Which Countries Export FDI, and How Much?

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: Using cross-country time series data for the period 1989–2001 we analyze the Canadian and United States' outward FDI and export performances, particularly to China and India. Casual examination of data may suggest that Canada is underperforming in its exports and FDI to China, but results from our econometric model do not support that conclusion. We found that Canada's FDI in India is lower than that predicted by the model. Interestingly, while the evidence that investors from the United States tend to invest more in the growing economies is quite strong, it is weak in the case of Canada. Although in-depth research is necessary to understand these differences, it is plausible that there are mismatches between the areas where investment opportunities are available in the fastest-growing parts of the world such as China and India, and the areas in which Canadians have comparative advantage. For example, financial services and mining constitute a big share in Canadian FDI abroad but these sectors are yet to be opened up in China and India. The U.S. FDI base is more diversified and better able to take advantage of the increased opportunities in fast-growing countries such as China and India.
    The International Trade Journal 09/2011; 25(4):465-512.
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    ABSTRACT: We study the distributional effects of globalization within a model of heterogeneous agents where both managerial talent and knowledge of the local economic environment are required in order to become a successful entrepreneur. Agents willing to set up a firm abroad incur a learning cost that depends on how different the foreign and domestic entrepreneurial environments are. In this context, we show that globalization fosters FDI and raises wages, output and productivity. However, not everybody wins. The steady state relationship between globalization and income is U-shaped: high- and low-income agents are better off in a globalized world, while middle-income agents (domestic entrepreneurs) are worse off. Thus, consistently with recent empirical evidence, the model predicts globalization to increase inequality at the top of the income distribution while decreasing it at the bottom.
    Journal of International Economics 09/2011; 85(1):86-101. · 1.73 Impact Factor
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    ABSTRACT: Purpose – The purpose of this paper is to seek a clearer understanding of how firms involved in power intensive industries participate in foreign direct investment. The paper asks the following questions: how skilled are the employees available for hire? What kind of pollution restrictions will be applied to the plant? Is the infrastructure in place to enable free transport of the necessary materials? All of these are factors that can be analyzed on a national level, and are major factors in government policy. Design/methodology/approach – The research is designated to explain how macro policy can be directed towards firms in the power intensive industry, to impact the competitiveness within the industry. Skilled labor differences is reflecting governmental policy in its willingness to contribute to education. Infrastructure can be viewed as an indicator for long-term policy planning by the government. The pollution variable reflects on macro policy emphasis by governments, by presenting their emission targets. Investment cost variable gives indication of government policy concerning the ease with which foreign investors can enter into and invest in a particular country. The case country is Iceland, an isolated island that is unable to export its abundance directly and therefore must do so through foreign direct investment. Findings – The findings indicate that source countries are attracted by the level of skill in Iceland at the beginning stage of operations when faced with fixed threshold cost. Once the plants have overcome fixed costs, there are positive impacts on marginal investment, the more skilled the source country is compared to the host. Other factors that proved to be important in this case study are distance, infrastructure, government stability, pollution quotas, and the fishing resource. Originality/value – The relative friendliness a country's policies display towards an industry can make a huge difference when it comes to how successful a business can be, so studying these national-level policies can help an individual determine what kind of direction to take on the day-to-day operational decisions.
    International Journal of Energy Sector Management 04/2012; 6(1):91-119.

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