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MBR
19,2 FDI, economic decline
and recovery: lessons from
the Asian financial crisis
120
Hwy-Chang Moon
Graduate School of International Studies,
Seoul National University, Seoul, Korea, and
Joseph L.C. Cheng, Min-Young Kim and Jin-Uk Kim
College of Business,
University of Illinois at Urbana-Champaign, Champaign, Illinois, USA

Abstract
Purpose While many studies have investigated the impact of foreign direct investment (FDI) on a
host countrys economic development, little research has been done on the role of FDI as related to
economic decline and recovery. This paper aims to fill this gap by investigating the economic effects
of inward and outward FDI during turbulent times.
Design/methodology/approach This paper develops a theoretical argument postulating that
FDI will have a stabilizing effect on a nations economic growth during crisis and also at times of
recovery. Hypotheses were advanced and tested with data collected from affected economies during
the Asian financial crisis using a fixed-effect panel regression analysis.
Findings Results confirm that both inward and outward FDI stabilizes a countrys economic
growth during times of a financial crisis. Countries that had higher levels of FDI prior to the crisis
experienced a milder recession and a more gradual recovery. This stabilizing effect, however, is found
to be more robust for FDI-stock than for FDI-flow.
Social implications This paper reveals that FDI has a stabilizing rather than an accelerating
effect on a countrys economy growth during both periods of crisis and recovery. It contradicts the
common belief that FDI would help speed up, not stabilize or dampen the uptake of economic activities
during the recovery period. This finding will help policy makers educate the public and set realistic
expectations about the economic impact of FDI.
Originality/value This paper makes original contributions by uncovering the complex and
unexpected role of FDI as related to a nations economic decline and recovery during a financial crisis.
The findings have important implications for both international business scholars and public-policy
decision makers.
Keywords Foreign direct investment, Financial crisis, Economic recession, Economic recovery,
International business, Multinational corporations
Paper type Research paper

The Multinational Business Review
Vol. 19 No. 2, 2011
pp. 120-132
q Emerald Group Publishing Limited
1525-383X
DOI 10.1108/15253831111149762
Introduction
The 2008 global financial crisis has cast a long shadow over the world economy. The
United Nations Conference on Trade and Development (UNCTAD) has issued a special
report (UNCTAD, 2009a) on the crisis and projected three possible future scenarios:
a V-shaped drastic rebound, a U-shaped gradual recovery, and an L-shaped stagnation.
This document also reports that total worldwide foreign direct investment (FDI), which
experienced drastic increases up until 2007, recorded a 14 percent decrease in 2008
compared to the previous year (UNCTAD, 2009a). Such stagnation has led to increased
efforts among many national governments, particularly those of the emerging FDI, economic
economies, to attract FDI in the hope that it would help dampen economic decline and decline
contribute to a fast and robust recovery (UNCTAD, 2009b).
While many studies have investigated the impact of FDI on a host countrys economic and recovery
development (Balasubramanyam et al., 1999; De Mello, 1997), little work has been done
on the role of FDI as related to economic decline and recovery during turbulent times.
More specifically: 121
RQ1. Does FDI help reduce the negative impact of an externally induced crisis on a
host countrys economic growth?
RQ2. Does it help speed up the countrys economic activities during the recovery
period?
RQ3. Are these effects of FDI during economic decline and recovery the same for
both inward and outward foreign direct investment?
These are important research questions for both international business scholars and
public-policy decision makers. The answers will help develop better theory and practice
concerning FDI and its economic impact.
This paper addresses the above questions by first conducting a theoretical analysis of
the effects of FDI, both inward and outward, on a countrys economy, particularly during
times of financial crisis. A set of hypotheses is advanced and then tested using data
collected on a sample of Asian economies during the period of 1992-1999. This period
was chosen to provide the empirical setting for investigating the role of FDI during the
Asian financial crisis (AFC) of 1997-1998 and its aftermath. As predicted, the results
show that FDI has a stabilizing effect on a countrys economic growth during times of
crisis. This effect, however, is found to be more robust for FDI-stock than FDI-flow. The
overall pattern of results was the same for both the recession period when economic
activities were slowed down, and also for the recovery period when economic activities
reversed course. The latter finding is particularly important, as it contradicts the
common belief among many government officials that FDI would help speed up, not
stabilize or dampen the uptake of economic activities during the recovery period.

