




































Indian Journal of Finance and Banking 

 Vol. 6, No. 1; 2021 

                                       ISSN 2574-6081   E-ISSN 2574-609X 

Published by CRIBFB, USA 

 

58 

OUTWARD FOREIGN DIRECT INVESTMENT: EMERGING 

ECONOMIES’ HOME COUNTRY DETERMINANTS  

 
Dr. Sheeba Kapil 

Professor  

HOD, Finance 

Indian Institute of Foreign Trade 

Ministry of Commerce 

Delhi, India 

E-mail: sheebakapil@iift.edu 
 

 

Puneet Kaur Dhingra 

Research Scholar 

Indian Institute of Foreign Trade 

Ministry of Commerce 

Delhi, India 

E-mail: puneet.kaurdhingra@gmail.com 

 

 

ABSTRACT 

The Tendency of firms from emerging economies to invest abroad has increased significantly during the 

last two decades. Despite this trend, comprehensive literature survey research on macroeconomic 

determinants and antecedents of outward FDI from emerging economies is still underrepresented. The 

purpose of this paper is to give a comprehensive understanding of home country level factors’ impact on 

outward FDI from developing countries through a systematic review of past researches on OFDI’s 

macroeconomic determinants of home economy. The findings reveal that the most important determinants 

are, home country market size and openness of home country towards internationalization. However, 

some researches posted contrasting results for the impact of home country’s interest rates, human capital 

and technological capability on OFDI from emerging economies. This study also points out that emerging 

economies suffer from shortage of skilled personnel, thus making human capital an essential push factor 

for OFDI.  

 

Keywords: Emerging Economies, International Investments, Outward FDI, Internationalization, Home 

Country Macroeconomic Determinants. 

JEL Classification Codes: F21, F23, P45. 

 

INTRODUCTION 

The basic of the concept outward foreign direct investment derives from the understanding of the basic 

motivations that causes a firm to invest overseas. There are a number of theoretical studies examining 

foreign investments and their underlying motivations. Dunning (1973, 1977), Vernon (1966) and Hymer 

mailto:sheebakapil@iift.edu
mailto:puneet.kaurdhingra@gmail.com


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(1960) did major research on the motives behind investing abroad, subsequently followed by numerous 

qualitative and quantitative researches.  

Cross border Investment flows plays a major role in accelerating economic development of 

countries, especially in emerging economies (Denisia, 2010). As OFDI from emerging nations continue 

to expand at an extraordinary level over the past two decades, motivations causing OFDI have become 

academic study’s focus for researchers. Emerging economies’ outward foreign investments mushroomed 

by tremendous 49 percent during 1991-1999 and continued this league with whopping 47 percent growth 

during 2000-2007 (Pradhan, 2011). Diverging from emerging economies, OFDI from developed 

economies’ growth dipped from 60 percent to 22 percent amidst these two periods (Pradhan, 2011). 

Developing economies contributed a share of 6.2% in 1990 to total stock of world’s OFDI, and this 

contribution rose to 9.3% in 2000, and further escalated to 14.8% in 2010. OFDI’s growing contribution 

to developing economies’ GDP is indicative of proliferating overseas investment which developing 

economies are indulging in either in form of greenfield investments or brownfield investments.  

Several studies have explained existing theories of internationalization (Lecraw, 1977; Wells, 

1983; Lall, 1983). In contrary to this, the behavior of emerging economies’ ODFI seemed to defy these 

mainstream theories. Their strategies and push forces for expansion differed significantly from those of 

developed economies, thus requiring a refined version of existing theoretical literature (Buckley et al., 

2007; Luo & Tung, 2007; Child & Rodrigues, 2005; Ramamurti, 2009).  

