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Excessive FDI Flows under Asymmetric Information

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Author Info
Razin, A.
Sadka, E.
Yuen, C.-W.

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Abstract

In Razin, Sadka and Yuen (1998, 1999a), we explored the policy implications of the home-bias in international portfolio investment as a result of asymmetric information problems in which domestic savers, being "close" to the domestic market, have an informational advantage over foreign portfolio investors, who are "far away" from the domestic market. However, FDI is different from foreign portfolio investment, concerning relevant information about domestic firms. Through the stationing of managers from the headquarters of multinational firms in the foreign direct establishments in the destination countrie under their control. FDIors can monitor closely the operation of such establishments, thus circumventing these informational problems.

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Publisher Info
Paper provided by Tel Aviv in its series Papers with number 27-99.

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Length: 22 pages
Date of creation: 1999
Date of revision:
Handle: RePEc:fth:teavfo:27-99

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Postal: Israel TEL-AVIV UNIVERSITY, THE FOERDER INSTITUTE FOR ECONOMIC RESEARCH, RAMAT AVIV 69 978 TEL AVIV ISRAEL.
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Related research
Keywords: FINANCIAL MARKET ; INVESTMENTS ; ASYMETRIC INFORMATION;

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Find related papers by JEL classification:
F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Obstfeld, Maurice, 1994. "Risk-Taking, Global Diversification, and Growth," American Economic Review, American Economic Association, vol. 84(5), pages 1310-29, December. [Downloadable!] (restricted)
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  2. Razin, A. & Sadka, E. & Yuen, C.-W., 1998. "An Information-Based Model of Foreign Direct Investment: the Gains from Trade Revisited," Papers 28-98, Tel Aviv.
    Other versions:
  3. Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March. [Downloadable!] (restricted)
  4. Razin, A. & Sadka, E. & Yuen, C.W., 1997. "Implications of the Home Bias: A Pecking Order of Capital Inflows and Corrective Taxation," Papers 32-97, Tel Aviv.
  5. Robert Townsend, 1979. "Optimal contracts and competitive markets with costly state verification," Staff Report 45, Federal Reserve Bank of Minneapolis. [Downloadable!]
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  6. Razin, Assaf & Sadka, Efraim & Yuen, Chi-Wa, 1998. "A pecking order of capital inflows and international tax principles," Journal of International Economics, Elsevier, vol. 44(1), pages 45-68, February. [Downloadable!] (restricted)
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  7. Helpman, Elhanan & Razin, Assaf, 1983. "Increasing returns, monopolistic competition, and factor movements : A welfare analysis," Journal of International Economics, Elsevier, vol. 14(3-4), pages 263-276, May. [Downloadable!] (restricted)
  8. Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 488-500, August. [Downloadable!] (restricted)
  9. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June. [Downloadable!] (restricted)
  10. Borensztein, E. & De Gregorio, J. & Lee, J-W., 1998. "How does foreign direct investment affect economic growth?1," Journal of International Economics, Elsevier, vol. 45(1), pages 115-135, June. [Downloadable!] (restricted)
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  11. Roger H. Gordon & A. Lans Bovenberg, 1994. "Why is Capital so Immobile Internationally?: Possible Explanations and Implications for Capital Income Taxation," NBER Working Papers 4796, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Andreas Hauskrecht & Nhan Le, 2005. "Capital Account Liberalization for a Small, Open Economy," Working Papers 2005-13, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy. [Downloadable!]
  2. Joshua Aizenman & Mark M. Spiegel, 2002. "Institutional Efficiency, Monitoring Costs, and the Investment Share of FDI," NBER Working Papers 9324, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Wezel, Torsten, 2004. "Does co-financing by multilateral development banks increase "risky" direct investment in emerging markets?," Discussion Paper Series 1: Economic Studies 2004,02, Deutsche Bundesbank, Research Centre. [Downloadable!]
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