Theoretical analysis and hypotheses

Inward FDI
Unlike the early days when governments were the principal actors in economic
exchanges between nations, multinational corporations (MNCs) are now the primary
providers and decision makers of FDI. In the field of international business, Dunnings
(1977) eclectic paradigm of international production is the dominant theory to explain
firms FDI decisions. By integrating key ideas from market power theory (Hymer, 1976)
and internalization theory (Buckley and Casson, 1976; Rugman, 1981; Hennart, 1982),
with additional insights from his locational analysis, Dunning postulates that an MNC
would choose FDI over other forms of international engagement when it:
(1) possesses ownership-specific advantages (O-advantage);
(2) finds location-specific resources (L-advantage) to complement its
ownership-specific advantages; and
(3) has the ability to internalize markets through administrative fiat (I-advantage).
MBR Of the three factors affecting FDI decisions, locational advantage is the one that is most
19,2 relevant to the present analysis. It highlights that when an MNC makes an FDI decision to
conduct value-creation activity (e.g. production) in a foreign country, it plans to bring its
ownership-specific resources (e.g. proprietary technology, management know-how, etc.)
to that location and combine them with location-specific resources (e.g. the host countrys
factor endowments) to create a new competitive advantage for the firm. This new
122 advantage will then enable the MNC to overcome its liability of foreignness (Hymer,
1976; Vernon, 1966; Zaheer, 1995) and compete successfully against the local firms.
Additionally, it will also increase the MNCs global competitiveness by allowing the MNC
to leverage its newly created capability to gain an advantage in other markets (Bartlett
and Ghoshal, 1986; Nohria and Ghoshal, 1997).
From the host country perspective, the cross-border transfer of an MNCs
firm-specific advantages and their subsequent combination with complementary
resources in the particular location to create new capabilities is a process that brings
both short and long benefits to the local economy. These benefits are in addition to and
separate from the transfer of capital accompanying the inward FDI, which in itself is
an important contributor to a nations economic growth by increasing the volume of
investment through increased capital accumulation. What is more significant, however,
is the upgrading of the host countrys factors of production resulting from the MNCs
transfer of non-financial, ownership-specific intangible assets to the location (Dunning
and Rugman, 1985), such as advanced production methods, marketing know-how,
superior management skills, and new organizational form, etc. These intangible assets,
either by themselves or in combination with location-specific resources that the MNC
finds complementary to its ownership-specific advantages, provide the host country
with new productive capabilities which can be used to promote economic growth.
Finally, the physical presence of the MNCs in the host country and their competing
against the domestic firms for market shares also help promote economic growth
through the reciprocal spill-over effect (Rugman and Verbeke, 2003, p. 155) by
inducing the local economy to meet higher quality standards, increase productivity,
adopt new technology, and learn new ideas (OECD, 2002). This upgrading of the nations
productive capabilities will have a long-lasting impact on the local economy that goes
beyond the MNCs physical presence.

Outward FDI
While the impact of incoming FDI on a host countrys economy has been much researched
by international business scholars, the impact of outward FDI on the home country is a
relatively under-studied topic requiring further development. A review of the existing
literature suggests that outward FDI contributes to a home countrys economic growth in
four major ways. First, indigenous firms operating in overseas markets can repatriate
some or most of their foreign earnings back home, which helps improve the nations
balance of payments. Second, by their physical presence and local engagement, the
overseas subsidiaries of these firms may help increase foreign demand for home-country
exports. This will positively affect the nations current account balance by increasing the
usage of home countrys capital equipment as well as intermediate and/or complementary
goods (Hill, 1994). Third, increased subsidiary demands for home-country resources will
lead to employment growth and result in increased consumers spending (Moon, 2007).
Finally, through competing in foreign markets, the overseas subsidiaries
of the indigenous firms acquire new skills and knowledge, which they can transfer back FDI, economic
home to help redress their ownership disadvantages (Moon and Roehl, 2001) and augment decline
existing strategic assets (Dunning, 2000; Makino et al., 2002). The resulting enhanced
capabilities will enable indigenous firms to be more productive and contribute to and recovery
economic growth at a higher level.
In sum, the above analysis shows that FDI, both inward and outward, brings a
host of tangible and intangible benefits which can help increase a countrys productive 123
capabilities and contribute to both its short- and long-term economic development.
While the existing research literature also reports that FDI can negatively affect the host
and home countrys economy, the overall pattern of available evidence largely shows
a net positive balance for FDI in terms of its economic impact (De Mello, 1997;
Jensen, 2006).

