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Foreign Direct Investment And Its Determinants In The Chilean Case: Single Break Unit Root And Cointegration Analysis

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  • Miguel D. Ramirez

Abstract

This paper examines the major economic and institutional factors underlying the surge in foreign direct investment (FDI) flows to Chile during recent decades. It presents econometric evidence for the 1960-2003 period which indicates that market-based economic reforms and major changes in the institutional-legal status of foreign capital are, in large measure, responsible for the rapid increase in FDI inflows to leading sectors of the Chilean economy. Single break unit root and cointegration analysis suggest that market size, the real exchange rate, the debt-service ratio, the secondary enrollment ratio, physical infrastructure, and institutional reforms such as the elimination of restrictions on profit and dividend remittances and the implementation of a selective debt conversion program are economically significant in explaining the variation in FDI inflows to the country. The paper also addresses the long-term negative effects which rapidly growing profit and dividend remittances may have on the financing of capital formation and the Chilean balance of payments.

Suggested Citation

  • Miguel D. Ramirez, 2011. "Foreign Direct Investment And Its Determinants In The Chilean Case: Single Break Unit Root And Cointegration Analysis," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 11(1).
  • Handle: RePEc:eaa:aeinde:v:11:y:2011:i:1_9
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    Keywords

    Akaike Information Criterion (AIC); Chilean economy; cointegration analysis; error correction model; FDI flows; Granger causality test; Johansen and Juselius test; remittances of profits and dividends; Structural breaks and unit roots; Theil inequality coefficient; Zivot and Andrews one-break unit root test.;

    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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