Though past studies over last two decades have generated sizeable wealth of knowledge on 

emerging economies’ OFDI, but findings from these researches are fragmented and lack necessary 

integration and consolidation. This study systematically combines pertinent qualitative and quantitative 

research work to develop a single expansive substructure. Thus, this paper’s key focus is to present a 

meta-data view on the effect of home country level determinants (macroeconomic) on OFDI from 

emerging nations, binding all the inferences in an all-inclusive manner. Gaps in the extant research have 

also been highlighted for focusing future research efforts towards substantial matters providing essential 

premise for every firm’s economic decision making, involved in cross-border investments. 

 

METHODOLOGY FRAMEWORK 

This is a literature survey study of home country macroeconomic determinants of OFDI from emerging 

economies, where available extant literature was complimented with existing empirical researches to get 

a deeper insight using a systematic literature review approach. Systematic reviews are evidence-based 

approaches which allows to identify key scientific contributions in a particular area. They allow 

examination of the strength of already published evidence with an unbiased approach. 

We have adopted a systematic methodology for identification of research for review purpose, 

refer to figure 1. Our search was limited to research papers in peer reviewed journal articles, as these 

resources are considered as certified knowledge. In the first step, all articles were searched with the help 

of key words search strings, such as “outward FDI” OR “OFDI*” Or “Macroeconomics home country 

determinants*” AND “Emerging economies OFDI” OR “OFDI determinants*”. The asterisk (“*”) was 

used at the end of the search keyword to cover a wide-ranging result. We got 1545 articles as a result of 

this key word search.  

We shortlisted the results obtained on the basis of carefully chosen inclusion and exclusion 

criteria, mentioned in the table 1 given below in our step 2. For qualifying criteria, peer reviewed articles 

were taken which were published in English language, also as our research’s aim was to reflect the 

consolidation of studies covering determinants of OFDI from emerging economies, time period of last 

two decades was chosen as during this period OFDI flourished from emerging economies, hence articles 

older than 25 years were eliminated. Also, research papers selected were credible as only ABDC listed, 



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UGC listed, Scopus and Emerald database were retained. Articles where the concept of OFDI was only 

touched upon were also excluded. Also, any duplicate results produced during key word string search 

were removed. 

In the third step of methodology, thorough analysis of 300 articles was done. Research papers 

delving into deep insights relating to analysis of country level determinants of ODFI were selected. More 

focus was on papers relating to emerging economies’ OFDI and their underlying motivations, though 

majority of the studies centered on Indian and China. Finally, after getting 127 articles, in the fourth step, 

comprehensive reading of full papers was undertaken. At the end 42 papers (mix of empirical and 

literature review based) were finally chosen for seeding the premise of this research based on the country 

level push factor variables. Table 2 provides with a clear picture of distribution of selected 42 articles as 

per publication journals. 

 

Figure 1. Systematic Literature Review Process 

 

Table 1. Step 2 - Elimination Criteria 

 

Table 2. Distribution of articles per journal 

 

A metadata analysis of extant research work has been carried out, so that key trends could be 

identified and synoptic picture of the work done till date can be drawn. 

 

 

Inclusion Criteria Exclusion Criteria 

Peer-reviewed English language journal 
OFDI’s concept was merely touched upon, and no 

detailed analysis related to it 

Time period (1997-2017) Credibility of publishing could not be ascertained 

ABDC listed, UGC listed, Scopus and Emerald 

database 
Researches were older than 25 years 

Focus on determinants of OFDI Duplication of research articles 

Journal type Journal name Frequency 

Core Journals Transnational Corporations 6 

 International Journal Of International Business Studies 5 

 Journal Of World Business 4 

 International Journal Of Social Economics 3 

 International Journal Of Emerging Markets 3 

 Oxford Development Studies 2 

Related Journals 19 journals (with 1 relevant paper each) 19 

Total 42 



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OUTWARD FOREIGN DIRECT INVESTMENT 

Determinants of OFDI from Emerging Economies 

Over the years, many researchers have come up with theories or applications of the existing theories to 

explain the growth trajectories of these OFDIs, effect of various factors on expansion of emerging 

countries’ multinationals (individually or in certain groups), their motives, challenges and spillovers. 