Impact of FDI during financial crisis

Financial crisis refers to a severe disruption to financial markets at a level that it renders
them unable to efficiently channel funds to those who have the most productive
investment opportunities (Mishkin, 1992, p. 118). When this happens, the flow of credit
to households and businesses is constrained and the real economy of goods and services
is adversely affected (Jickling, 2008, p. 1). While a financial crisis may be triggered by
different causes, such as bank failures, stock market crashes, or sovereign defaults,
it usually results in a recession associated with reduced economic growth and increased
unemployment. In more severe situations, there will be sudden reversals of capital flows
precipitated by herd mentality of foreign investors, who abruptly renege on their
commitments (Radelet et al., 1998; Weisbrot, 2007).
Unlike portfolio investment and other types of access foreign capital, FDI is less volatile
during not only normal times but also times of financial crisis (Athukorala, 2003;
Fan and Dickie, 2000; Hill and Jongwanich, 2009). This continuous flow of FDI capital into
the crisis-hit countries helps mitigate the negative impact of the crisis and contribute to
economic stability. More importantly, the intangible benefits that FDI, both inward and
outward, has brought to and built up in the local economy prior to the financial crisis,
such as upgrading of the production factors, increased quality standards, improved
management skills and production methods, etc. are still there, which will help reduce the
negative impact of the crisis. These intangible benefits, along with the sudden drop in
prices for local assets during times of financial crisis, may also help attract new FDI into
the country (Fan and Dickie, 2000) and result in a dampening effect on the economic
downturn.
Taken together, these ideas suggest that, during times of financial crisis, FDI takes
on the role of a stabilizing force in the local economy, helping to reduce contraction in
a nations economic capacity and output, resulting in a milder recession than would
otherwise occur. This stabilizing effect of FDI during crisis will also help reduce
unemployment, which in turn makes it less necessary for the government to increase
fiscal spending to stimulate the local economy. Instead, the economy will be able to grow
on its own capacity as demand for goods and services increases, which usually happens
when the crisis eases and recovery starts to take shape. Because of these calming effects,
countries that have more FDI prior to the crisis will not only experience a milder
recession, but also a more gradual recovery in its immediate aftermath. These predictions
are summarized into the following hypotheses:
MBR H1. The higher the level of prior FDI, the smaller the change (decline) in economic
19,2 growth during the crisis period.
H2. The higher the level of prior FDI, the smaller the change (increase or reduced
decline) in economic growth during the recovery period.

124 Method
To test the above hypotheses, the AFC of 1997-1998 was chosen as the research setting.
The AFC is particularly suited for the present investigation, because it was a relatively
self-contained event that lasted over just two years (1997-1999), with a deep recession in
the year 1998 followed by a strong V-shaped rebound during 1999 (Athukorala, 2003;
Takatoshi, 2007). As the AFC took place following a five-year period of steady economic
growth, we selected 1992-1999 as the timeframe for the present study, with the year 1998
specified as the Crisis and the year 1999 as the Recovery period.
We sought to collect FDI and economic growth data for the 15 largest Asian
economies in the affected region. However, full data were available from only ten of these
economies: Australia, China, Hong Kong, India, Japan, Korea, Malaysia, Philippines,
Singapore, and Thailand. Two major data sources were used:
(1) Data for FDI were downloaded from the FDI online database of UNCTAD.
(2) Data for economic growth (gross domestic product (GDP) and gross national
product (GNP)) and two control variables (Labor and Inflation) were collected
from the World Development Indicators (WDI) online database of the World
Bank. Table A1 in the Appendix provides information on the units and sources
of the dataset.

