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Economic and Institutional Determinants of FDI in the Chilean Case: An Empirical Analysis, 1960-2014

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  • Miguel D. Ramirez

    (Department of Economics, Trinity College)

Abstract

This paper examines some of the major economic and institutional factors underlying the surge in foreign direct investment (FDI) flows to Chile during the 1990-2014 period. It reports econometric results which suggest that standard economic variables and major changes in the institutional-legal status of foreign capital are, in large measure, responsible for the rapid increase in net FDI inflows to leading sectors of the Chilean economy. Cointegration analysis and error-correction modeling suggest that market size, the real exchange rate, the debt-service ratio, education, physical infrastructure, and the Fraser Institute’s economic freedom index are economically significant in explaining the variation in net FDI inflows to the country. Dummy variables, designed to capture qualitative factors such as the impact of economic crises and institutional reforms, are also included and they have their anticipated signs and are statistically significant. The paper also addresses the long-term negative effects of rapidly growing profit and dividend remittances on the financing of capital formation and the Chilean balance of payments in recent years.

Suggested Citation

  • Miguel D. Ramirez, 2017. "Economic and Institutional Determinants of FDI in the Chilean Case: An Empirical Analysis, 1960-2014," Working Papers 1704, Trinity College, Department of Economics.
    • Handle: RePEc:tri:wpaper:1704
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    File URL: http://www3.trincoll.edu/repec/WorkingPapers2017/WP17-04.pdf
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    References listed on IDEAS

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    1. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    2. Sebastian Edwards, 1999. "How Effective Are Capital Controls?," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 65-84, Fall.
    3. Agosin, Manuel R., 1999. "Trade and growth in Chile," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), August.
    4. Glauco Vita & Kevin Lawler, 2004. "Foreign Direct Investment and its Determinants: A Look to the Past, A View to the Future," Palgrave Macmillan Books, in: Harbhajan S. Kehal (ed.), Foreign Investment in Developing Countries, chapter 1, pages 13-32, Palgrave Macmillan.
    5. Luiz R. de Mello Jr., 1997. "Foreign Direct Investment in Developing Countries: A Selective Survey," Studies in Economics 9701, School of Economics, University of Kent.
    6. Pfeffermann, G.P. & Kisunko, G.V. & Sumlinski, M.A., 1999. "Trends in Private Investment in Developing Countries: Statistics for 1970-97," Papers 37, World Bank - International Finance Corporation.
    7. -, 2007. "Foreign Investment in Latin America and the Caribbean 2006," La Inversión Extranjera Directa en América Latina y el Caribe, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 1133 edited by Eclac, September.
    8. Luiz de Mello, 1997. "Foreign direct investment in developing countries and growth: A selective survey," Journal of Development Studies, Taylor & Francis Journals, vol. 34(1), pages 1-34.
    9. Baumol, William J. & Nelson, Richard R. & Wolff, Edward N. (ed.), 1994. "Convergence of Productivity: Cross-National Studies and Historical Evidence," OUP Catalogue, Oxford University Press, number 9780195083903.
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    Cited by:

    1. Brinda Sooreea-Bheemul & Uzma Shataz Rasool & Rajeev Sooreea, 2020. "Does Economic Freedom Matter to Foreign Direct Investment in Sub-Saharan Africa?," International Journal of Economics and Financial Issues, Econjournals, vol. 10(3), pages 195-207.

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    More about this item

    Keywords

    Chilean economy; cointegration analysis; error correction model; Gross Capital Formation; FDI flows; Granger causality test; Johansen and Juselius test; remittances of profits and dividends; Schwartz Bayesian Criterion (SBC); Theil inequality coefficient; unit roots.;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

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