Which Countries Export FDI, and How Much?

SSRN Electronic Journal 02/2004; DOI: 10.2139/ssrn.1009013
Source: RePEc

ABSTRACT The paper provides a reconciliation of Lucas' paradox, based on fixed setup costs of new investments. With such costs, it does not pay a firm to make a "small" investment, even though such an investment is called for by marginal productivity conditions. Using a sample of 45 developed and developing countries we estimate jointly the participation equation (the decision whether to invest at all) and the FDI flow equation (the decision how much to invest). We find that countries which are more likely to serve as source for FDI exports than their characteristics project export lower flow of FDI than is predicted by their characteristics. This negative correlation suggests that the source countries with relatively low setup costs are also those with high marginal productivity of capital

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    ABSTRACT: Landlocked developing countries (LLDCs) across regions tend to have higher export costs -as measured by Doing Business indicators-than their coastal neighbors, and attract less FDI. The negative correlation between FDI and trade costs across developing countries may be suggestive of the important role trade costs may play in attracting FDI. Using bilateral data of FDI in a gravity model context, we find a negative and significant impact of export costs on incoming FDI. In regard to the policy agenda, trade facilitation reform to lower trade costs through domestic reform and through regional cooperation may also have an "FDI facilitation" effect.
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    ABSTRACT: The negative relationship between tax rates and FDI is well known. This paper looks at how complexity of the tax system affects FDI. Fulfilling tax requirements can be time‐consuming, and this implies a cost for more complex tax systems. Alternatively, complexity may provide opportunities to reduce the overall tax bill. We find that measures of tax complexity have a significant inhibiting effect on the presence of FDI for a country pair, but have little impact on the level of FDI flows. A 10% reduction in tax complexity is comparable to a one percentage point reduction in effective corporate tax rates.
    Economica 01/2013; 80(317). DOI:10.1111/j.1468-0335.2012.00934.x · 1.15 Impact Factor
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    ABSTRACT: The objective of this paper is to examine the substitution between aid flows and the flows of foreign direct investment (FDI) between in some Heav- ily indebted poor countries. I use data running over 34 years from 1970 to 2004. I analyse this by means of simultaneous equiations system, allowing me to determine the substitutability between foreign direct investment and aid. Due to the small scale of flows, the model is analyzed with an inverse hy- perbolic sine function rather than a logarithmic function. Findings indicate that as the HIPC countries income grows, there is a shift from complemen- tary to substitutional effects between aid flows and FDI.

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