Hymer’s work in 1960 made a concrete attempt to elucidate the emergence of OFDI. According to his 

research, major motive behind these Trans National firms were to gain opportunities out of oligopolistic 

control of the market and locational advantages. Dunning again in 1980 went to explain in length the 

determinants of outward foreign investment through his Eclectic theory, popularly known as O-L-I 

paradigm, which primary constitutes of 3 pillars, ownership advantages, location advantages and 

internalization advantages. 

Determinants of OFDI from emerging economies has be categorized in two sub divisions, 

macroeconomic determinants and firm level determinants. Macroeconomic determinants are better 

known as external factors as these are common to all the firms in a particular economy. Whereas firm 

level determinants are known as internal factors as they are specific to a particular firm and are internally 

developed advantages. This paper focusses on skimming studies done prior with respect to home country 

characteristics serving as push factors for firms undertaking outward cross-border investments. 

 

Home Country Determinants 

Every MNC is constantly interacting with its home and host country environment, and hence these factors 

are responsible for creating a conducive atmosphere for overseas investments to take place. These country 

specific factors (home country and host country) are dynamic in nature, i.e. they continuously evolve 

with the country’s level of development, as a consequence of its policies, natural endowments, market 

potential and action of economic agents. Firms utilize these country specific assets to develop and 

organize their own production process efficiently, so as to serve domestic and foreign markets profitably. 

Each home country determinant has been discussed in detail below. 

Market Size 

Home country’s development related variables serve as explanatory variables for any country’s 

investment outflows. There exists a strong positive relationship between development level of home 

country and its OFDI (Chen, 2015). Economic development enables a firm to develop competence and 

specific strengths which can be fruitfully exploited by investing abroad. Empirical studies done on 

developed countries by Barry, Görg, and McDowell (2003), Bellak, Leibrecht, and Riedl (2008), and 

Buckley and Castro (1998) as well as on a mix of developed and developing countries by Dunning and 

Narula (1994) confirm the existence of association between market size and outward investment flows.  

Market size of a country is indicated by its GDP. Hence when a firm is operative in a home country 

marked by high GDP, it is successfully able to exploit economies of scale. Actual market demand could 

not be measured by GDP of a country, hence per capita GDP has been taken as a variable in many studies 

to measure the size of market demand or consumers’ economic well-being of a home country (Buckley, 

Cross, Tan, Voss, & Liu, 2006; Deng, 2004; Taylor, 2002; Zhang, 2003, Kayam, 2009), while Kyrkilis 

and Pantelidis (2003) took real GNP in their research as a proxy for income level and structural 

transformation of a home country.  

Bhasin and Jain (2013) contemplated a negative correlation between OFDI flows and GDP per 

capita of home country, stating that a country will be sought to international investments only when its 

home demand structure represented by buying potential of consumers is not able to justify economies of 

scale for that firm, but the results of the study were positive and significant, similar to those of Chen 

(2015). Kayam’s (2009) empirical results for transition economies supported the proposition put forward 



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by Bhasin and Jain (2013), justifying that as economic wellbeing of consumers of home country 

improves, their purchasing intensity from firms within the home economies also increases, thus reducing 

the firm’s willingness or need to invest abroad in order to exploit their ownership advantages. Difference 

in their results could be attributed to the proxies they have taken to represent market size.  

Interest Rates 

Capital abundance is a mandate for making investment overseas, especially when investment is made in 

capital intensive sectors. Amplitude of Capital is directly linked with the prevailing interest rates in the 

home economy, bearing an inverse relation. As per Krykilis and Pantelidis (2003), low interest rates in 

home country, results in capital abundance and thus reduces the opportunity cost of capital. Deducing 

from the above statement, companies with large capital base would hunt for profitable investment 

ventures abroad, this leads to increase in the investment flows abroad, proposing negative association 

between home interest rates and OFDI flows.  

