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Information Technology and Bilateral FDI: Theory and Evidence

Author

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  • Jeon, Bang Nam

    () (Drexel University)

  • Tang, Linghui

    () (The University of Southern Mississippi)

Abstract

This paper investigates the impact of communication cost on the FDI activities of multinational corporations (MNCs). First, we provide a theoretical foundation for a gravity-type FDI model, which shows that physical distance and communication technology are important determinants of FDI activities. Second, we apply the ITaugmented gravity model to bilateral FDI data for a total of 47 OECD and non- OECD countries from 1980 to 1997 and find that distance is negatively related to inward FDI stocks while the growth of IT, measured by teledensity and celldensity, has encouraged FDI significantly. The impact is found to be more prominent on FDI from G7 countries to OECD countries, than to non-OECD countries, and more prominent in the 1990s than in the 1980s. Moreover, IT plays a more effective role by reducing communication cost when distance is beyond a threshold range.

Suggested Citation

  • Jeon, Bang Nam & Tang, Linghui, 2005. "Information Technology and Bilateral FDI: Theory and Evidence," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 20, pages 613-630.
  • Handle: RePEc:ris:integr:0333
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    References listed on IDEAS

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    1. David L. Carr & James R. Markusen & Keith E. Maskus, 2001. "Estimating the Knowledge-Capital Model of the Multinational Enterprise," American Economic Review, American Economic Association, vol. 91(3), pages 693-708, June.
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    5. Bruce A. Blonigen & Ronald B. Davies, 2004. "The Effects of Bilateral Tax Treaties on U.S. FDI Activity," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 11(5), pages 601-622, September.
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    9. Nam Jeon , Bang & F. Stone , Susan, 2000. "Foreign Direct Investment and Trade in the Asia-Pacific Region: Complementarity, Distance and Regional Economic Integration," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 15, pages 460-485.
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    Cited by:

    1. KARGI, Bilal, 2014. "Portfolio in Turkish Economy, and A Long Termed Relation Between Foreign Direct Investments and The Growth, and The Structural Breakage Analysis (1980-2012)," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 70-81.
    2. Francisco Callado-Muñoz & Jana Hromcová & Natalia Utrero-González, 2014. "Openness and Technology Diffusion in Payment Systems: The Case of NAFTA," Computational Economics, Springer;Society for Computational Economics, vol. 43(4), pages 497-519, April.

    More about this item

    Keywords

    Communication cost; FDI; Distance;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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