An Information-Based Model of Foreign Direct Investment: the Gains from Trade Revisited
AbstractForeign direct investment (FDI) is observed to be a predominant form of capital flows to emerging economies, especially when they are liquidity-constrained internationally during a global financial crisis. The financial aspects of FDI are the focus of the paper. We analyze the problem of channeling domestic savings into productive investment in the presence of asymmetric information between the managing owners of firms and the other portfolio stakeholders. We explore the role played by FDI in reviving equity-financed capital investment for economies plagued by such information problems. In the presence of information asymmetry, the paper identifies how, however, FDI gives rise to foreign overinvestment as well as domestic undersaving.
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Bibliographic InfoPaper provided by Tel Aviv in its series Papers with number 28-98.
Length: 31 pages
Date of creation: 1998
Date of revision:
Contact details of provider:
Postal: Israel TEL-AVIV UNIVERSITY, THE FOERDER INSTITUTE FOR ECONOMIC RESEARCH, RAMAT AVIV 69 978 TEL AVIV ISRAEL.
Web page: http://econ.tau.ac.il/research/foerder.asp
More information through EDIRC
CAPITAL FLOWS ; INVESTMENTS ; ECONOMIC INTEGRATION;
Other versions of this item:
- Assaf Razin & Efraim Sadka & Chi-Wa Yuen, 1999. "An Information-Based Model of Foreign Direct Investment: The Gains from Trade Revisited," International Tax and Public Finance, Springer, vol. 6(4), pages 579-596, November.
- Assaf Razin & Efraim Sadka & Chi-Wa Yuen, 1999. "An Information-Based Model of Foreign Direct Investment: The Gains from Trade Revisited," NBER Working Papers 6884, National Bureau of Economic Research, Inc.
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
- F30 - International Economics - - International Finance - - - General
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
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