Article

Bilateral FDI Flows: Threshold Barriers and Productivity Shocks

CESifo Economic Studies (Impact Factor: 0.62). 10/2005; DOI: 10.1093/cesifo/ifn025
Source: RePEc

ABSTRACT A positive productivity shock in the host country tends typically to increase the volume of the desired FDI flows to the host country, through the standard marginal profitability effect. But, at the same time, such a shock may lower the likelihood of making any new FDI flows by the source country, through a total profitability effect, derived from the a general-equilibrium increase in domestic input prices. This is the gist of the theory that we develop in the paper. For a sample of 62 OECD and Non-OECD countries over the period 1987-2000, we provide supporting evidence for the existence of such conflicting effects of productivity change on bilateral FDI flows. We also uncover sizeable threshold barriers in our data set and link the analysis to the Lucas Paradox.

0 Bookmarks
 · 
90 Views
  • Source
    [Show abstract] [Hide abstract]
    ABSTRACT: We introduce the effect of the political regime in a model of North-South bilateral foreign direct investment (FDI), and test whether it matters for the nature of FDI inflows to emerging markets. Alternative political regimes in the host country may affect the incentive for foreign investors to implement horizontal rather than vertical FDI, if the political expropriation risk is different for the two kinds of investment. We test the model in a panel of 14 source countries and 24 host countries over 1992-2004, and find that autocracies are likely to receive relatively more FDI of the vertical type, while democracies are more likely to be associated with horizontal FDI inflows.
    07/2007;
  • Source
    [Show abstract] [Hide abstract]
    ABSTRACT: We investigate the effect of the political regime on bilateral FDI flows from advanced to emerging countries in the period 1992–2004. We control for country size, per capita income and privatization proceeds in the host country, and use a random-effect Tobit model to exploit information from zero entries. Our results suggest that democracy does have a positive effect on the amount and probability of FDI flows from developed to emerging countries. Moreover, we find that the effect of democracy on FDI also works through the total factor productivity channel, not only the political risk one as suggested in the literature.
    Review of World Economics 01/2009; · 0.78 Impact Factor
  • Source
    [Show abstract] [Hide abstract]
    ABSTRACT: The literature on Foreign Direct Investment (FDI) determinants is remarkably diverse in terms of competing theories and empirical results. We utilize Bayesian Model Averaging (BMA) to resolve the model uncertainty that surrounds the validity of the competing FDI theories. Since the structure of existing FDI data is known to induce selection bias, we extend BMA theory to HeckitBMA to address model uncertainty in the presence of selection bias. We then show that more than half of the previously suggested FDI determinants are no longer robust and highlight theories that receive support from the data. In addition, our selection approach allows us to highlight that the determinants of margins of FDI (intensive and extensive) differ profoundly in the data, while FDI theories do not usually model this aspect explicitly.
    Journal of Macroeconomics 11/2011; · 0.50 Impact Factor

Full-text (3 Sources)

View
45 Downloads
Available from
May 30, 2014