Determinants of Foreign Direct Investment in Cambodia: Country-Specific Factor Differentials
AbstractMultinational Companies (MNCs) serve foreign markets by exporting to, by licensing or by engaging in international production in the host countries. Cambodia has become the destination of foreign direct investment (FDI) after its first-ever general elections in 1993. Based on approved foreign-invested projects, the majority of Cambodia’s inward FDI came from Asian neighboring countries, in particular, Malaysia, Taiwan, and China, which together accounted for about 60% of the total. The United States is the fourth largest investor in Cambodia. Cuyvers et al. (2006) provide an overview of inward FDI trends in Cambodia over the period 1994-2004. This paper seeks to uncover factors influencing inward FDI in Cambodia by empirically studying its economic and geographic as well as political determinants. Panel data analysis is used to investigate the factors affecting both approved FDI and realized FDI in the Kingdom of Cambodia during 1995-2005. Investment decisions are made by the foreign investors after having compared the factors affecting their locational decisions between the home country and the potential host countries. Therefore, relative data, rather than absolute ones, are used. A better understanding of the meanings of these factors which determine the inflows of FDI, both approved and realized, should be useful for policy recommendation and implementation. This paper is organized as follows. Section 2 reviews the relevant literature and outlines the hypotheses formulation. Section 3 presents a stochastic economic model. The discussion about the data takes place in section 4. The estimation methodology and estimation results are presented in sections 5 and 6, respectively. Section 7 concludes.
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- NEP-DEV-2008-04-12 (Development)
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