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Economic Development and the Direction of FDI Flows

Author

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  • Gomtsyan David

    (Collegio Carlo Alberto, University of Turin, Via Real Collegio 30, Moncalieri, Italy)

Abstract

Evidence suggests that advanced economies make and attract relatively more FDI as a share of GDP than developing countries. Comparing the composition of international liabilities across countries the paper argues that higher risks and regulatory barriers in developing countries are the primary reasons behind the relatively lower levels of FDI liabilities to GDP in developing countries. The paper uses a model with heterogeneous multinational firms to explain this empirical observations. In the model developed countries make relatively more FDI because the average productivity of firms in these countries is higher, thus there are relatively more firms with sufficiently high productivity levels, that can profitably enter into foreign markets.

Suggested Citation

  • Gomtsyan David, 2016. "Economic Development and the Direction of FDI Flows," Global Economy Journal, De Gruyter, vol. 16(1), pages 91-112, March.
    • Handle: RePEc:bpj:glecon:v:16:y:2016:i:1:p:91-112:n:7
    DOI: 10.1515/gej-2015-0039
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    References listed on IDEAS

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    1. Thomas J. Holmes & Ellen R. McGrattan & Edward C. Prescott, 2015. "Quid Pro Quo: Technology Capital Transfers for Market Access in China," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 82(3), pages 1154-1193.
    2. Ramondo, Natalia, 2014. "A quantitative approach to multinational production," Journal of International Economics, Elsevier, vol. 93(1), pages 108-122.
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    Keywords

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    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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