Pantelidis and Kyrkilis (2005), stated that a firm always chooses to invest in those projects that 

offer higher expected return over its cost of capital. And when cost of capital of a firm decline, expanse 

of economically viable projects increases, allowing firms to make investments. Also, if the cost of 

borrowing is lower, leverage exposure of company may rise, thus leading the firm to pursue larger 

investment projects. Hence applying this phenomenon to foreign investments, as the cost of borrowing 

decreases in home country, the opportunity cost of capital becomes lower subsequently and hence 

investing abroad becomes more attractive and viable. 

Empirical research finding of Pantelidis and Kyrkilis (2005) denotes insignificance of interest 

rates for developing nations, while for middle-income and developed economies, it’s a significant 

determinant for OFDI flows along with expected sign (i.e. negative). These results are in sync with their 

earlier research conducted in 2003, with a sample of five European and five non-European countries. 

Haiyan’s (2017) research gave contrasting outcomes to earlier researches, while interest rates were 

proved insignificant for developed countries, the same was positively significant for BRICS economies, 

while as per Bhasin and Jain (2013) empirical work, interest rates were eliminated in PCA (Principal 

component analysis), thus reflecting on their irrelevance for Asian economies OFDI flows. Hence the 

impact of home country’s interest rates on emerging nations’ OFDI is still unclear, thus extending scope 

for future research. Variation in results could also arise due to choose of different sectors/industries in an 

economy, as capital requirement is generally less in service sector related investments as compared to 

manufacturing sector related ones. 

 

Exchange Rate 

Currency appreciation facilitates investment flows overseas, as the buying capacity of the currency 

increases in real terms. Aliber (1970) encompassed that companies whose countries’ currency is strong, 

have better financial backing for supporting their foreign investments than companies whose countries’ 

currency is relatively weaker. As a consequence of appreciation of home economy’s currency, the capital 

requirements of investing abroad lowers, thus enabling easier capital acquisition than in case of 

depreciated home currency. Along with this, appreciation of home currency also curtails the relative 

attractiveness of exports as a mode of expanding overseas, thus companies turn towards choosing OFDI 

for exploring markets abroad. Bhasin and Jain (2013) also support this inference and states that 

“Appreciation of the home country currency makes exports less competitive as they become relatively 

expensive for foreign buyers. So OFDI becomes cheaper mode for servicing foreign market.” 

Empirical research of Pantelidis and Kyrkilis (2003), with a sample of five European and five 

non-European economies, resulted in a significant and positive impact exchange rate on almost all 

countries except France, Singapore and Brazil, where it is negatively significant. This indicated an 



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increase in OFDI flows due to depreciation in currency, because weaker home currency could be 

compensated by decline in labor cost and increase in productivity and hence in this scenario, export-

oriented FDI may emerge as an effective long-term measure to secure foreign market share. Another 

empirical work of Pantelidis and Kyrkilis (2005) proved that strong home currency has a positively 

significant impact on OFDI flows from advanced economies, while it’s insignificant for OFDI from 

middle-income and developing economies. And as per Bhasin and Jain (2013) empirical work, like 

interest rates, strong home currency was eliminated in PCA (Principal component analysis), thus 

reflecting on their irrelevance for Asian economies OFDI flows, while the result of Saad, Noor, & Nor, 

(2014) empirical research was supportive of positive and significant nature of strong home currency for 

OFDI flows from Malaysia. With all these varied results, ambiguity regarding the consequence of 

appreciation of home country’s currency on OFDI still persists.  

 

Human Capital 

Competent human capital possession gives a company powerful edge which makes them capable of 

acquiring various competitive advantage. All major business operation activities like management, 

marketing, organization and R&D functions mandates the presence of skilled and competent personnel. 

