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FDI from the South: the Role of Institutional Distance and Natural Resources

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  • Mariya Aleksynska
  • Olena Havrylchyk

Abstract

This study explores location choices for investors stemming from emerging economies (often referred to as the South), with a particular emphasis on institutions and natural resources. Relying on a novel dataset of bilateral FDI flows between 1996 and 2007, we demonstrate that FDI from the South has a more regional aspect than investment stemming from the North. Institutional distance has an asymmetric effect on FDI depending on whether investors choose countries with better or worse institutions. In the latter case, a large institutional distance between source and destination countries discourages FDI inflows, but the growing attractiveness of the primary sector outweighs this deterring effect for emerging investors. We also attest to the complementary relationship between capital flows from the North and South in developing recipient countries, which we attribute to different FDI patterns of these investors.

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Paper provided by CEPII research center in its series Working Papers with number 2011-05.

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Date of creation: Mar 2011
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Handle: RePEc:cii:cepidt:2011-05

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Keywords: Foreign direct investment; South-South; developing countries; institutions; crowding-in; natural resources;

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Citations

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Cited by:
  1. Desbordes, Rodolphe & Darby, Julia & Wooton, Ian, 2011. "Institutional Quality and FDI to the South An Analytical Approach," SIRE Discussion Papers 2011-70, Scottish Institute for Research in Economics (SIRE).
  2. Lucia Pérez-Villar & Adnan Seric, 2014. "Multinationals in Sub-Saharan Africa: Domestic Linkages and Institutional Distance," Kiel Working Papers 1893, Kiel Institute for the World Economy.
  3. Asongu, Simplice & Nguena, Christian, 2014. "Equitable and Sustainable Development of Foreign Land Acquisitions: what have we learnt on policy syndromes and implications?," MPRA Paper 56808, University Library of Munich, Germany.
  4. Amighini, Alessia A. & Franco, Chiara, 2013. "A sector perspective on Chinese outward FDI: The automotive case," China Economic Review, Elsevier, vol. 27(C), pages 148-161.
  5. Ledyaeva, Svetlana & Karhunen, Päivi & Kosonen, Riitta, 2013. "Birds of a feather: Evidence on commonality of corruption and democracy in the origin and location of foreign investment in Russian regions," European Journal of Political Economy, Elsevier, vol. 32(C), pages 1-25.
  6. Ashby, Nathan J. & Ramos, Miguel A., 2013. "Foreign direct investment and industry response to organized crime: The Mexican case," European Journal of Political Economy, Elsevier, vol. 30(C), pages 80-91.
  7. Burger, Martijn J. & Ianchovichina, Elena I., 2014. "Surges and stops in FDI flows to developing countries : does the mode of entry make a difference ?," Policy Research Working Paper Series 6771, The World Bank.

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