Variables
Change in economic growth (CEG) was assessed using two different measures. The first,
GDP per capita growth rate, was based on GDP data. The second, GNP per capita growth
rate, was based on GNP data. Because GDP and GNP treat product produced with
foreign ownership differently, both measures were included to test the hypothesized
effects of outward and inward FDI separately.
Specifically, according to the US Department of Commerces Bureau of Economic
Analysis (2009, pp. 2-6 to 2-9), GDP measures the value of goods and services produced
locally by labor and property supplied by both domestic and foreign residents located
within a national boundary. GNP, on the other hand, measures the value of goods
and services produced anywhere by labor and property supplied by the domestic
residents of a particular country. In computing the sum of goods and services produced
by a country, both measures include data on investment, personal consumption,
government purchase, and net exports. However, they count investment data differently.
GDP includes (and GNP excludes) foreign residents investment located within the
country as part of the sum of goods and services produced by a country. By contrast,
GNP includes (and GDP excludes) local residents investment located in other countries
as part of the sum of goods and services produced by the country. These differences
suggest that GDP data are more appropriate for testing the effect of outward FDI
because these data exclude (and GNP data include) local residents investment located in
other countries which is already part of the count of a countrys outward FDI. On the
other hand, GNP data are more appropriate for testing the effect of inward FDI because
these data exclude (and GDP data include) foreign residents investment located within FDI, economic
the country which is already part of the count of a countrys inward FDI. decline
Using the formula below, both the GDP and GNP measures of CEG were calculated
as an absolute difference of per capita growth rates between two consecutive years. The and recovery
larger the absolute difference, the greater the change in a countrys economic growth
from previous year:
CEG j per Capita Growth Ratet 2 per Capita Growth Ratet21 j
125
Inward (IFDI) and outward (OFDI) FDI were measured in terms of both flow and stock.
As defined by Zhan (2006), FDI stock refers to the value of capital and reserves plus net
indebtedness. Inward stock is the value of the capital and reserves in the economy
attributable to a parent enterprise resident in a different economy. Outward stock refers
to the value of capital and reserves in another economy attributable to a parent
enterprise resident in the economy. FDI flow refers to capital provided by or received
from a foreign direct investor to an FDI enterprise. This can be further classified as
inflows (capital flows into the host economy) and outflows (capital flows out of the home
economy).
Inflation and Labor were included as control variables in the data analysis as
they both affect a nations economic growth (Ferguson, 2006; Solow, 1956). Inflation
was measured as the percentage change in the GDP deflator. Labor was measured as
the total number of workforces available in a country.
Table I shows the descriptive statistics and correlations among the study variables.

Analysis
The hypotheses were tested separately for each of the four FDI variables (IFDI-stock,
IFDI-flow, OFDI-stock, and OFDI-flow) using a fixed-effect panel regression analysis[1]
with the following model specification:
CEGt GNPor GDPt21 Labor t21 Inflationt21 Crisis Recovery
FDI t21 FDI t21 *Crisis FDI t21 *Recovery
where the FDI variable was entered as IFDI-stock, IFDI-flow, OFDI-stock, or OFDI-flow
and each of the four was tested in separate regressions. Both the Crisis and Recovery
variables were dummy coded.
For the hypotheses to be supported, the results would need to show a negative
coefficient for the FDI*Crisis and FDI*Recovery variables, indicating a reduction in the
CEG variable (absolute CEG) during the crisis (1998) and recovery (1999) periods
resulting from a higher level of prior FDI.

