 1839 2028 2131 5667 5736 6095enterprises1.1.2 Liabilities to n.a n.a n.a n.a n.a n.a n.a n.a n.aaffiliated enterprises

1.2 Other caoutal 0 0 0 0 0 0 0 0 01.2.1 Claims on 0 0 0 0 0 0 0 0affiliated enterprises1.2.2 Liabilities to 0 0 0 0 0 0 0 0affiliated enterprises

Source: Central Bank of Philippines


Table 11Stock of Singapore’s Direct Investment Abroad By Region /Country

Region/Country 1999 2004 2005 2006 2007 2008 2009

Total 92,719.9 179,742.2 202,020.8 246,634.4 317,718.4 317,365.2 359,348.1

Asia 53,699.9 85,348.3 104,504.6 120,637.8 148,323.4 173,084.2 189,800.7

Brunei Darussalam 84.6 63.6 63.4 114.2 191.3 160.0 175.8

Cambodia 152.1 124.3 127.6 158.1 169.8 268.3 253.9

China 14,295.6 22,182.6 27,254.2 33,518.9 41,786.4 53,927.5 58,125.1

Hong Kong 10,405.2 11,768.4 15,323.8 15,578.6 19,969.4 20,054.1 21,544.4India 743.5 653.6 1,259.1 2,491.8 4,638.9 6,740.9 8,736.8

Indonesia 5,507.5 12,024.4 14,631.1 16,729.8 20,170.3 22,354.4 26,264.3

Japan 1,052.7 2,255.2 2,541.8 2,527.3 2,462.3 4,881.6 4,981.4

Korea, Republic of 1,682.5 2,830.5 3,386.8 3,334.1 3,058.7 2,530.8 2,570.0

Lao People’s Democratic -3.9 83.0 97.3 122.7 145.5 212.3 238.3Republic

Malaysia 8,516.8 14,732.8 17,878.3 18,924.7 22,831.4 25,046.4 28,696.8

Myanmar 811.0 701.8 1,464.9 996.1 1,599.6 1,241.9 2,299.9

Philippines 2,287.3 2,981.1 3,294.6 3,345.9 4,093.5 4,293.2 4,373.2

Taiwan 2,028.7 3,814.9 4,710.3 5,222.1 5,126.3 5,941.9 5,750.0Thailand 3,297.9 7,220.7 8,541.5 13,078.0 16,950.8 19,215.6 19,451.4

Vietnam 1,149.7 1,525.5 1,718.2 1,661.3 2,119.0 2,837.0 2,994.2

Europe 13,060.5 16,577.7 17,472.3 33,803.1 46,496.3 45,539.3 59,233.6

Germany 75.8 393.4 607.8 598.9 595.8 593.3 473.1

Netherlands 2,260.6 992.2 2,532.6 3,058.0 3,902.4 4,317.4 4,618.2

Norway 70.1 9.2 5.9 438.6 433.8 1,734.2 1,564.6Swizerland 54.5 598.0 624.9 594.0 4,406.2 4,752.6 4,778.8

United Kingdom 3,387.4 7,222.0 7,219.9 20,196.8 31,415.9 28,245.8 41,920.5

United States 4,196.7 9,668.6 9,826.5 8,548.1 13,904.5 11,735.7 12,030.5

Canada 255.6 122.1 237.5 225.8 101.3 63.4 378.8

Australia 2,464.3 11,081.0 8,935.3 10,872.4 17,069.3 18,051.9 22,952.3

New Zealand 522.9 1,287.2 1,346.4 1,267.7 1,521.3 924.0 1,099.7South and Central America 11,720.0 42,762.6 47,293.9 53,590.0 56,176.3 52,721.4 54,324.5and the Caribbean

Other Regions/Countries nec 6,799.9 12,894.8 12,404.4 17,689.6 34,125.9 15,245.4 19,528.0

ASEAN 1 21,802.8 39,457.1 47,817.0 55,130.7 68,271.2 75,629.2 84,747.8European Union 2 12,139.1 11,234.0 12,452.1 27,600.5 41,221.7 38,506.5 52,428.0

1 ASEAN includes Brunei Darussalam, Cambodia, Indonesia, Lao People’s Democratic Republic, Malaysia,Myanmar, Philippiness, Thailand and Vietnam.

2. Prior to 2004, European Union (15) consists of Belgium, Denmark, France, Germany, Greece, Ireland, Italy,Luxembourg, the Netherlands, Portugal, Spain, United Kingdom, Austria, Finland and Sweden. With effectfrom 2004, European Union (25) refers to European Union (15) and the ten countries – Cyprus, the CzechRepublic, Hungary, Latvia, Lithuania, Malta Poland, Slovakia and Slovenia. With effect from 2007, EuropeanUnion (27) refers to European Union (25) and the countries – Romania and Bulgaria.

Source: Compiled from Various Issues of Year Book of Statistics, Singapore.

232 P. Abdul Kareem

Table 12Stock of Singapore’s Direct Investment Abroad by Industry

(End of Period)(Millions Dollars)

Industry 1999 2004 2005 2006 2007 2008 2009

Total 92,719.9 179,742.2 202,020.8 246,634.4 317,718.4 317,365.2 359,348.1

Manufacturing 22,869.5 37,501.7 46,351.6 54,761.3 69,157.4 77,247.1 84,052.9

Construction 797.4 978.2 880.8 850.4 671.4 1,774.9 2,627.5

Wholesale & Retail Trade 5,921.3 10,341.9 11,215.0 13,137.0 14,913.2 17,374.5 19,616.2

Accomodation & Food 1,692.4 2,240.6 2,230.0 2,322.9 2,628.0 2,537.8 2,695.3Service Activities

Transport & Storage 3,408.7 6,765.9 9,335.2 8,306.8 10,106.0 11,034.4 9,558.6

Information & Communications 2,257.8 9,252.0 10,365.4 13,021.5 15,541.9 14,715.7 17,034.0

Financial & Insurance Services 44,717.5 99,124.5 104,756.0 134,128.4 178,650.1 156,179.3 177,912.9

Real Estate Activities 6,869.4 7,247.0 8,482.2 10,026.1 12,180.3 17,405.4 20,201.1

Professional, Scientific & 2,737.0 3,112.3 4,538.7 5,175.2 5,824.0 7,010.7 7,385.6Technical, Administrative &Support services

Others 1,448.8 3,178.0 3,865.8 4,904.8 8,046.2 12,085.4 18,264.0

Note: The industries are classified according to Singapore Standard Industrial Classification 2010.Source: Same as for Table 11

Acknowledgement

(The author would like to thank Prof. Rameshwar Tandon for the helpful guidance in the preparation of thispaper. Also, thankful to Mr. K. R. Wilson, Smartec Computers, Thrissur for the able computer assistance)

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