Understanding the dynamics of the global FDI architecture: a network analysis

Understanding Foreign Direct Investments (FDI) networks is crucial for both economic and societal reasons. While FDI can boost growth and development, it can also harm the environment if not properly managed. This paper employs network theory to analyze the evolution of the FDI network. We delve into the topological properties of the FDI network, considering country-to-country aggregate relationships and industry sub-networks. We observe contrasting patterns in node importance, such as an increasing centralization in the aggregate network and a more uniform distribution in industry sub-networks. Furthermore, we examine the presence of core-periphery, revealing an emergent core in the aggregate FDI network and a decreasing core-periphery structure in industry sub-networks over time. Our analysis also uncovers preferential attachment regimes at the aggregate level, influenced by cumulative advantage of early entrants. At industry level, instead, the economic catch-up by latecomers makes new links to be established irrespective of the time firms have entered the market. Finally, to reproduce our empirical findings, we introduce a network-building algorithm grounded on a fitness function, capturing the observed heterogeneity in industry sub-networks.