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Excessive FDI Flows under Asymmetric Information

Author

Listed:
  • Razin, A.
  • Sadka, E.
  • Yuen, C.-W.

Abstract

In Razin, Sadka and Yuen (1998, 1999a), we explored the policy implications of the home-bias in international portfolio investment as a result of asymmetric information problems in which domestic savers, being "close" to the domestic market, have an informational advantage over foreign portfolio investors, who are "far away" from the domestic market. However, FDI is different from foreign portfolio investment, concerning relevant information about domestic firms. Through the stationing of managers from the headquarters of multinational firms in the foreign direct establishments in the destination countrie under their control. FDIors can monitor closely the operation of such establishments, thus circumventing these informational problems.

Suggested Citation

  • Razin, A. & Sadka, E. & Yuen, C.-W., 1999. "Excessive FDI Flows under Asymmetric Information," Papers 27-99, Tel Aviv.
    • Handle: RePEc:fth:teavfo:27-99
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    Cited by:

    1. Allison F Kingsley & Benjamin A T Graham, 2017. "The effects of information voids on capital flows in emerging markets," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 48(3), pages 324-343, April.
    2. Joseph Stevy Mba Ollo, 2018. "Capital Account Liberalization and Financial Stability: An Application of the Finite Distributed Lag Model," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 10(3), pages 47-55, March.
    3. Mr. Ewe-Ghee Lim, 2001. "Determinants of, and the Relation Between, Foreign Direct Investment and Growth: A Summary of the Recent Literature," IMF Working Papers 2001/175, International Monetary Fund.
    4. Joshua Aizenman & Mark M. Spiegel, 2006. "Institutional Efficiency, Monitoring Costs and the Investment Share of FDI," Review of International Economics, Wiley Blackwell, vol. 14(4), pages 683-697, September.
    5. Andreas Hauskrecht & Nhan Le, 2005. "Capital Account Liberalization for a Small, Open Economy," Working Papers 2005-13, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
    6. Bélyácz, Iván & Kuti, Mónika, 2009. "Külföldi működőtőke és külső eladósodás. Kísérlet a makrogazdasági tőkestruktúra új szempontú vizsgálatára [Foreign operating capital and foreign indebtedness. An attempt to examine macroeconomic c," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(2), pages 133-154.
    7. Cristina Jude, 2019. "Does FDI crowd out domestic investment in transition countries?," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 27(1), pages 163-200, January.
    8. Karolyi, G. Andrew & Ng, David T. & Prasad, Eswar S., 2020. "The Coming Wave: Where Do Emerging Market Investors Put Their Money?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 55(4), pages 1369-1414, June.
    9. Selen Sarisoy Guerin, 2006. "The Role of Geography in Financial and Economic Integration: A Comparative Analysis of Foreign Direct Investment, Trade and Portfolio Investment Flows," The World Economy, Wiley Blackwell, vol. 29(2), pages 189-209, February.
    10. Wezel, Torsten, 2004. "Does co-financing by multilateral development banks increase "risky" direct investment in emerging markets?," Discussion Paper Series 1: Economic Studies 2004,02, Deutsche Bundesbank.
    11. Albuquerque, Rui & Loayza, Norman & Serven, Luis, 2005. "World market integration through the lens of foreign direct investors," Journal of International Economics, Elsevier, vol. 66(2), pages 267-295, July.
    12. Ibhagui, Oyakhilome W., 2020. "The Economic Performance Effects of Capital Flows in OPEC Member Countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 75(C), pages 67-83.
    13. Pierre‐Richard Agénor, 2003. "Benefits and Costs of International Financial Integration: Theory and Facts," The World Economy, Wiley Blackwell, vol. 26(8), pages 1089-1118, August.
    14. Gehringer, Agnieszka, 2013. "Financial liberalization, financial development and productivity growth: An overview," Economics Discussion Papers 2013-46, Kiel Institute for the World Economy (IfW Kiel).
    15. Pierre-Guillaume Méon & Khalid Sekkat, 2013. "FDI and Exports Diversification in Arab Countries," Working Papers 816, Economic Research Forum, revised Dec 2013.
    16. Pichit Patrawimolpon & Runchana Pongsaparn, 2006. "Thailand in the New Asian Economy: The Current State and Way Forward," Working Papers 2006-02, Monetary Policy Group, Bank of Thailand.
    17. Philipp Harms & Pierre-Guillaume Méon, 2011. "An FDI is an FDI is an FDI? The growth effects of greenfield investment and mergers and acquisitions in developing countries," Working Papers 11.10, Swiss National Bank, Study Center Gerzensee.

    More about this item

    Keywords

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    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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