Extracting the hierarchical backbone of foreign direct investment networks

Foreign direct investment (FDI) has been identified as a significant catalyst for promoting global economic integration, facilitating economic growth, technology transfer, and the efficient allocation of resources. Extensive research has highlighted that the flows of FDI are influenced by a multitude of determinants, including market size, labor costs, cultural and historical factors, and the institutional framework. Utilizing complex network theory, we extracted the backbone of the global FDI network and elucidate its hierarchical attributes. We then integrated the distinctive characteristics of various economies and their interrelationships to further examine the coherence of the hierarchical structure. The results indicate that economies within the Asia-Pacific region exhibit a higher degree of connectivity compared to other regions, with the most pronounced subgroups within the hierarchical stratification. Conversely, while the economies of the Americas are comparatively less connected overall, their hierarchical configuration remains relatively well defined, possibly reflecting differences in regional economic development and the intensity of international linkages. The findings offer new insights for policymakers and risk analysts and underscore the necessity for future research to explore the dynamic evolution of FDI networks and the mechanisms of risk propagation within their hierarchical constructs.