Which countries export FDI, and how much?

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


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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Available from: Assaf Razin
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    • "Financial support from these institutions is gratefully acknowledged. The views expressed in this paper are strictly those of the authors. 1 A selective list of recent papers that use bilateral FDI data from the OECD but are not specifically limited to Asia are Bénassy-Quéré et al. (2007), Daude and Stein (2004), Head and Ries (2008), Loungani et al. (2002), Razin et al. (2003), and Stein and Daude (2007). 2 The 10 per cent threshold is not always adhered to by all countries. For a detailed overview of the FDI definitions and coverage in selected developing and developed countries, see IMF (2003). "
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