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Determinants of foreign direct investment in services

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  • Ivar Kolstad
  • Espen Villanger

Abstract

This study uses industry level foreign direct investment (FDI) data from 57 countries 1989-2000, to examine the host country determinants of FDI flows in services as a whole, and in the major service industries. Consistent with the observation that many services are non-tradable, we find that service FDI is market-seeking, and unaffected by trade openness. Producer services are important in binding together vertically disintegrated chains of production, accordingly we find a strong correlation between FDI in manufacturing and FDI in finance and transport. While composite political risk does not affect FDI in services, disaggregate socio-political indices prove significant in certain service industries.

Suggested Citation

  • Ivar Kolstad & Espen Villanger, 2004. "Determinants of foreign direct investment in services," CMI Working Papers WP 2004: 2, CMI (Chr. Michelsen Institute), Bergen, Norway.
    • Handle: RePEc:chm:wpaper:wp2004-2
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