As per Tolentino (2008) skilled and educated labor is a mandatory requirement for majority of managerial 

functions, and opulence of this factor is an eminent determinant pushing home economy firms to make 

foreign investments. Proportion of higher education personnel in the population of a country gives an 

approximation of the human capital factor in that country (Pantelidis & Kyrkilis, 2005; Bhasin & Jain, 

2013). Saad et al. (2014) in their research, analyzed the home country determinants for OFDI flows from 

Malaysia, and states that investment flows overseas from developing countries is a consequence of lack 

of management know-how knowledge, thus driving Malaysian firms to invest abroad in order to 

overcome this prevalent limitation. Emerging economies suffer from shortage of skilled personnel, thus 

making human capital an incompetent push force for OFDI. This creates an immediate need for these 

economies to identify ways to boost the development of sound education infrastructure. While results of 

both the researches of Pantelidis and Kyrkilis (2005 and 2003), points towards the inference that 

competent human capital of home country is push factor for advanced countries while it has proved to be 

an insignificant driver for developing and middle-income countries.  

 

Openness of Economy 

Smooth and voluminous flow of foreign direct investment is a direct consequence of the degree of 

openness of an economy towards unrestricted capital flows. There are few reasons leading to this, firstly, 

liberal capital regime with absent or minimal control promotes greater flow of funds across economies 

(Scaperlanda, 1992). Secondly, an economy with existing export orientation allows companies to gather 

knowledge about demand and supply conditions of proposed host destination, their legal system, 

prevalent business practices, know how required to sustain foreign operations, etc. All these constitutes 

the necessary background for switching of internationalization mode from exporting to setting up or 

acquiring business facilities overseas (Kogut 1983; Buckley et al., 2007, Goh, 2011). As per Buckley et. 

al (2007), OFDI is also viewed as a supportive strategy to give some backing to domestic exporters and 

stimulating higher earnings for them. Thirdly, companies may resort to investing in host economies 

whose export give a tough competition to native firms of home economy. Here OFDI takes a pure form 

of retaliation to cope up with import competition (Pantelidis & Kyrkilis, 2003; Banga, 2007).  

Evidence from empirical researches of Das (2013), Kyrkilis and Pantelidis (2005) and Bhasin and 

Jain (2013) indicate the positive and significant impact of trade openness on OFDI flows. However as 



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per Kyrkilis and Pantelidis (2003) and Haiyan’s (2017) studies, no significant outcomes for trade 

openness were found in case of developed countries (except Germany). 

 

Technological Capability 
Firms’ ability to indulge in organization and production of technological input is in turn dependent upon 

the firms’ home country environment, in terms of its legal and patent systems, presence of skills and 

inputs, government policies, market structure, scientific research, incentives for education. Hence this 

emerges as a critical advantage of firms to make foreign investments, as firms’ technological capability 

helps them build ownership-specific advantages, upon which the firm can capitalize to invest abroad. The 

new competitive advantage developed by the firm could be in form of a new cost saving technique, a 

differentiated product, or an efficiency improving organization method. If used only once, these 

competitive advantages will be underutilized and in order to extract full potential (i.e. increased revenue 

flows with nil marginal cost), other modes of exploiting such resources are required and expanding 

overseas is an efficient mode for the same.  

In case of developing countries, minting of new technologies may not always be possible, but 

framing policies for building technological capacity may fetch positive spillovers. Lall (2001) stated that 

technological advancement heavily relies on technological efforts made and firms’ absorption capacity. 

Thus, to benefit from the diffusion of international technology stimulated by globalization, making 

indigenous innovation efforts became mandatory for emerging economies (Das, 2013; Fu, Pietrobelli, & 

Soete, 2011). Therefore, countries making policies supportive of such technological efforts, will be more 

successful in creation of country-specific competitive advantages from international technology 

diffusion, thus facilitating outward investment flows. In contrast to the above arguments, Saad et al. 

(2014) postulated that developing economies facing disadvantage at the technological front, make 

outward investments in order to compensate for the same by merging with or acquiring foreign firms 

(Child & Rodrigues, 2005; Luo & Tung, 2007; Rugman & Li, 2007). 

