IDEAS home Printed from
   My bibliography  Save this paper

A Comparison Model of Investment in Developing Countries


  • Sarah Bryant

    (Shippensburg University of Pennsylvania)

  • Steve Holoviak

    (Shippensburg University of Pennsylvania)


The goal of this research is to test a new investment model in developing countries. Many articles challenge the logic of investments by the World Bank or The International Monetary Fund in developing countries. For the most part, the basis for investments in poor economies has been linked to the "factors of production" model. However, there has been a hypothesis put forth by Hidalgo, et. al., of a model that approaches the economic analysis from a new perspective. The research offers the idea of examining the notion of "closeness" between products by investigating large global export data on categories of goods. It suggests that, for each pair of export groups, there exists an optimal matching of export products such that if a region is good at exporting product "A," it will also be good at exporting product "B," but not "C." In reality, product C may be too far of a reach for the country to "leap" in production. Technologies and infrastructure needs may be lacking without careful planning and strategic planning. However, this difference may not be obvious to donor agencies or country governments without the use of such a model.This paper first gives background into the Hidalgo, et. al., model. It then lists problems with the model to demonstrate that the model needs to be refined to be of full use to policy makers and donors. The third, and as yet incomplete, part of the current paper is to develop a process whereby the record of investment in products can be compared using the suggested model of pairing. Two countries, Ghana and Viet Nam, have been chosen for initial study to determine their levels of development along the lines of the model, and to compare that development with what has been encouraged by donor agencies over time. If the probability is high between two products, those products have a "short" variance between them. If the probability is low; the products are not well paired. This research aims to set up a method to test existing country exports against newer investment according to the hypothesis and see if the probabilities are high or low. In effect, the aim is to post facto see if it were a so called "good idea" to invest in product B.This paper was presented at the 18th International Conference of the International Trade and Finance Association meeting at Universidade Nova de Lisboa, May 22, 2008, in Lisbon Portugal.

Suggested Citation

  • Sarah Bryant & Steve Holoviak, 2008. "A Comparison Model of Investment in Developing Countries," International Trade and Finance Association Conference Papers 1119, International Trade and Finance Association.
  • Handle: RePEc:bep:itfapp:1119

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    References listed on IDEAS

