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A Dynamic Growth Model for Flows of Foreign Direct Investment

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  • Yi-Hui Chiang
  • Yiming Li
  • Chih-Young Hung
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    Abstract

    In this work, we for the first time study the dynamic flows of the foreign direct investment (FDI) with a dynamic growth theory. We define the FDI flow as a process which transmits throughout a given social system by way of diverse communication channels. In model formulation, seven assumptions are thus proposed and the foreign capital policy of the host country is considered as an external influence; in addition, the investment policy of the investing country is modeled as an internal influence. Classification of influences is mainly according to the operational strategy as well as the consideration of economical/financial factors. The dynamic model of FDI flow is a differential equation which is solved numerically and verified with collected realistic data. Application of the developed model to explore, taking the electronics industry in Taiwan as an example, Taiwanese direct investment (TDI) in China (i.e. FDI flows from Taiwan to China) since 2001 is conducted. Our preliminary results successfully account for the dynamics of FDI flow for different amount of TDI outflows. It is found that the internal influence dominates the growth of TDI flow from Taiwan to China during 2001-2006.

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    Bibliographic Info

    Paper provided by DEGIT, Dynamics, Economic Growth, and International Trade in its series DEGIT Conference Papers with number c012_047.

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    Length: 14 pages
    Date of creation: Jun 2007
    Date of revision:
    Handle: RePEc:deg:conpap:c012_047

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    Related research

    Keywords: Foreign direct investment; dynamic flow theory; growth model; and numerical simulation;

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    References

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    1. Rogers, Everett M, 1976. " New Product Adoption and Diffusion," Journal of Consumer Research, University of Chicago Press, vol. 2(4), pages 290-301, March.
    2. Kugler, Maurice & Rapoport, Hillel, 2007. "International labor and capital flows: Complements or substitutes?," Economics Letters, Elsevier, vol. 94(2), pages 155-162, February.
    3. Loungani, Prakash & Mody, Ashoka & Razin, Assaf, 2002. "The Global Disconnect: The Role of Transactional Distance and Scale Economies in Gravity Equations," Scottish Journal of Political Economy, Scottish Economic Society, vol. 49(5), pages 526-43, December.
    4. Caves, Richard E, 1971. "International Corporations: The Industrial Economics of Foreign Investment," Economica, London School of Economics and Political Science, vol. 38(149), pages 1-27, February.
    5. Eduardo Levy Yeyati & Ugo Panizza & Ernesto H. Stein, 2003. "The Cyclical Nature of North-South FDI Flows," IDB Publications 6502, Inter-American Development Bank.
    6. Hooper, Vince & Kim, Suk-Joong, 2007. "The determinants of capital inflows: Does opacity of recipient country explain the flows?," Economic Systems, Elsevier, vol. 31(1), pages 35-48, March.
    7. St├Ęphane Dees, 1998. "Foreign Direct Investment in China: Determinants and Effects," Economic Change and Restructuring, Springer, vol. 31(2), pages 175-194, May.
    8. Brennan, Michael J & Schwartz, Eduardo S, 1985. "Evaluating Natural Resource Investments," The Journal of Business, University of Chicago Press, vol. 58(2), pages 135-57, April.
    9. Jonathan Lee & Peter Boatwright & Wagner A. Kamakura, 2003. "A Bayesian Model for Prelaunch Sales Forecasting of Recorded Music," Management Science, INFORMS, vol. 49(2), pages 179-196, February.
    10. Ting Gao, 2005. "Foreign Direct Investment In China: How Big Are The Roles Of Culture And Geography?," Pacific Economic Review, Wiley Blackwell, vol. 10(2), pages 153-166, 06.
    11. Choi, Jongmoo Jay & Jeon, Bang Nam, 2007. "Financial factors in foreign direct investments: A dynamic analysis of international data," Research in International Business and Finance, Elsevier, vol. 21(1), pages 1-18, January.
    12. Deng, Ping, 2007. "Investing for strategic resources and its rationale: The case of outward FDI from Chinese companies," Business Horizons, Elsevier, vol. 50(1), pages 71-81.
    13. Tuan, Chyau & Ng, Linda F. Y., 2004. "Manufacturing agglomeration as incentives to Asian FDI in China after WTO," Journal of Asian Economics, Elsevier, vol. 15(4), pages 673-693, August.
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    Cited by:
    1. Dinuk Jayasuriya, 2011. "Improvements in the World Bank's Ease of Doing Business Rankings: Do they translate into greater foreign direct investment inflows?," Development Policy Centre Discussion Papers 1108, Development Policy Centre, Crawford School of Public Policy, The Australian National University.

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