Past empirical studies point out towards the positive correlation between technological capability 

and investment overseas. Kyrkilis and Pantelidis (2005) found that technological capability of home 

country is a significant determinant for advanced countries, while it has no significance in case of middle 

income and developing countries. While Das (2013) and Kyrkilis and Pantelidis (2003) found impact of 

technological capability of home country on its OFDI to be positively significant in case of developing 

countries, Saad et al. (2014) proved it to be negatively significant in case of Malaysian OFDI. Hence the 

net impact of this determinant is not uniform among the past studies. 

 

Evolution of Methodologies Used for OFDI Studies 

Outward foreign direct investment has been a subject of interest over the past two decades. There have 

been numerous theoretical and empirical articles focusing on the macroeconomic determinants of OFDI, 

including home as well as host country factors. The purpose of this paper is to present a systematic review 

of the extant literature on OFDI home country determinants, which will be incomplete without discussing 

the econometric tools adopted by various researchers in similar studies. Therefore, this section aims to 

provide a synthesis of statistical methodologies used in the selected empirical papers, published with in 

last two decades, i.e. 1997 to 2017. 

Going by the most common or popular techniques among the papers reviewed are ordinary least 

squares (OLS) and pooled ordinary least squares (POLS). Pantelidis and Krykilis (2003) were the first 

ones to use OLS in testing the impact of macroeconomic determinants on OFDI from a sample of 9 

countries. Pantelidis and Krykilis (2005) again used OLS estimation technique in their research on cross 

country analysis of OFDI patterns among three groups of countries- advanced, middle-income and 



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developing countries with panel data.  Egger (2008) preferred POLS over fixed effect (FE) estimation, 

while Buckley et al. (2007) did a langrangian multiplier (LM) test to identify whether POLS or random 

effects generalized least squares (REGLS) furnished better model. REGLS estimation was preferred over 

POLS as LM test value was significantly different from zero. Zhang and Daly (2011) adopted POLS to 

estimate their model via panel data to analyze the determinants of China’s OFDI. Buckley, Forsans, and 

Munjal (2012) measured the determinants of inorganic OFDI by Indian firms, i.e. by mergers and 

acquisitions, using multiple regression technique and POLS for panel data ranging from 2000 to 2007. 

Saad et al. (2014) while researching upon Malaysian OFDI determinants used multiple regression on time 

series data primarily and adopted OLS as analytical technique. 

Apart from Buckley et.al (2007), random effects model was incorporated in the empirical 

researches of Das. In 2013, Das selected random effects panel regression estimates to analyze country 

level determinants of OFDI from 56 developing countries, he also conducted langrangian multiplier (LM) 

test and Hausman test which further affirmed the appropriateness of random effects generalized Least 

squares compared to pooled OLS & fixed effects. Das and Banik in 2015 did a similar research again 

specifically focusing on Indian firms’ OFDI motivations.  

Cheung and Qian (2009) in his research paper, “Empirics of China outward direct investment”, 

empirically tested for the factors leading to Chinese OFDI in a sample of 21 developing countries and 10 

developed countries, opted for feasible generalized least squares procedure to control for serial correlation 

among residuals. 

Fixed effects regression estimation technique was also used commonly during the last decade. 

Kayam (2009) successfully planted fixed effects model in his empirical research testing macro level 

determinants of FDI outflows from developing and transition economies. Bhasin and Jain (2013) also 

analyzed the push factors for select Asian economies’ OFDI using fixed effects (least Squares Dummy 

Variable (LSDV)) estimation model, supplemented by Principal component Analysis to augment model’s 

analytical richness. Haiyan (2017) in his research on analyzing home country determinants of OFDI from 

developed and developing countries applied fixed effects model for panel estimation. Haiyan argued that 

fixed effects model yields more precise results by controlling heterogeneity of individual country. 

Nunnenkamp, Andrés, Vadlamannati, and Waldkirch (2012) researched upon the drivers of Indian 

OFDI, employing Possion pseudo maximum likelihood (PPML) estimates with clustered robust standard 

errors, as this model is best suited for log gravity type and also fully accounts for heteroskedasticity. 

