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Transparency, Specialization and FDI (new title: Corporate Transparency, Cream-Skimming and FDI)

  • Assaf Razin
  • Efraim Sadka

We develop a simple information-based model of FDI flows. On the one hand, the relative abundance of “intangible" capital in specialized industries in the source countries, which presumably generates expertise in screening investment projects in the host countries, enhances FDI flows. On the other hand, host-country relative corporate-transparency diminishes the value of this expertise, thereby reducing the flow of FDI. The model also demonstrates that the gains for the host country from foreign direct investment [over foreign portfolio investment (FPI)] are reflected in a more efficient size of the stock of domestic capital and its allocation across firms. These gains are shown to depend crucially (and positively) on the degree of competition among FDI investors.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2004/wp-cesifo-2004-03/cesifo1_wp1161.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1161.

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Date of creation: 2004
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Handle: RePEc:ces:ceswps:_1161
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  1. Assaf Razin & Ashoka Mody & Efraim Sadka, 2003. "The Role of Information in Driving FDI Flows; Host-Country Transparency and Source-Country Specialization," IMF Working Papers 03/148, International Monetary Fund.
  2. Gopinath, Gita, 2004. "Lending booms, sharp reversals and real exchange rate dynamics," Journal of International Economics, Elsevier, vol. 62(1), pages 1-23, January.
  3. Rui Albuquerque, 2004. "The Composition of International Capital Flows: Risk Sharing Through Foreign Direct Investment," International Finance 0405004, EconWPA.
  4. Barry P. Bosworth & Susan M. Collins, 1999. "Capital Flows to Developing Economies: Implications for Saving and Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 30(1), pages 143-180.
  5. Djankov, Simeon & Hoekman, Bernard, 1999. "Foreign investment and productivity growth in Czech enterprises," Policy Research Working Paper Series 2115, The World Bank.
  6. Efraim Sadka & Assaf Razin & Yona Rubinstein, 2004. "Which Countries Export FDI, and How Much?," 2004 Meeting Papers 226, Society for Economic Dynamics.
  7. Borensztein, E. & De Gregorio, J. & Lee, J-W., 1998. "How does foreign direct investment affect economic growth?1," Journal of International Economics, Elsevier, vol. 45(1), pages 115-135, June.
  8. Rachel Griffith & Helen Simpson, 2003. "Characteristics of Foreign-Owned Firms in British Manufacturing," NBER Working Papers 9573, National Bureau of Economic Research, Inc.
  9. Shang-Jin Wei, 2000. "How Taxing is Corruption on International Investors?," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 1-11, February.
  10. Assaf Razin, 2002. "FDI Contribution to Capital Flows and Investment in Capacity," NBER Working Papers 9204, National Bureau of Economic Research, Inc.
  11. Productivity Commission, 2002. "Offshore investment by Australian firms: survey evidence," International Trade 0203001, EconWPA.
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