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Determinants of Foreign Direct Investment

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  • Jiangyan Yu
  • James P Walsh
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    Abstract

    Using a dataset which breaks down FDI flows into primary, secondary and tertiary sector investments and a GMM dynamic approach to address concerns about endogeneity, the paper analyzes various macroeconomic, developmental, and institutional/qualitative determinants of FDI in a sample of emerging market and developed economies. While FDI flows into the primary sector show little dependence on any of these variables, secondary and tertiary sector investments are affected in different ways by countries’ income levels and exchange rate valuation, as well as development indicators such as financial depth and school enrollment, and institutional factors such as judicial independence and labor market flexibility. Finally, we find that the effect of these factors often differs between advanced and emerging economies.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 10/187.

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    Length: 27
    Date of creation: 01 Aug 2010
    Date of revision:
    Handle: RePEc:imf:imfwpa:10/187

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    Related research

    Keywords: Foreign direct investment; Developing countries; Economic models; Emerging markets; Gross domestic product; fdi; direct investment; investors; investment decisions; host country; foreign investment; foreign companies; foreign investors; macroeconomic stability; host countries; international finance; institutional development; international investors; investment flows; international investment; market size; international trade; multinational enterprise; host economy; foreign markets; direct foreign investment; foreign technology; manufacturing direct foreign investment; investment location decisions; multinational enterprises; regulatory framework; multinational firms; global capital;

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    References

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    1. Ewe-Ghee Lim, 2001. "Determinants of, and the Relation Between, Foreign Direct Investment and Growth," IMF Working Papers 01/175, International Monetary Fund.
    2. Eduardo Borensztein & Jose De Gregorio & Jong-Wha Lee, 1995. "How Does Foreign Direct Investment Affect Economic Growth?," NBER Working Papers 5057, National Bureau of Economic Research, Inc.
    3. Bruce Blonigen, 2005. "A Review of the Empirical Literature on FDI Determinants," Atlantic Economic Journal, International Atlantic Economic Society, International Atlantic Economic Society, vol. 33(4), pages 383-403, December.
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    Cited by:
    1. Elif Arbatli, 2011. "Economic Policies and FDI Inflows to Emerging Market Economies," IMF Working Papers 11/192, International Monetary Fund.
    2. Bilgili, Faik & Tülüce, Nadide Sevil Halıcı & Doğan, İbrahim, 2012. "The determinants of FDI in Turkey: A Markov Regime-Switching approach," Economic Modelling, Elsevier, Elsevier, vol. 29(4), pages 1161-1169.
    3. Dong He & Lillian Cheung & Wenlang Zhang & Tommy Wu, 2012. "How would Capital Account Liberalization Affect China's Capital Flows and the Renminbi Real Exchange Rates?," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 20(6), pages 29-54, November.
    4. John Anyanwu, 2011. "Working Paper 136 - Determinants of Foreign Direct Investment Inflows to Africa, 1980-2007," Working Paper Series, African Development Bank 327, African Development Bank.
    5. 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, Development Policy Centre, Crawford School of Public Policy, The Australian National University 1108, Development Policy Centre, Crawford School of Public Policy, The Australian National University.
    6. Paulo Júlio & Ricardo Pinheiro-Alves & José Tavares, 2011. "FDI and institutional reform in Portugal," GEE Papers, Gabinete de Estratégia e Estudos, Ministério da Economia e da Inovação 0040, Gabinete de Estratégia e Estudos, Ministério da Economia e da Inovação, revised Sep 2011.
    7. World Bank, 2013. "Trends and Determinants of Foreign Direct Investment in South Asia," World Bank Other Operational Studies 16522, The World Bank.
    8. Jayasuriya, Dinuk, 2011. "Improvements in the World Bank's ease of doing business rankings : do they translate into greater foreign direct investment inflows ?," Policy Research Working Paper Series 5787, The World Bank.
    9. Diego Bastourre & Luis Casanova & Alejo Espora, 2011. "Tipo de Cambio Real y Crecimiento: Síntesis de la Evidencia y Agenda de Investigación," Department of Economics, Working Papers 082, Departamento de Economía, Facultad de Ciencias Económicas, Universidad Nacional de La Plata.

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