Ramasamy, Yeung, and Laforet (2012) did a similar empirical research in China's OFDI context, and 

considered both Poisson count data regression model and negative binomial model, and found similar 

results from both but for final interpretation preferred Poisson model, as likelihood- ratio test in case of 

over-dispersions for binomial model were insignificant, thus making Poisson model more appropriate fit 

for the empirical research undertaken. While Anand and Kogut (1997) undertook negative binomial 

model for their data analysis, as it allows for over-dispersion for unexplained heterogeneity in their data, 

instead of going for a Poisson model. 

Pradhan (2004) used tobit model in his research on determinants of OFDI to test the hypothesis 

framed. Tobit model approach was justified on the grounds that the dependent variable in the research 

i.e. the OFDI intensity of firms in India was censored. Thomas and Narayanan (2017) almost did a study 

akin to those of Pradhan's (2004) focusing on OFDI by Indian firms. They opted for Tobit model for 

determining OFDI share and used a dynamic Random effects probit model to estimate the determinants 

of OFDI, thus treating unobserved heterogeneity in the model. Pradhan (2011) did a comparative study 

between the emerging multinationals from India and China, with a censored dependent variable i.e. 

Indian/Chinese FDI received by host country. In his study he preferred 3-step censored quantile 

regression estimation model for censored data instead of tobit model, as the major assumption of Tobit 



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model was violated because the errors in the data collected were non-normal, heteroskedastic and 

asymmetric. 

Goh (2011) did an empirical study on determinants of Malaysian OFDI using error correction 

model (ECM), as OFDI variable was found to be cointegrated with its determinants. Chen and Zulkifli 

(2012) tested the association between Malaysian OFDI and economic growth through VECM and 

Granger causality tests. Hierarchal of Multilevel regression was adopted by Anwar and Mughal (2013) 

in their paper focusing on the role of Indian diaspora's importance in attracting OFDI from India. Table 

3 summates the various econometric techniques used by various authors. 
 

Table 3. Evolution of Methodologies Used For OFDI Studies 
 

Statistical Technique Authors 

Pooled OLS and OLS 

Pantelidis and Krykilis (2003, 2005), Buckley et al. (2007), Egger 

(2008), Zhang and Daly (2011), Buckley et al. (2012), Kolstad and 

Wiig (2012), Das (2013), Saad et al. (2014), Morris and Jain (2015) 

Negative Binomial Model Anand and Kogut (1997) 

Poisson Regression Model Nunnenkamp et al. (2012), Ramasamy et al. (2012) 

Tobit Model Pradhan (2004), Thomas and Narayanan (2017) 

Random Effects Model 
Buckley et al. (2007), Egger (2008), Das (2013), Das and Banik 

(2015) 

Fixed Effects Model Kayam (2009), Bhasin and Jain (2013), Das (2013), Haiyan (2017) 

3-step Censored Quantile 

Regression Estimation Model 
Pradhan (2011) 

Generalised Least Squares 

Model 
Buckley et al. (2007), Cheung and Qian (2009) 

Error Correction Model and 

Vector error Correction 

Model 

Goh (2011), Chen and Zulkifli (2012) 

Heirarchal or Multilevel 

Regression Model 
Anwar and Mughal (2013) 

Multiregression Analysis Buckley et al. (2012), Saad et al. (2014) 

Probit Regression Model Das (2015) 

Dynamic Random Effects 

Probit Model 
Thomas and Narayanan (2017) 

 

CONCLUSION 

The growth of outward cross-border investments from emerging economies has progressively spread 

across multiple regions around the world during last 20 years. It has become imperative to understand 

and analyze the rationale behind such accelerated expansion of developing countries’ OFDI. Our intent 

in the paper is to probe over the existing researches on factors causing OFDI to distinctively gauge 

primary theoretical perspective used earlier. This review has helped us to achieve our objective of 

integration of past studies while unearthing topics for future research scope, to enhance the pool of 

knowledge of this crucial phenomenon. 



