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Determinants of FDI in the Chilean Case: A FMOLS Analysis, 1970-2016

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  • Miguel D. Ramirez

Abstract

This paper examines some of the major economic and institutional determinants of foreign direct investment (FDI) flows to Chile during the 2000s. 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 FDI flows to leading sectors of the Chilean economy. Cointegration analysis in the presence of structural breaks and FMOLS estimates for the 1970-2016 period 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 the stock of net FDI 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, 2022. "Determinants of FDI in the Chilean Case: A FMOLS Analysis, 1970-2016," Applied Economics and Finance, Redfame publishing, vol. 9(4), pages 2235-2235, November.
    • Handle: RePEc:rfa:aefjnl:v:9:y:2022:i:4:p:2235
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    References listed on IDEAS

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    1. Sebastian Edwards, 1999. "How Effective Are Capital Controls?," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 65-84, Fall.
    2. Agosin, Manuel R., 1999. "Trade and growth in Chile," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), August.
    3. 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.
    4. 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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    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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