Re-examining Dunning’s investment development path: the contingent effect of adaptability and home-country institutions on OFDI from emerging economies

Purpose

This paper aims to examine the role of home country institutions and firm adaptability in enhancing outward foreign direct investment (OFDI) from emerging economies. This paper first considers the direct effects of firm adaptability and home country institutions. This paper then examines whether and how the strength of home country institutions moderates the effect of firm adaptability.

Design/methodology/approach

The paper opted for a quantitative research design using panel data analysis of 36 countries over 27 years, employing the random effects generalised least squares estimator.

Findings

The paper provides empirical evidence suggesting that adaptability increases OFDI. However, it also finds that home-country institutions negatively moderate the effect of adaptability on OFDI from emerging economies.

Research limitations/implications

The findings suggest that governments of emerging economies should be aware that institutional reforms alone do not increase OFDI. Instead, it is the ability of firms to develop both non-traditional and traditional ownership advantages (OAs) that enhances OFDI. A limitation is that this study uses aggregate data, which does not account for differences between the home and host country institutions, which is possible using bilateral flows of FDI.

Practical implications

The paper includes implications for institutional reforms in emerging economies and their impact on the importance of non-traditional OAs of emerging market firms.

Originality/value

This paper shows that the adaptability of emerging market firms is positively related to OFDI. However, this paper shows that the strengthening of home-country institutions reduces EMNEs’ reliance on adaptability as a non-traditional OA.