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Private information for foreign investment in emerging economies

Author

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  • Yuko Kinoshita
  • Ashoka Mody

Abstract

In previous studies it has been found that new foreign investment is significantly related to the stock of existing investment in the country/region. This paper's contribution is the finding that a Japanese firm's new investment in an emerging economy is positively correlated with its own previous investment in that economy and also with the current/planned investments by competitors. These two channels are primarily substitutes; that is, investment by competitors becomes less salient when the firm has experience in the market. The correlated behaviour is not explained by industrial agglomerations but appears to reflect the value of private information to investment in emerging economies. Information privée et investissement étranger dans les économies en émergence. Des travaux antérieurs ont montré que les nouveaux investissements à l'étranger sont co‐reliés de manière significative à la taille du stock d'investissement étranger dans le pays ou la région. La contribution de ce mémoire porte sur le fait qu'un nouvel investissement d'une entreprise japonaise dans une économie en émergence est co‐relié positivement avec son propre niveau antérieur d'investissement dans cette économie mais aussi avec le niveau des investissements présents et anticipés de ses concurrents. Ces deux canaux d'information sont des substituts: le niveau d'investissement par les concurrents devient moins important à proportion que l'entreprise a acquis de l'expérience dans ce marché. Ce comportement co‐relié n'est pas expliqué par les effets d'agglomération industrielle mais semble refléter la valeur de l'information privée quand on investit dans des économies en émergence.

Suggested Citation

  • Yuko Kinoshita & Ashoka Mody, 2001. "Private information for foreign investment in emerging economies," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 34(2), pages 448-464, May.
    • Handle: RePEc:wly:canjec:v:34:y:2001:i:2:p:448-464
    DOI: 10.1111/0008-4085.00083
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    Cited by:

    1. Desbordes, Rodolphe & Wei, Shang-Jin, 2017. "The effects of financial development on foreign direct investment," Journal of Development Economics, Elsevier, vol. 127(C), pages 153-168.
    2. Ms. Yuko Hashimoto & Mr. Konstantin Wacker, 2012. "The Role of Risk and Information for International Capital Flows: New Evidence from the SDDS," IMF Working Papers 2012/242, International Monetary Fund.
    3. Hirshleifer, David & Teoh, Siew Hong, 2008. "Thought and Behavior Contagion in Capital Markets," MPRA Paper 9164, University Library of Munich, Germany.
    4. Fabienne Boudier‐Bensebaa, 2005. "Agglomeration economies and location choice: Foreign direct investment in Hungary," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 13(4), pages 605-628, October.
    5. David Hirshleifer & Siew Hong Teoh, 2003. "Herd Behaviour and Cascading in Capital Markets: a Review and Synthesis," European Financial Management, European Financial Management Association, vol. 9(1), pages 25-66, March.
    6. Su Li & Antonio Angelino & Haitao Yin & Francesca Spigarelli, 2017. "Determinants of FDI Localization in China: A County-Level Analysis for the Pharmaceutical Industry," IJERPH, MDPI, vol. 14(9), pages 1-20, August.
    7. Sulistiyo K. Ardiyono & Arianto A. Patunru, 2022. "The impact of employment protection on FDI at different stages of economic development," The World Economy, Wiley Blackwell, vol. 45(12), pages 3679-3714, December.
    8. Shima'a Hanafy, 2015. "Determinants of FDI Location in Egypt—Empirical Analysis Using Governorate Panel Data," MAGKS Papers on Economics 201513, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    9. George Shih-Ku Chen, 2009. "Determinants Of Taiwanese Investment In China: An Agglomeration Economies-Based Perspective," Monash Economics Working Papers 01-09, Monash University, Department of Economics.
    10. Susan, Enyang Besong & Pan, Yanchun, 2024. "Trust as a determinant of green finance through information sharing and technological penetration: Integrating the moderation of governance for sustainable growth," Technology in Society, Elsevier, vol. 77(C).
    11. Chen, George Shih-Ku, 2009. "Determinants of Taiwanese investment in China: An agglomeration economies-based perspective," MPRA Paper 13894, University Library of Munich, Germany.
    12. Ricardo Pinheiro Alves, 2008. "Behavioural Determinants Of Foreign Direct Investment," GEE Papers 0008, Gabinete de Estratégia e Estudos, Ministério da Economia, revised Dec 2008.
    13. Mikhail Drugov, 2021. "Bargaining with informational and payoff externalities," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 30(2), pages 398-419, May.
    14. Ly, Amadú & Esperança, José & Davcik, Nebojsa S., 2018. "What drives foreign direct investment: The role of language, geographical distance, information flows and technological similarity," Journal of Business Research, Elsevier, vol. 88(C), pages 111-122.
    15. Gianfranco De Simone & Miriam Manchin, 2008. "Brain Drain with FDI Gain? Factor Mobility between Eastern and Western Europe," Development Working Papers 255, Centro Studi Luca d'Agliano, University of Milano.
    16. Akinkugbe, Oluyele, 2003. "Flow of Foreign Direct Investment to Hitherto Neglected Developing Countries," WIDER Working Paper Series 002, World Institute for Development Economic Research (UNU-WIDER).
    17. Matthew Doyle, 2010. "Informational externalities, strategic delay, and optimal investment subsidies," Canadian Journal of Economics, Canadian Economics Association, vol. 43(3), pages 941-966, August.
    18. Chunxiao Geng & Tusheng Xiao & Chun Yuan & Yanan Zhang, 2021. "Follow friends to invest: evidence from the information role of weak ties," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(5), pages 5999-6035, December.
    19. Canfei He, 2008. "Foreign Manufacturing Investment in China: The Role of Industrial Agglomeration and Industrial Linkages," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 16(1), pages 82-99, January.
    20. Pinheiro-Alves, Ricardo, 2011. "Behavioural influences in Portuguese foreign direct investment," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 40(4), pages 394-403, August.

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