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Behavioural determinants of Foreign Direct Investment

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  • Pinheiro-Alves, Ricardo

Abstract

The paper presents a behavioural economics approach to foreign direct investment. Starting from the behavioural finance literature, it uses content analysis based on interviews and questionnaires covering 12% of the Portuguese firms with investments abroad. The study presents evidence of several behavioural rules (e.g., herding, cascading, anchoring, overconfidence, mental accounting) in firms’ location decisions that originate a new set of determinants of FDI flows and complement the neo classical paradigm. Moreover, it confirms the Heiner model (1983, 1985, 1989) by showing that the higher is the uncertainty faced by decision makers the more frequent is the use of behavioural rules. The central role of uncertainty helps explaining why FDI flows occur more frequently among developed countries.

Suggested Citation

  • Pinheiro-Alves, Ricardo, 2008. "Behavioural determinants of Foreign Direct Investment," MPRA Paper 10297, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:10297
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    References listed on IDEAS

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    Cited by:

    1. Lili Zhu & Jiawen Yang, 2010. "Psychic Distance in the Eight-year Crisis: An Empirical Study," Chapters,in: Handbook of Behavioral Finance, chapter 7 Edward Elgar Publishing.
    2. Alexandra M. Tabova, 2013. "Portfolio diversification and the cross-sectional distribution of foreign investment," International Finance Discussion Papers 1091, Board of Governors of the Federal Reserve System (U.S.).
    3. Kotov, Denis, 2013. "Behavioral Biases and Corporate Decision Making on Investing Abroad," MPRA Paper 49858, University Library of Munich, Germany.

    More about this item

    Keywords

    Behavioural; Foreign Direct Investment; Uncertainty;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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