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Behavioural determinants of Foreign Direct Investment

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  • Pinheiro-Alves, Ricardo

Abstract

The paper presents a behavioural economics approach to foreign direct investment. Starting from the behavioural finance literature, it uses content analysis based on interviews and questionnaires covering 12% of the Portuguese firms with investments abroad. The study presents evidence of several behavioural rules (e.g., herding, cascading, anchoring, overconfidence, mental accounting) in firms’ location decisions that originate a new set of determinants of FDI flows and complement the neo classical paradigm. Moreover, it confirms the Heiner model (1983, 1985, 1989) by showing that the higher is the uncertainty faced by decision makers the more frequent is the use of behavioural rules. The central role of uncertainty helps explaining why FDI flows occur more frequently among developed countries.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 10297.

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Date of creation: 21 Jul 2008
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Handle: RePEc:pra:mprapa:10297

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Keywords: Behavioural; Foreign Direct Investment; Uncertainty;

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Cited by:
  1. Alexandra Tabova, 2013. "Portfolio diversification and the cross-sectional distribution of foreign investment," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 1091, Board of Governors of the Federal Reserve System (U.S.).
  2. Kotov, Denis, 2013. "Behavioral Biases and Corporate Decision Making on Investing Abroad," MPRA Paper 49858, University Library of Munich, Germany.

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