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Information Technology and Bilateral FDI: Theory and Evidence

  • Jeon, Bang Nam

    ()

    (Drexel University)

  • Tang, Linghui

    ()

    (The University of Southern Mississippi)

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.

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Article provided by Center for Economic Integration, Sejong University in its journal Journal of Economic Integration.

Volume (Year): 20 (2005)
Issue (Month): ()
Pages: 613-630

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Handle: RePEc:ris:integr:0333
Contact details of provider: Web page: http://econo.sejong.ac.kr/
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  1. James R. Markusen, 1995. "The Boundaries of Multinational Enterprises and the Theory of International Trade," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 169-189, Spring.
  2. Richard G. Harris, 1995. "Trade and Communication Costs," Canadian Journal of Economics, Canadian Economics Association, vol. 28(s1), pages 46-75, November.
  3. Markusen, James R., 1984. "Multinationals, multi-plant economies, and the gains from trade," Journal of International Economics, Elsevier, vol. 16(3-4), pages 205-226, May.
  4. James R. Markusen & Anthony J. Venables, 1995. "Multinational Firms and The New Trade Theory," NBER Working Papers 5036, National Bureau of Economic Research, Inc.
  5. 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.
  6. Bruce A. Blonigen & Ronald B. Davies, 2000. "The Effects of Bilateral Tax Treaties on U.S. FDI Activity," NBER Working Papers 7929, National Bureau of Economic Research, Inc.
  7. Toru Kikuchi & Tetsuro Ichikawa, 2002. "Congestible communications networks and international trade," Canadian Journal of Economics, Canadian Economics Association, vol. 35(2), pages 331-340, May.
  8. 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.
  9. Toru Kikuchi, 2003. "Interconnectivity of communications networks and international trade," Canadian Journal of Economics, Canadian Economics Association, vol. 36(1), pages 155-167, February.
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