IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

The Role of Information in Driving FDI: Theory and Evidence

  • Mody, Ashoka
  • Razin, Assaf
  • Sadka, Efraim

We develop a simple information-based model of FDI flows in which the abundance of intangible capital in the source countries, which generates expertise in cream-skimming investment projects in the host countries and enhances FDI flows. Corporate transparency in the host countries, on the other hand, diminishes the value of this expertise and thereby reduces the flow of FDI. Empirical evidence (from a sample of 12 source countries and 45 host countries over the 1980s and 1990s) which is analysed in a gravity equation model provides some support to our theoretical hypotheses. The gains from FDI in the host country in our model are reflected in a more efficient size of stock of domestic capital and its allocation across firms. These gains depend crucially (and inversely) on the degree of competition among FDI investors.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3619.

in new window

Date of creation: Nov 2002
Date of revision:
Handle: RePEc:cpr:ceprdp:3619
Contact details of provider: Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820

Order Information: Email:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Eaton Jonathan & Tamura Akiko, 1994. "Bilateralism and Regionalism in Japanese and U.S. Trade and Direct Foreign Investment Patterns," Journal of the Japanese and International Economies, Elsevier, vol. 8(4), pages 478-510, December.
  2. Richard Portes & Helene Rey, 1999. "The Determinants of Cross-Border Equity Flows," NBER Working Papers 7336, National Bureau of Economic Research, Inc.
  3. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Robert W. Vishny, 1997. "Legal Determinants of External Finance," NBER Working Papers 5879, National Bureau of Economic Research, Inc.
  4. Portes, Richard & Rey, Hélène, 2000. "The Determinants of Cross-Border Equity Flows: The Geography of Information," Center for International and Development Economics Research, Working Paper Series qt51w4v95p, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
  5. Eduardo Borensztein & Jose De Gregorio & Jong-Wha Lee, 1995. "How Does Foreign Direct Investment Affect Economic Growth?," NBER Working Papers 5057, National Bureau of Economic Research, Inc.
  6. Razin, Assaf & Sadka, Efraim, 2003. "Gains from FDI inflows with incomplete information," Economics Letters, Elsevier, vol. 78(1), pages 71-77, January.
  7. Rafael La Porta & Florencio Lopez-deSilanes & Andrei Shleifer & Robert W. Vishny, 1999. "Investor Protection: Origins, Consequences, and Reform," NBER Working Papers 7428, National Bureau of Economic Research, Inc.
  8. Productivity Commission, 2002. "Offshore investment by Australian firms: survey evidence," International Trade 0203001, EconWPA.
  9. Djankov, Simeon & Hoekman, Bernard, 1999. "Foreign investment and productivity growth in Czech enterprises," Policy Research Working Paper Series 2115, The World Bank.
  10. Oliver Hart, 2001. "Financial Contracting," Harvard Institute of Economic Research Working Papers 1924, Harvard - Institute of Economic Research.
  11. 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.
  12. Loungani, Prakash & Mody, Ashoka & Razin, Assaf, 2002. "The Global Disconnect: The Role of Transactional Distance and Scale Economies in Gravity Equations," Scottish Journal of Political Economy, Scottish Economic Society, vol. 49(5), pages 526-43, December.
  13. 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.
  14. Portes, Richard & Rey, Helene & Oh, Yonghyup, 2001. "Information and capital flows: The determinants of transactions in financial assets," European Economic Review, Elsevier, vol. 45(4-6), pages 783-796, May.
  15. Gopinath, Gita, 2004. "Lending booms, sharp reversals and real exchange rate dynamics," Journal of International Economics, Elsevier, vol. 62(1), pages 1-23, January.
  16. Barry Eichengreen & Douglas A. Irwin, 1998. "The Role of History in Bilateral Trade Flows," NBER Chapters, in: The Regionalization of the World Economy, pages 33-62 National Bureau of Economic Research, Inc.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:3619. 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: ()

The email address of this maintainer does not seem to be valid anymore. Please ask to update the entry or send us the correct address

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.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.