A positive productivity shock in the host country tends typically to increase the volume of the desired FDI flows to the host country, through the standard marginal profitability effect. But, at the same time, such a shock may lower the likelihood of making any new FDI flows by the source country, through a total profitability effect, derived from the a general-equilibrium increase in domestic input prices. This is the gist of the theory that we develop in the paper. For a sample of 62 OECD and Non-OECD countries over the period 1987-2000, we provide supporting evidence for the existence of such conflicting effects of productivity change on bilateral FDI flows. We also uncover sizeable threshold barriers in our data set and link the analysis to the Lucas Paradox.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
11639.
Length: Date of creation: Sep 2005 Date of revision: Handle: RePEc:nbr:nberwo:11639
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Find related papers by JEL classification: F2 - International Economics - - International Factor Movements and International Business F3 - International Economics - - International Finance
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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.:
Barry Eichengreen & Douglas A. Irwin, 1998.
"The Role of History in Bilateral Trade Flows,"
NBER Chapters,
in: The Regionalization of the World Economy, pages 33-62
National Bureau of Economic Research, Inc.
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