Political and productive capacity characteristics as outward foreign direct investment push factors from BRICS countries

Abstract

This paper investigates the primary push factors that constitute home country-specific characteristics of Brazil, Russia, India, China, and South Africa (BRICS) and enhance their abilities as emerging market economies to engage in outward foreign direct investments (OFDI). The motivation behind this study was the need to fill the gap in the existing literature on the push factors from BRICS. A panel autoregressive distributed lag model was employed on these countries from 2000 to 2018, followed by an impulse response function analysis using a unique data set from a productive capacity index (PCI) and a derived index obtained from each country’s political risk ranking. A robust relationship was detected between OFDI and all of its short- and long-term push factors. The results reveal the relative strength of the long-term impact of the productive capacity and political stability indices supported by the divergent effect of their shocks on OFDI. This substantial contribution highlights the policy implication of how governments should promote their productive capacity and political stability to sustain a healthy investment environment for firms to expand their investments abroad.

Effects of Political Instability on Private Investment: Empirical Investigation from African Firms

“…Empirical studies on the relationship between political instability and investment suggest that political instability is a determinant of the investment climate and influences investment decisions as well as firm performance. Several researchers have analysed the effect of political instability on foreign direct investment: Asiedu [18], Sabir et al [19], Kurecic and Kokotović [20], Elish [21], Fang [22], Le et al [23]. Asiedu [18] used panel data on 22 African countries for the period 1984-2000 to assess the impact of several variables, including political instability, on FDI flows.…”

“…Similarly, Kurecic and Kokotović [20] examine the impact of political stability on foreign investment flows, concluding that no significant causal relationship exists between political stability and FDI in economies prone to political violence or terrorist attacks. René Gouenet [21] looks at socio-political risk and its impact on FDI attraction in Cameroon between 1960 and 2002. His results show that the risk of socio-political instability has a negative and significant influence on FDI flows, suggesting that a 1% variation in the risk of socio-political instability leads to a 5.4% decrease in FDI flows [24].…”

“…Ciesielska-Maciagowska and Koltuniak [27] show that institutional factors in the country of origin determine the size of FDI stocks from Central and Eastern European countries. Similarly, Elish [21] for Brazil, Russia, India, China and South Africa, and Fang [22] for Brazil, India and Nigeria show that political instability has a significant negative impact on foreign investment. Le et al…”