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In previous studies efforts have been made to identify and analyze the emergence of OFDI from 

emerging nations, but most of them were just limited to one country or a group of countries, selected out 

of the total lot of emerging markets, like Kalotay (2005) focused on Russian economy, while Kumar 

(2007) and Douma, George, and Kabir (2006) studied OFDI factors with respect to India’s position. 

Likewise, determinants of Chinese OFDI were examined by Buckley et al. in 2007, while Makino, Lau, 

& Yeh (2002) researched upon the locational choices of Taiwanese firms. Holtbrugge and Kreppel (2010) 

did an explorative study on the determinants of OFDI from BRIC nations, and Pradhan (2011) did 

comparative analysis of Indian and Chinese emerging firms. Hence a structured assessment of past 

literature was a necessity, to represent an all-inclusive picture. 

This paper interwove the observations made by various researchers, providing a comprehensive 

understanding of various activities of emerging multinationals, and how they are influenced by distinctive 

environments of home economy. Many researchers reveal that firms from emerging economies have 

many similar motives for investing overseas. The most important ones are, home country market size and 

openness of home country towards internationalization. These determinants were proved relevant in 

almost all empirical researches which were observed in this study. However, some researches posted 

contrasting results for the impact of home country’s interest rates, human capital and technological 

capability on OFDI from emerging economies. The variation in the reviewed researches is attributable to 

two major reasons, either adoption of different methodologies or adoption of different proxies for same 

variable.  

This study contributes to the analysis of macroeconomic determinants of OFDI from emerging 

economies from institutional perspective as well as academic perspective. Home country governments 

can easily identify on which areas to work towards making their country’s environment more conducive 

for FDI flows, such as switching from restrictive to promotive policies, leveraging bargains and 

investment coordination with existing or prospective host economies. For example, strong government 

support from home country may initiate FDI outflows, which happened mostly in case of communist 

economies like Russia and China. Results are suggestive that policies oriented towards pushing trade 

activities would become indispensable in the long run for promoting trade openness, which in turn will 

facilitate OFDI, thus a liberal home economy with deregulated system, especially in case of developing 

countries, is an excellent instrument driving internationalization of firms. This study also points out that 

emerging economies suffer from shortage of skilled personnel, thus making human capital an 

incompetent push force for OFDI. This creates an immediate need for these economies to identify ways 

to boost the development of sound education infrastructure. 

Academicians interested in similar empirical researches now have a summative view of various 

statistical models adopted earlier, making evaluation and implementation of methodological approach 

easier as gamut of all econometric tools used in the empirical papers reviewed has been discussed with 

respect to pros and cons of each of the model adopted. 

 

LIMITATIONS & FUTURE RESEARCH SCOPE 

One limitation of the study conducted was, that here the focus was on home country factors which induce 

overseas investment but to obtain a complete understanding, one should also research upon host country’s 

resource dependences. As per Buckley et. al. (2012), host country characteristics have a pull effect while 

at the same time home country ones have a push effect during the process of internationalization, making 

it sacrosanct to study both to get a wholesome conclusion. 

Some avenues for future research can be looked upon, like covering a wider range of countries as 

a group for empirical research on macroeconomic determinants of OFDI, as from the above review of 

extant literature, most of the studies conducted concentrated on a single country or a small cluster of four 



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68 

to five countries. Researching on a wider range of countries from different regions of the world will give 

a comparative as well as extensive view of the topic. Another prospective future research gap identified 

is to segregate country level determinants of OFDI sector or industry wise, and then analyze them 

empirically as well as theoretically. This will give a clear picture of all the underlying rudimentary factors 

responsible for pushing a particular sector’s OFDI progression. Lastly, a deeper probe into less popular 

factors like prevalent production cost in home country, financial and fiscal incentive structure of home 

economy, institutional factor like corruption and cultural determinants of OFDI are required to be linked 

with the risk associated particular home country association, like ‘Guanxi’ culture of China makes it a 

very reliable country to do business with, thus giving Chinese companies are better standing in terms of 

trustworthiness across the world. 

 

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