Results
Table II presents the regression results showing the interaction effects between each of
the two inward FDI variables and the Crisis/Recovery variable on CEG. As mentioned in
models 3 and 4, the coefficients for all four interaction terms were in the predicted
negative direction. This indicates that prior inward FDI, whether in the form of inward
FDI-stock or inward FDI-flow, all had a dampening effect on the amount of change in a
countrys economic growth caused by the AFC during the recession year 1998 and
also in the recovery year of 1999. This dampening effect seems to be stronger for the
recovery than the crisis period, as indicated by the statistically significant results
 19,2

126
MBR

Table I.

study variables
Descriptive statistics
and correlations among
Variables Mean SD Min. Max. (1) (2) (3) (4) (5) (6) (7) (8) (9) (10)

(1) CEG (GNPPC growth) 6.37 5.89 0.04 25.52 1

(2) CEG (GDPPC growth) 2.95 3.95 0 17 0.77 1
(3) GNP 6.81 12.83 0.47 52.01 2 0.01 2 0.17 1
(4) GDP 6.68 12.8 0.48 46.39 0 2 0.16 0.99 1
(5) Labor 12.15 21.7 0.16 72.22 2 0.13 2 0.17 0.05 0.05 1
(6) Inflation 5.44 4.28 22 21 2 0.06 2 0.03 20.36 2 0.35 0.38 1
(7) IFDI-stock 0.57 0.67 0.02 2.49 2 0.04 0.02 20.14 2 0.14 0.03 20.13 1
(8) OFDI-stock 0.47 0.81 0 2.76 0.03 2 0.01 0.85 0.86 20.16 20.47 0.21 1
(9) IFDI-flow 0.67 0.99 0 4.55 0.01 2 0.04 20.06 2 0.05 0.68 0.07 0.46 2 0.06 1
(10) OFDI-flow 0.56 0.82 0 3.16 0.08 0.01 0.64 0.66 20.19 20.36 0.45 0.85 20.02 1
 FDI, economic
Model 1 Model 2 SE Model 3 SE Model 4 SE
decline
Constant 22.6 (11.8) 10.2 9.21 21 9.87 23.9 11.5 and recovery
GNP 20.00538 (0.379) 0.322 0.292 0.223 0.288 0.279 0.284
Labor 0.811 (0.95) 20.777 0.765 2 1.92 0.901 21.94 0.988
Inflation 20.155 (0.257) 0.207 0.202 0.07 0.211 20.054 0.226
Crisis 11 1.67 12.2 2.11 11 1.96 127
Recovery 7.15 1.68 10.4 2.25 8.86 1.95
IFDI-stock 8.63 4.3
IFDI-
stock*Crisis 2 3.42 2.13
IFDI-
stock*Recovery 2 6.15 * * 2.36
IFDI-flow 3.73 1.57
IFDI-
flow*Crisis 21.5 1.4
IFDI-
flow*Recovery 22.89 * 1.53
Observations 80 80 80 80
AIC 507 465 460 463
R 2 (overall) 0.02 0.07 0.03 0.04
Log likelihood 2249.74 2226.65 2 220.91 2222.31
Table II.
Notes: p , 0.05, p , 0.01 and p , 0.001 (two-tailed for non-hypothesized relationships); Regression results
*p , 0.05, * *p , 0.025 and * * *p , 0.005 (one-tailed for hypothesized relationships) for inward FDI variables

for the IFDI-stock*Recovery and IFDI-flow*Recovery interaction terms (both at less

than p , 0.05).
Similar results were found for the hypothesized effects of FDI using the outward FDI
variables. As shown by models 3 and 4 in Table III, the coefficients for all four interaction
terms were in the predicted negative direction. This indicates that prior outward FDI,
whether in the form of outward FDI-stock or outward FDI-flow, all had a dampening
effect on the amount of change in a countrys economic growth during both the recession
and recovery period. However, this dampening effect seems to be stronger for outward
FDI-stock than outward FDI-flow, as indicated by the statistically significant results for
the OFDI-stock*Crisis and OFDI-stock*Recovery interaction terms (both at less than
p , 0.025).
Finally, based on data reported in Table IV (which combine results from Tables II and
III), a comparison of the regression results between FDI-stock and FDI-flow shows that
three (IFDI-stock*Recovery, OFDI-stock*Crisis, and OFDI-stock*Recovery) of the four
interaction terms involving FDI-stock were significant at the p , 0.05 level or lower.
Among the four interaction terms involving FDI-flow, only one (IFDI-flow*Recovery)
was significant at the p , 0.05 level. This overall pattern suggests that FDI-stock has a
more robust stabilizing effect than FDI-flow on a nations economy during times of crisis
and recovery.

