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The usefulness of private and public information for foreign investment decisions

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  • Mody, Ashoka
  • Yuko Kinoshita

Abstract

Using a specially designed survey of Japanese firms planning investments in Asia, the authors emphasize the importance of privately held information in making foreign investment decisions. Information on operating conditions based on direct experience in a country is likely to be the most credible information, but for investors new to a country, information inferred from observing others investing in that country may be more influential. Initially, in fact, observing the actions of competitors seems to lead to cascading investments in that country, apparently through herd behavior (as in China and Vietnam). Countries which do not draw a critical mass of investors are in danger of being bypassed for significant periods. Publicly available information is important in helping shape average perceptions about a country,leading potential investors to view particular locations favorably. Privately held information complements that pubic information, and accounts for important variations in investment plans. Subjective perceptions about policy on foreign direct investments are also important. Policy designed to attract investors -for example, special zones for foreign investors- have been successful in many instances, especially in East Asia, but have also been a waste of scarce investment resources when not appropriately planned. And such policy is of little value in attracting those already investing in a country, or those who already perceive rivals to be active there.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1733.

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Date of creation: 28 Feb 1997
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Handle: RePEc:wbk:wbrwps:1733

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Related research

Keywords: International Terrorism&Counterterrorism; Environmental Economics&Policies; Labor Policies; ICT Policy and Strategies; Decentralization; Environmental Economics&Policies; International Terrorism&Counterterrorism; ICT Policy and Strategies; Financial Intermediation; General Technology;

References

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  1. Head, Keith & Ries, John & Swenson, Deborah, 1995. "Agglomeration benefits and location choice: Evidence from Japanese manufacturing investments in the United States," Journal of International Economics, Elsevier, Elsevier, vol. 38(3-4), pages 223-247, May.
  2. Wheeler, David & Mody, Ashoka, 1992. "International investment location decisions : The case of U.S. firms," Journal of International Economics, Elsevier, Elsevier, vol. 33(1-2), pages 57-76, August.
  3. Ashoka Mody & Krishna Srinivasan, 1998. "Japanese and United States Firms as Foreign Investors: Do they march to the same tune?," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 31(4), pages 778-799, November.
  4. Scharfstein, David. & Stein, Jeremy C., 1988. "Herd behavior and investment," Working papers, Massachusetts Institute of Technology (MIT), Sloan School of Management WP 2062-88., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  5. Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992. "A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 100(5), pages 992-1026, October.
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Citations

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Cited by:
  1. Noorbakhsh, Farhad & Paloni, Alberto & Youssef, Ali, 2001. "Human Capital and FDI Inflows to Developing Countries: New Empirical Evidence," World Development, Elsevier, Elsevier, vol. 29(9), pages 1593-1610, September.
  2. World Bank, 2005. "Financing Information and Communication Infrastructure Needs in the Developing World : Public and Private Roles," World Bank Publications, The World Bank, number 7491, August.
  3. Peter Rowland, . "Buyback of Colombian Sovereign Debt," Borradores de Economia 331, Banco de la Republica de Colombia.
  4. Barry Eichengreen & Ashoka Mody, 1998. "What Explains Changing Spreads on Emerging-Market Debt: Fundamentals or Market Sentiment?," NBER Working Papers 6408, National Bureau of Economic Research, Inc.
  5. Yuko Kinoshita, 2001. "Firm Size and Determinants of Foreign Direct Investment," Industrial Organization, EconWPA 0012006, EconWPA.
  6. Peter Rowland, 2004. "The Colombian Sovereign Spread And Its Determinants," BORRADORES DE ECONOMIA 003572, BANCO DE LA REPÚBLICA.
  7. Peter Rowland, 2005. "Buyback Of Colombian Sovereign Debt," BORRADORES DE ECONOMIA 002073, BANCO DE LA REPÚBLICA.

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