The time since an investment was made matters for home-country effects, which can be expected to become stronger over time (UNESCAP 2020). The time between investment and its impact should also differ by type of home-country effect.
Key insights
- Studies including a temporal dimension in their analysis almost unanimously find home-country effects to materialise more strongly in the long run. This applies especially with regard to economic growth (Chen and Zulkifli 2012, Herzer 2011a, Lee 2010, Herzer 2008), domestic investment (Ameer, Xu, and Alotaish 2017, Herzer and Schrooten 2008), know-how and technologies (Rabbiosi and Santangelo 2013, Borini et al. 2012), productivity (Cozza, Rabellotti, and Sanfilippo 2015, Herzer 2011b) and employment (Hijzen, Jean, and Mayer 2011, Navaretti, Castellani, and Disdier 2010).
- When a home-country effect was found in the short term, the effect was sometimes negative (Debaere, Lee, and Lee 2010, Huang 2013).
- OFDI policies and HCMs should aim at promoting and supporting OFDI for longer periods of time, to fully facilitate the generation of home-country effects that may take extensive amounts of time to materialise.
Interactions
Section A: Home-country effects: In general, home-country effects tend to be realised after a longer period of time.
A3) Domestic investment: The positive impact of OFDI on domestic investment tends to happen in the long term (Ameer, Xu, and Alotaish 2017, Huang 2013, Herzer and Schrooten 2008).
A4) Know-how and technology: Older subsidiaries tend to transfer more know-how (Rabbiosi and Santangelo 2013, Borini et al. 2012).
A7) Productivity: The positive impact of OFDI on home country productivity tends to happen in the long term (Cozza, Rabellotti, and Sanfilippo 2015, Herzer 2011b).
A10) Employment: The positive impact of OFDI on home country employment tends to happen in the long term (Hijzen, Jean, and Mayer 2011, Navaretti, Castellani, and Disdier 2010).
A11) Economic growth: The positive impact of OFDI on home-country economic growth tends to occur in the long term (Chen and Zulkifli 2012, Herzer 2011a, Lee 2010, Herzer 2008).
D9) Time since investment: Home-country measures can be targeted at specific phases of an investment.
Available Research Findings
Chen, Lin, and Yabe (2019): Chinese OFDI made in the food industry between 2005 and 2013 improved the productivity of the parent firm. This effect occurred in the short term, but weakened in the long run.
Ameer, Xu, and Alotaish (2017): There is a positive relationship running from Chinese OFDI to domestic investment in the long run, but not in the short term.
Bhasin and Paul (2016): OFDI from ten major Asian economies between 1991 and 2012 had no long-run impact on home-country exports.
Cozza, Rabellotti, and Sanfilippo (2015): Chinese OFDI into European advanced economies between 2003 and 2011 enhanced the productivity of Chinese firms, though this effect materialised only a few years after the investment had been made. M&As were found to transfer some intangible assets to parent companies, though this effect disappeared a few years after completion of the deal.
Huang (2013): Taiwanese OFDI from 1993-2008 undertaken in both mainland China and the rest of the world was negatively associated with R&D investment of the parent company, especially in the short term.
Huang (2013): Taiwanese OFDI from 1993-2008 undertaken in both mainland China and the rest of the world was negatively associated with R&D investment of the parent company, especially in the short term.
Rabbiosi and Santangelo (2013): In a survey of 84 Italian manufacturing MNEs, older subsidiaries were found to reverse transfer a greater quantity and quality of valuable knowledge than younger subsidiaries.
Borini et al. (2012): A survey of 66 subsidiaries of 30 emerging market multinationals found evidence of reverse transfer of knowledge, which was dependent on subsidiary age, i.e. period of existence.
Chen and Zulkifli (2012): There was a positive relationship between Malaysian OFDI from 1980 to 2010 and economic growth. This effect only existed in the long run.
Herzer (2011a): OFDI had a positive long-run effect on domestic GDP in a sample of 43 developing countries from 1981 to 2008.
Herzer (2011b): In a sample of 33 developing countries between 1980 and 2005, OFDI had a positive long-run effect on total factor productivity, although there were considerable differences in the effect among individual countries, with some experiencing a negative impact.
Hijzen, Jean, and Mayer (2011): Horizontal OFDI made by French firms between 1987 and 1999 created jobs. This effect was increasing over time.
Debaere, Lee, and Lee (2010): South Korean OFDI undertaken between 1968 and 1996 decreased employment growth, especially in the short term, when it was made in developing countries. In the longer term, this effect became less significant.
Lee (2010): There was positive causality from Japanese OFDI made between 1977 and 2006 to GDP per capita. This effect only existed in the long run.
Navaretti, Castellani, and Disdier (2010): Italian OFDI had a positive effect on value-added and employment in the home country. These effects emerged in the long run.
Herzer (2008): OFDI from fourteen industrialised countries between 1971 and 2005 had positive long-run effects on domestic GDP.
Herzer and Schrooten (2008): United States OFDI had a positive long-run effect on domestic investment. German OFDI had a complementary relationship with domestic investment in the short run, but substituted for domestic investment in the long run.