Discussion and conclusions

This paper has sought to examine the role of FDI as related to a nations economic decline
and recovery during turbulent times. Based on the international business literature, and
drawing from Dunnings (1977) eclectic paradigm, we developed a theoretical argument
MBR
Model 1 SE Model 2 SE Model 3 SE Model 4 SE
19,2
Constant 7.98 7.75 17.6 5.46 17.9 5.45 18.2 5.74
GDP 0.998 0.897 20.524 0.643 0.363 0.697 2 0.354 0.715
Labor 20.933 0.833 21.1 0.576 21.77 0.611 2 1.29 0.644
Inflation 20.0684 0.168 0.0968 0.118 0.162 0.118 0.0961 0.121
128 Crisis 6.73 1.02 7.21 1.15 6.83 1.31
Recovery 7.33 1 8.43 1.17 8.24 1.22
OFDI-stock 4.02 1.53
OFDI-stock*Crisis 22.6 * * 1.22
OFDI-stock*Recovery 23.35 * * * 1.14
OFDI-flow 1.09 0.983
OFDI-flow*Crisis 2 0.507 1.13
OFDI-flow*Recovery 2 1.65 1.26
Observations 80 80 80 80
AIC 440 382 375 384
R 2 (overall) 0.00 0.08 0.04 0.07
Log likelihood 2215.93 2184.82 2 178.39 2 183.04
Table III.
Regression results for Notes: p , 0.05, p , 0.01 and p , 0.001 (two-tailed for non-hypothesized relationships);
outward FDI variables *p , 0.05, * *p , 0.025 and * * *p , 0.005 (one-tailed for hypothesized relationships)

postulating that FDI will have a stabilizing effect in reducing the amount of change in a
nations economic activity caused by a financial crisis. This calming effect of FDI
will also be present during the recovery period, resulting in a gradual increase in
economic activity instead of a fast upturn. These ideas were tested using data collected
from a sample of affected Asian economies during the period 1992-1999, against the
backdrop of the AFC of 1997-1998.
As reported earlier, the study results overall pattern is consistent with
and supportive of the theoretical argument. Countries that had more FDI prior to the
crisis experienced a milder recession and a more gradual recovery in the immediate
aftermath. The latter finding may not be what most government officials hope for, which
is a fast and robust economic recovery fueled by FDI (UNCTAD, 2009b). Another
important finding is that the hypothesized stabilizing effect of FDI was found for both
inward and outward FDI. However, the observed effect on the local economy was more
robust for FDI-stock than FDI-flow. These contrasting patterns suggest that while a
nation can obtain greater economic benefits by increasing both inward and outward
FDI, it is important that the increased FDI retains its capital and value-added capacity in
the location of the investment, both before as well as during the crisis and recovery.
The 2008 global economic crisis was largely a result of regulatory failures in the
worlds most advanced financial hubs and thus may be thought of as different from the
AFC of 1997-1998. A closer examination of these two crises, however, reveals a striking
commonality: both were caused by a serious imbalance in investment resulting from
over- or under-investment in certain world regions (Asia in the case of the AFC) or
certain economic sectors (such as real estate in the case of the current global economic
crisis). Another similarity between the two crises is that in the aftermath of each, there
were significant shifts in investment flows across geographical regions and economic
sectors, particular those in the form of FDI. These cross-border flows of investment
cannot only help resolve the imbalance problem, but also contribute to the countries
 FDI, economic
Model 1 SE Model 2 SE Model 3 SE Model 4 SE
decline
Constant 21 9.87 23.9 11.5 17.9 5.45 18.2 5.74 and recovery
GNP 0.223 0.288 0.279 0.284
GDP 0.363 0.697 20.354 0.715
Labor 2 1.92 0.901 2 1.94 0.988 21.77 0.611 21.29 0.644
Inflation 0.07 0.211 2 0.054 0.226 0.162 0.118 0.0961 0.121 129
Crisis 12.2 2.11 11 1.96 7.21 1.15 6.83 1.31
Recovery 10.4 2.25 8.86 1.95 8.43 1.17 8.24 1.22
IFDI-stock 8.63 4.3
IFDI-stock*Crisis 2 3.42 2.13
IFDI-stock*Recovery 2 6.15 * * 2.36
IFDI-flow 3.73 1.57
IFDI-flow*Crisis 2 1.5 1.4
IFDI-flow*Recovery 2 2.89 * 1.53
OFDI-stock 4.02 1.53
OFDI-stock*Crisis 22.6 * * 1.22
OFDI-
stock*Recovery 23.35 * * * 1.14
OFDI-flow 1.09 0.983
OFDI-flow*Crisis 20.507 1.13
OFDI-flow*Recovery 21.65 1.26
Observations 80 80 80 80
AIC 460 463 375 384
R 2 (overall) 0.03 0.04 0.04 0.07
Log likelihood 2 220.91 2 222.31 2178.39 2183.04
Table IV.
Notes: p , 0.05, p , 0.01 and p , 0.001 (two-tailed for non-hypothesized relationships); Combined results from
*p , 0.05, * *p , 0.025 and * * *p , 0.005 (one-tailed for hypothesized relationships) Tables II and III

