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Outward foreign direct investment and sovereign risks in developing host country

Author

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  • Chen, Feiqiong
  • Zhong, Fangfang
  • Chen, Yao

Abstract

Outward foreign direct investment can affect developing, technology-receiving host countries mainly through tax revenue, technology spillover and the competition effect. With the consideration of these three effects of the outward foreign direct investment on host country, we develop a dynamic game model of interaction between foreign investors and host country from a dynamic perspective, to reveal the dynamic evolution mechanism of the sovereign risk faced by outward foreign direct investment. The result shows that: host governments usually give a specific tax holiday for outward foreign direct investors, and during the period of tax holiday investment decision of investors would be influenced by technology spillover effect, specifically, the greater the technology spillover the slower the growth of investment stock. Once the system reaches a stable state, the host country will impose a tax on multinational corporations. If the equilibrium tax rate of industries or regions which makes it easy to obtain technology spillover is high, then the equilibrium capital stock would be low.

Suggested Citation

  • Chen, Feiqiong & Zhong, Fangfang & Chen, Yao, 2014. "Outward foreign direct investment and sovereign risks in developing host country," Economic Modelling, Elsevier, vol. 41(C), pages 166-172.
    • Handle: RePEc:eee:ecmode:v:41:y:2014:i:c:p:166-172
    DOI: 10.1016/j.econmod.2014.05.011
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    References listed on IDEAS

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    2. Hui Wang & Xin Zhong, 2023. "An Empirical Study on the Impact of Chinese OFDI on the Global Value Chain Positions of Countries Along the Belt and Road and Threshold Effects," SAGE Open, , vol. 13(1), pages 21582440231, February.
    3. Zhu, Sheng & Wang, Tong-Yu & Xie, Wen-Jie & Zhou, Wei-Xing, 2025. "Revealing intrinsic communities in the international foreign direct investment networks through their backbones," Chaos, Solitons & Fractals, Elsevier, vol. 199(P2).
    4. Nádia Campos Pereira Bruhn & Juciara Nunes de Alcântara & Dany Flávio Tonelli & Ricardo Pereira Reis & Luiz Marcelo Antonialli, 2016. "Why Firms Invest Abroad? A Bibliometric Study on OFDI Determinants from Developing Economies," Global Business Review, International Management Institute, vol. 17(2), pages 271-302, April.

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