How outward investment from emerging markets affects economic development at home: using the eclectic paradigm to synthesize two IB literatures

Abstract

Purpose This paper aims to use the eclectic paradigm as a broad organizing framework to bring together two somewhat parallel international business (IB) literatures, one on the development effects of multinational enterprise activity and the other on the internationalization of emerging market multinationals (EMNEs). The author does so to better understand how outward foreign investment shapes economic development in firms’ home countries. Design/methodology/approach Considering that the characteristics of foreign investment by EMNEs likely differ from that of their developed economy counterparts and that such characteristics may have unique development consequences, the author revisits one of IB’s overarching theories to rethink how ownership, location and internalization advantages take shape and stimulate diverse development outcomes. Findings My narrative review and conceptual analysis indicate that the eclectic paradigm is a valuable framework that can be used to shed light on underexplored phenomena and thereby inform important policy debates. The analysis suggests that unique characteristics of EMNE investment simultaneously have positive and negative development consequences in their home countries. Practical implications The author sets out a research agenda that revolves around six propositions that separately relate one of these three distinct characteristics of EMNE investment to two development outcomes, namely, spillovers and direct effects on home-country employment. My propositions suggest that important policy dilemmas potentially apply, in that each of the three characteristics positively affects one of the aspects of development, but negatively the other. Originality/value My research agenda presents international business scholars with new opportunities to build on a history of policymaking impact, now geared toward resolving society’s grand challenge of underdevelopment.

Innovation and international business: A systematic literature review

“…Emerging economies are low-income, rapid-growth countries using economic liberalization as their primary engine of growth [ 81 ]. Since the end of the 20th century, emerging economies, or what is the same, emerging markets, constitute the major growth opportunity in the world economic order and their potential has created a shift in multinational corporations [ 82 ] seeking to do business in emerging economies with manifold stakeholders benefited [ 83 ], although characteristics of internationalization of emerging market multinational enterprises investment simultaneously have positive and negative development consequences in their home countries [ 84 ]. In any case, multinational corporation subsidiaries and local institutions can help emerging market stakeholders, as suppliers [ 85 ].…”

Multinational enterprises and limits to international growth

“…Not only managers may benefit from such insights, policymakers in the domain of economic development may too take note of these implications. Although outward foreign direct investment by MNEs could bring positive development consequences for the home countries from which they internationalize, little research has been done to establish this empirically, especially in an emerging economy context (Hendriks, 2020b). My dissertation makes policymakers in emerging economies aware of an 'upgrading paradox'.…”

Outward Foreign Direct Investments and Economic Growth: An Investigation of Kenya

“…The Multinational enterprises (MNEs) have a significant role in the development of the host country's economy through the injection of foreign capital (Hendriks, 2020). The increased activities and investments of the MNE has drawn interest and desire for research by the academicians and policymakers throughout the world (Narula & Pinelli, 2018).…”

“…This undermines the country's existing investments and decreases the available resources that are key to economic growth (Fischer, 2014). Profit repatriation re-assigns financial savings overseas resulting in fewer resources available to finance domestic investment and promote economic growth (Hendriks, 2020). The global economy remains trapped in a prolonged period of slow economic growth at 3.1% in year 2016, compared to the previous year's 3.2 percent.…”

“…Researchers have overwhelmingly focused on the foreign direct investment undertaken by firms from developed economies as well as the development impact of FDI in the host countries that are the recipients of the investment (Hendriks, 2020). With the two biases receiving great attention by academicians and policy makers, limited efforts have been directed towards the effect of MNEs' outward foreign direct investments on the home countries from which they conduct trade.…”