Evaluation of public support to outward FDI. An exploratory analysis with an ordered Probit model applied to Portuguese firms

Abstract

Internationalisation has become increasingly important for the vi- ability of business organizations. The engagement of domestic com- panies in international business is regarded as determinant for the competitiveness of developed and developing countries. In the last decade several countries launched public measures to encourage inter- nationalisation through foreign direct investment. Policy makers are increasingly concerned with the role and e ectiveness of such policy schemes. Most research on public support towards internationalisation does not focus on support to FDI but on support to other types of interna- tional activities, like exports. In the eld of outward foreign direct investment (O-FDI hereafter), the role of formal policy of the capital- exporting country to promote O-FDI have been largely neglected. The present paper aims at lling this gap, by providing an empirical analysis on the role of public support upon rms O-FDI projects. The analysis is conducted on data from 87 Portuguese rms that have for- eign direct investment and that have used some type of public support towards internationalisation. This is (one of) the rst attempts to develop an empirical evaluation of the role of public policy for rms outward internationalisation ex- ploiting the availability of detailed information collected through ques- tionnaires.To study the issue is challenging also from a methodological perspec- tive, as there is an increasingly perceived need for improving and de- veloping adequate methodologies for public policy evaluation. The re- sults, overall, show a low use of the measures by rms. However, when using public support, rms considered it to have been important-to- essential for their outward investment. The econometric results, stem- ming from an ordered probit model, reveal that the importance of the measures depends mainly on rm internal competencies, being them less important for rms with stronger ownership advantages (larger, older, higher int. experience). From our results we derive policy implications and conclude that there is a need and ample scope for further research on measuring and assess- ing the e ectiveness of home country policy measures towards O-FDI.