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Bilateral FDI Flows: Threshold Barriers and Productivity Shocks

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  • Assaf Razin
  • Efraim Sadka
  • Hui Tong

Abstract

A positive productivity shock in the host country tends typically to increase the volume of the desired foreign direct investment (FDI) flows to the host country, through the standard marginal profitability effect. But, at the same time, such a shock may lower the likelihood of making any new FDI flows by the source country, through a total profitability effect, derived from the a general-equilibrium increase in domestic input prices. This is the gist of the theory that we develop in the article. For a sample of 62 OECD and non-OECD countries over the period 1987-2000, we provide supporting evidence for the existence of such conflicting effects of productivity changes on bilateral FDI flows. We also uncover sizeable threshold barriers in our data set. (JEL codes: F2, F3) Copyright , Oxford University Press.

Suggested Citation

  • Assaf Razin & Efraim Sadka & Hui Tong, 2008. "Bilateral FDI Flows: Threshold Barriers and Productivity Shocks," CESifo Economic Studies, CESifo, vol. 54(3), pages 451-470, September.
  • Handle: RePEc:oup:cesifo:v:54:y:2008:i:3:p:451-470
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    Cited by:

    1. Aras Zirgulis, 2014. "Is International Capital Tax Competition Fueled by the Quest for Increased Productivity?," Proceedings of International Academic Conferences 0702435, International Institute of Social and Economic Sciences.
    2. Ayhan Kose, M. & Prasad, Eswar S. & Terrones, Marco E., 2009. "Does openness to international financial flows raise productivity growth?," Journal of International Money and Finance, Elsevier, vol. 28(4), pages 554-580, June.
    3. Alexander Jordan & Alex Lenkoski, 2012. "Tobit Bayesian Model Averaging and the Determinants of Foreign Direct Investment," Papers 1205.2501, arXiv.org.
    4. Guo, Yan, 2013. "Strategic trade policy, cost uncertainty and FDI determinants," ISU General Staff Papers 201301010800004464, Iowa State University, Department of Economics.
    5. Michał Brzozowski, 2013. "Gender Equality as the Determinant of FDI Flows to Central European Countries," Ekonomia journal, Faculty of Economic Sciences, University of Warsaw, vol. 33.
    6. Aisbett, Emma, 2007. "Bilateral Investment Treaties and Foreign Direct Investment: Correlation versus Causation," MPRA Paper 2255, University Library of Munich, Germany.
    7. Garrett, Jinzhuo Z., 2016. "Explaining asymmetries in bilateral FDI flows," International Review of Economics & Finance, Elsevier, vol. 41(C), pages 155-171.
    8. Eicher, Theo S. & Helfman, Lindy & Lenkoski, Alex, 2012. "Robust FDI determinants: Bayesian Model Averaging in the presence of selection bias," Journal of Macroeconomics, Elsevier, vol. 34(3), pages 637-651.
    9. Martina Lawless, 2013. "Do Complicated Tax Systems Prevent Foreign Direct Investment?," Economica, London School of Economics and Political Science, vol. 80(317), pages 1-22, January.
    10. Juliana D. Araujo & Povilas Lastauskas & Chris Papageorgiou, 2017. "Evolution of Bilateral Capital Flows to Developing Countries at Intensive and Extensive Margins," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 49(7), pages 1517-1554, October.
    11. Razin, Assaf & Sadka, Efraim, 2006. "Vying for Foreign Direct Investment: An EU-Type Model of Tax Competition," CEPR Discussion Papers 5511, C.E.P.R. Discussion Papers.
    12. Guntram Wolff, 2007. "Foreign Direct Investment in the Enlarged EU: Do Taxes Matter and to What Extent?," Open Economies Review, Springer, vol. 18(3), pages 327-346, July.
    13. International Monetary Fund, 2010. "FDI Flows to Low-Income Countries; Global Drivers and Growth Implications," IMF Working Papers 10/132, International Monetary Fund.
    14. Markus Leibrecht & Aleksandra Riedl, 2014. "Modeling FDI based on a spatially augmented gravity model: Evidence for Central and Eastern European Countries," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 23(8), pages 1206-1237, December.
    15. Selen Guerin & Stefano Manzocchi, 2009. "Political regime and FDI from advanced to emerging countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 145(1), pages 75-91, April.
    16. Nziramasanga, Mudziviri & Inaba, Frederick S. & Shreay, Sanatan, 2011. "Do Bilateral Investment Treaties Deliver the Goods? Evidence from Developing Countries," Review of Applied Economics, Review of Applied Economics, vol. 7(1-2).
    17. Preeti Flora & Gaurav Agrawal, 2015. "A Co-integration and Causality Analysis of Highest FDI Recipient Asian Economies," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 6(4), pages 1078-1089, December.
    18. Lawless, Martina, 2009. "Tax Complexity and Inward Investment," Research Technical Papers 5/RT/09, Central Bank of Ireland.
    19. Aras Zirgulis, 2014. "Is International Capital Tax Competition Fueled by the Quest for Increased Productivity?," International Journal of Economic Sciences, University of Economics, Prague, vol. 2014(4), pages 99-116.

    More about this item

    JEL classification:

    • F2 - International Economics - - International Factor Movements and International Business
    • F3 - International Economics - - International Finance

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