Political and productive capacity characteristics as outward foreign direct investment push factors from BRICS countries

Abstract

This paper investigates the primary push factors that constitute home country-specific characteristics of Brazil, Russia, India, China, and South Africa (BRICS) and enhance their abilities as emerging market economies to engage in outward foreign direct investments (OFDI). The motivation behind this study was the need to fill the gap in the existing literature on the push factors from BRICS. A panel autoregressive distributed lag model was employed on these countries from 2000 to 2018, followed by an impulse response function analysis using a unique data set from a productive capacity index (PCI) and a derived index obtained from each country’s political risk ranking. A robust relationship was detected between OFDI and all of its short- and long-term push factors. The results reveal the relative strength of the long-term impact of the productive capacity and political stability indices supported by the divergent effect of their shocks on OFDI. This substantial contribution highlights the policy implication of how governments should promote their productive capacity and political stability to sustain a healthy investment environment for firms to expand their investments abroad.