    1. Aghion, Philippe & Bacchetta, Philippe & Banerjee, Abhijit, 2000. "A simple model of monetary policy and currency crises," European Economic Review, Elsevier, vol. 44(4-6), pages 728-738, May.
    2. Ethan Kaplan & Dani Rodrik, 2002. "Did the Malaysian Capital Controls Work?," NBER Chapters,in: Preventing Currency Crises in Emerging Markets, pages 393-440 National Bureau of Economic Research, Inc.
    3. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2007. "Capital flows to central and Eastern Europe," Emerging Markets Review, Elsevier, vol. 8(2), pages 106-123, May.
    4. Elitzur, Ramy & Mintz, Jack, 1996. "Transfer pricing rules and corporate tax competition," Journal of Public Economics, Elsevier, vol. 60(3), pages 401-422, June.
    5. Mark Holmes & Yangru Wu, 1997. "Capital controls and covered interest parity in the EU: Evidence from a panel-data unit root test," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 133(1), pages 76-89, March.
    6. Hutchison, Michael M. & Noy, Ilan, 2006. "Sudden stops and the Mexican wave: Currency crises, capital flow reversals and output loss in emerging markets," Journal of Development Economics, Elsevier, vol. 79(1), pages 225-248, February.
    7. Kiyotaki, Nobuhiro & Moore, John, 1997. "Credit Cycles," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 211-248, April.
    8. Dooley, Michael P, 1996. "Capital Controls and Emerging Markets," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 1(3), pages 197-205, July.
    9. Buiter, Willem H., 1987. "Borrowing to defend the exchange rate and the timing and magnitude of speculative attacks," Journal of International Economics, Elsevier, vol. 23(3-4), pages 221-239, November.
    10. Campion, Mary Kathryn & Neumann, Rebecca M., 2004. "Compositional effects of capital controls: evidence from Latin America," The North American Journal of Economics and Finance, Elsevier, vol. 15(2), pages 161-178, August.
    11. Enrique G. Mendoza & Katherine A. Smith, 2002. "Margin Calls, Trading Costs, and Asset Prices in Emerging Markets: The Finanical Mechanics of the 'Sudden Stop' Phenomenon," NBER Working Papers 9286, National Bureau of Economic Research, Inc.
    12. R. B. Johnston & Chris Ryan, 1994. "The Impact of Controlson Capital Movementson the Private Capital Accounts of Countries' Balance of Payments; Empirical Estimates and Policy Implications," IMF Working Papers 94/78, International Monetary Fund.
    13. Bordo, Michael D., 2008. "Growing up to Financial Stability," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 2, pages 1-17.
    14. Pablo Bustelo Gómez, 2004. "Capital Flows and Financial Crises: A Comparative Analysis of East Asia (1997-97) and Argentina (2001-02)," Documentos de trabajo de la Facultad de Ciencias Económicas y Empresariales 04-17, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales.
    15. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
    16. Alexander D. Rothenberg & Francis E. Warnock, 2011. "Sudden Flight and True Sudden Stops," Review of International Economics, Wiley Blackwell, vol. 19(3), pages 509-524, August.
    17. Flood, Robert & Marion, Nancy, 1999. "Perspectives on the Recent Currency Crisis Literature," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 4(1), pages 1-26, January.
    18. Edison, Hali J. & Warnock, Francis E., 2003. "A simple measure of the intensity of capital controls," Journal of Empirical Finance, Elsevier, vol. 10(1-2), pages 81-103, February.
    19. Peter Blair Henry, 2007. "Capital Account Liberalization: Theory, Evidence, and Speculation," Journal of Economic Literature, American Economic Association, vol. 45(4), pages 887-935, December.
    20. Kaminsky, Graciela Laura & Schmukler, Sergio L., 2002. "Short-run pain, long-run gain : the effects of financial liberalization," Policy Research Working Paper Series 2912, The World Bank.
    21. Andrew Berg & Eduardo Borensztein & Catherine Pattillo, 2005. "Assessing Early Warning Systems: How Have They Worked in Practice?," IMF Staff Papers, Palgrave Macmillan, vol. 52(3), pages 1-5.
    22. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-1176, December.
    23. Sebastian Edwards, 2001. "Capital Mobility and Economic Performance: Are Emerging Economies Different?," NBER Working Papers 8076, National Bureau of Economic Research, Inc.
    24. Edison, Hali & Reinhart, Carmen M., 2001. "Stopping hot money," Journal of Development Economics, Elsevier, vol. 66(2), pages 533-553, December.
    25. Bekaert, Geert & Harvey, Campbell R. & Lundblad, Christian, 2005. "Does financial liberalization spur growth?," Journal of Financial Economics, Elsevier, vol. 77(1), pages 3-55, July.
    26. Sheila A. Chapman & Marcella Mulino, 2000. "Explaining Russia's Currency and Financial Crises," Working Papers 59, Sapienza University of Rome, CIDEI.
    27. Guillermo A. Calvo & Alejandro Izquierdo & Ernesto Talvi, 2002. "Sudden Stops, the Real Exchange Rate and Fiscal Sustainability: Argentina's Lessons," IDB Publications (Working Papers) 1909, Inter-American Development Bank.
    28. Alejandro Izquierdo & Ernesto Talvi & Guillermo A. Calvo, 2002. "Sudden Stops, the Real Exchange Rate and Fiscal Sustainability: Argentina's Lessons," Research Department Publications 4299, Inter-American Development Bank, Research Department.
    29. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
    30. Arteta, Carlos & Eichengreen, Barry & Wyplosz, Charles, 2001. "When Does Capital Account Liberalization Help More Than it Hurts?," CEPR Discussion Papers 2910, C.E.P.R. Discussion Papers.
    31. Chong-En Bai & Shang-Jin Wei, 2000. "Quality of Bureaucracy and Open-Economy Macro Policies," NBER Working Papers 7766, National Bureau of Economic Research, Inc.
    32. Velasco, A. & Chang, R., 1998. "The Asian Liquidity Crisis," Working Papers 98-27, C.V. Starr Center for Applied Economics, New York University.
    33. Montiel, Peter & Reinhart, Carmen M., 1999. "Do capital controls and macroeconomic policies influence the volume and composition of capital flows? Evidence from the 1990s," Journal of International Money and Finance, Elsevier, vol. 18(4), pages 619-635, August.
    34. Sweta Chaman Saxena & Valerie Cerra, 2000. "Contagion, Monsoons, and Domestic Turmoil in Indonesia; A Case Study in the Asian Currency Crisis," IMF Working Papers 00/60, International Monetary Fund.
    35. Flood, Robert P. & Garber, Peter M., 1984. "Collapsing exchange-rate regimes : Some linear examples," Journal of International Economics, Elsevier, vol. 17(1-2), pages 1-13, August.
    36. Blanchard, Olivier Jean, 1979. "Speculative bubbles, crashes and rational expectations," Economics Letters, Elsevier, vol. 3(4), pages 387-389.
    37. Albuquerque, Rui, 2003. "The composition of international capital flows: risk sharing through foreign direct investment," Journal of International Economics, Elsevier, vol. 61(2), pages 353-383, December.
    38. Itay Goldstein & Assaf Razin, 2005. "Foreign Direct Investment vs. Foreiegn Portfolio Investment," NBER Working Papers 11047, National Bureau of Economic Research, Inc.
    39. W. Calomiris, Charles, 1999. "Lessons from the Tequila Crisis for successful financial liberalization," Journal of Banking & Finance, Elsevier, vol. 23(10), pages 1457-1461, October.
    40. Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March.
    41. Enrique G. Mendoza, 2002. "Credit, Prices, and Crashes: Business Cycles with a Sudden Stop," NBER Chapters,in: Preventing Currency Crises in Emerging Markets, pages 335-392 National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bep:itfapp:1119. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.