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A Dynamic Growth Model for Flows of Foreign Direct Investment

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  • Yi-Hui Chiang
  • Yiming Li
  • Chih-Young Hung

Abstract

In this work, we for the first time study the dynamic flows of the foreign direct investment (FDI) with a dynamic growth theory. We define the FDI flow as a process which transmits throughout a given social system by way of diverse communication channels. In model formulation, seven assumptions are thus proposed and the foreign capital policy of the host country is considered as an external influence; in addition, the investment policy of the investing country is modeled as an internal influence. Classification of influences is mainly according to the operational strategy as well as the consideration of economical/financial factors. The dynamic model of FDI flow is a differential equation which is solved numerically and verified with collected realistic data. Application of the developed model to explore, taking the electronics industry in Taiwan as an example, Taiwanese direct investment (TDI) in China (i.e. FDI flows from Taiwan to China) since 2001 is conducted. Our preliminary results successfully account for the dynamics of FDI flow for different amount of TDI outflows. It is found that the internal influence dominates the growth of TDI flow from Taiwan to China during 2001-2006.

Suggested Citation

  • Yi-Hui Chiang & Yiming Li & Chih-Young Hung, 2007. "A Dynamic Growth Model for Flows of Foreign Direct Investment," DEGIT Conference Papers c012_047, DEGIT, Dynamics, Economic Growth, and International Trade.
    • Handle: RePEc:deg:conpap:c012_047
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    File URL: http://degit.sam.sdu.dk/papers/degit_12/C012_047.pdf
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    References listed on IDEAS

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    Cited by:

    1. Aneta Bobeni? Hinto?ová, 2019. "Does inward foreign direct investment influence macroeconomic performance? A case of Slovakia," Proceedings of International Academic Conferences 9811998, International Institute of Social and Economic Sciences.
    2. Ahsen Mukhtar & Muhammad Asif & Ghamz-e-Ali Siyal & Khalid Zaman, 2014. "Institutional-Macroeconomic Nexus: Inducement on Foreign Direct Investment (FDI) in Pakistan," International Journal of Economics and Empirical Research (IJEER), The Economics and Social Development Organization (TESDO), vol. 2(11), pages 465-479, November.
    3. Kalaichelvi Ravinthirakumaran & Navaratnam Ravinthirakumaran, 2018. "The impact of foreign direct investment on income inequality: a panel Autogressive Distributed Lag approach for the Asia-Pacific Economic Cooperation developing economies," Asia-Pacific Sustainable Development Journal, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), vol. 25(1), pages 57-84, June.
    4. Svilena MIHAYLOVA, 2015. "Foreign direct investment and income inequality in Central and Eastern Europe," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(2(603), S), pages 23-42, Summer.
    5. Silvio Traverso & Guido Bonatti, 2015. "Education and FDI: An Insight from US Outflows," Journal of Social Economics, Research Academy of Social Sciences, vol. 2(3), pages 101-116.
    6. Kouassi YEBOUA, 2019. "Human capital and the FDI-Income inequality nexus in African countries: Panel smooth transition regression approach," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(1(618), S), pages 73-88, Spring.
    7. Werner Kristjanpoller Rodríguez & Rodolfo Salazar Albornoz, 2016. "Inversión extranjera directa y desigualdad en el ingreso en Latinoamérica: evidencia de la cointegración de datos de panel," Revista Cuadernos de Economia, Universidad Nacional de Colombia, FCE, CID, vol. 35(68), pages 433-455, January.
    8. repec:agr:journl:v:1(618):y:2019:i:1(618):p:73-88 is not listed on IDEAS
    9. repec:agr:journl:v:2(602):y:2015:i:2(602):p:23-42 is not listed on IDEAS
    10. Dinuk Jayasuriya, 2011. "Improvements in the World Bank's Ease of Doing Business Rankings: Do they translate into greater foreign direct investment inflows?," Development Policy Centre Discussion Papers 1108, Development Policy Centre, Crawford School of Public Policy, The Australian National University.

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    Keywords

    Foreign direct investment; dynamic flow theory; growth model; and numerical simulation;
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