economic stability at times of crisis and recovery. For these reasons, greater efforts
should be expended to increasing both inward and outward FDI among nations,
including both developed and developing economies, to help promote worldwide
economic development and stability.
In addition to public policy, the reported findings also have important research
implications for international business scholars. Traditionally, the academic literature
has paid more attention and accorded greater importance to international trade than FDI
as a strategic tool to promote national economic prosperity. Export driven economies,
as shown by both the Asian and recent global financial crises, have suffered drastically
from reduced foreign demand and become helpless until the external economic conditions
improve. By contrast, FDI is a more reliable mechanism to help stabilize a crisis-hit
national economy, as revealed by the studys findings discussed earlier. An important
implication for international business scholars is that they need to extend their research
beyond the operations of MNCs to include investigation of MNCs economic impact on
societies, such as that resulting from their FDI activity. This change will not only help
enrich the content of international business research, but also make it more relevant and
utilizable by public-policy decision markers.

Note
1. Hausman tests rejected the null hypothesis that the random effect estimator is consistent.
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(The Appendix follows overleaf.)

Corresponding author
Joseph L.C. Cheng can be contacted at: jlcheng@illinois.edu

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132
MBR

Table AI.
Units and sources of data
Appendix

Variables Units Sources URL

GDP USD (in 100 billions) World Development Indicators (WDI) online www.worldbank.org/data/
database (the World Bank)
GDPPC growth Annual percentage World Development Indicators (WDI) online http://stats.unctad.org/fdi/
database (the World Bank)
GNP USD (in 100 billions) World Development Indicators (WDI) online www.worldbank.org/data/
database (the World Bank)
GNPPC growth Annual percentage World Development Indicators (WDI) online http://stats.unctad.org/fdi/
database (the World Bank)
Inflation Annual percentage World Development Indicators (WDI) online http://stats.unctad.org/fdi/
database (the World Bank)
Labor Total number (in 10 millions) World Development Indicators (WDI) online www.worldbank.org/data/
database (the World Bank)
IFDI-stock USD (in 100 billions) FDI online database (UNCTAD) http://stats.unctad.org/fdi/
IFDI-flow USD (in 10 billions) FDI online database (UNCTAD) http://stats.unctad.org/fdi/
OFDI-stock USD (in 100 billions) FDI online database (UNCTAD) http://stats.unctad.org/fdi/
OFDI-flow USD (in 10 billions) FDI online database (UNCTAD) http://stats.unctad.org/fdi/
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