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Home market determinants of FDI outflows from developing and transition economies

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  • Kayam, Saime Suna

Abstract

Outward foreign direct investments (FDI) from developing countries and transition economies have picked up in the last decade. This study examines the home country factors that determine the outward foreign investments from 65 developing and transition countries in the period 2000-2006. The main hypothesis tested is that the small market size, trade conditions, costs of production and local business conditions are the main drivers of outward FDI. In order to examine the effects of these factors, the fixed effects estimation technique is employed using variables that measure income, trade, infrastructure, labour market conditions and economic stability. Proxies for the institutional environment such as bureacracy, corruption, investment risk are also used to reflect both the political and economic push factors on FDI. The preliminary findings reveal that outward FDI from developing countries increases with foreign competition in the domestic market augmented by inward FDI. As government stability, investment profile and bureaucracy quality in the home country improves, outflows of capital decreases. In other words, developing country transnational corporations are formed as a result of escape response from the economic and political conditions in the home countries.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 16781.

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Date of creation: Jun 2009
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Handle: RePEc:pra:mprapa:16781

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Keywords: outward FDI; push factors; developing countries;

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  1. Mihir A. Desai & C. Fritz Foley & James R. Hines Jr., 2005. "Foreign Direct Investment and the Domestic Capital Stock," American Economic Review, American Economic Association, vol. 95(2), pages 33-38, May.
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Cited by:
  1. Dogru, Bülent, 2012. "Effect of judıcıal independence to FDI into Eastern Europea and South Asia," MPRA Paper 40471, University Library of Munich, Germany.
  2. dogru, bulent, 2012. "The effect of instıtutıonal varıables on fdi inflows: Evidence from upper-middle income countries," MPRA Paper 37531, University Library of Munich, Germany.

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