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Foreign Direct Investment in Brazil and Home Country Risk

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  • Luís Francisco Aguiar-Conraria

    ()
    (Universidade do Minho - NIPE)

  • Gulamhussen, Mohamed Azzim

    (ISCTE BUSINESS SCHOOL)

Abstract

This study looks into the factors that explain foreign direct investment in Brazil by country of origin of investment. Based on a sample of more than 100 countries that invested and have not yet invested in Brazil, multiple estimation techniques, such as the Tobit, Heckit and Probit, are used to isolate the effect of country risk on outward foreign direct investment. In sharp contrast to the findings of previous studies on the effect of home country risk on foreign investment in the United States, the findings in this paper reveal that less risky countries invest more in Brazil. These results are controlled for size of the home country, distance, trade intensity and previous investments abroad. A simple out of sample check shows that the model correctly predicts probability of investing for a large number of countries. The existing literature does not document these results.

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Bibliographic Info

Paper provided by NIPE - Universidade do Minho in its series NIPE Working Papers with number 7/2006.

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Date of creation: 2006
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Handle: RePEc:nip:nipewp:7/2006

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Keywords: Foreign Direct Investment; Country Risk; Tobit and Heckit Estimation;

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  1. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
  2. James Tobin, 1956. "Estimation of Relationships for Limited Dependent Variables," Cowles Foundation Discussion Papers 3R, Cowles Foundation for Research in Economics, Yale University.
  3. Hubert Janicki & Phanindra Wunnava, 2004. "Determinants of foreign direct investment: empirical evidence from EU accession candidates," Applied Economics, Taylor & Francis Journals, vol. 36(5), pages 505-509.
  4. Suhejla Hoti & Michael McAleer, 2004. "An Empirical Assessment of Country Risk Ratings and Associated Models," Journal of Economic Surveys, Wiley Blackwell, vol. 18(4), pages 539-588, 09.
  5. Robert Grosse & Len J Trevino, 1996. "Foreign Direct Investment in the United States: An Analysis by Country of Origin," Journal of International Business Studies, Palgrave Macmillan, vol. 27(1), pages 139-155, March.
  6. Eaton, Jonathan & Gersovitz, Mark & Stiglitz, Joseph E., 1986. "The pure theory of country risk," European Economic Review, Elsevier, vol. 30(3), pages 481-513, June.
    • Jonathan Eaton & Mark Gersovitz & Joseph E. Stiglitz, 1991. "The Pure Theory of Country Risk," NBER Chapters, in: International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, pages 391-435 National Bureau of Economic Research, Inc.
  7. Le, Quan Vu & Zak, Paul J., 2006. "Political risk and capital flight," Journal of International Money and Finance, Elsevier, vol. 25(2), pages 308-329, March.
  8. Stephen B Tallman, 1988. "Home Country Political Risk and Foreign Direct Investment in the United States," Journal of International Business Studies, Palgrave Macmillan, vol. 19(2), pages 219-234, June.
  9. Jose Brandao de Brito & Felipa de Mello Sampayo, 2005. "The timing and probability of FDI: an application to US multinational enterprises," Applied Economics, Taylor & Francis Journals, vol. 37(4), pages 417-437.
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Cited by:
  1. Katarína Čulková & Katarína Teplická, 2013. "Contribution Of Foreign Direct Investment For The Region Development," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 1, pages 19-27, February.

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