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Information Technology and Bilateral FDI: Theory and Evidence


  • Jeon, Bang Nam
  • Tang, Linghui
  • Zhu, Lei


This paper investigates the impact of communication cost on the FDI activities of multinational corporations (MNCs). First, we provide a theoretical foundation for a gravity-type FDI model, which shows that physical distance and communication technology are important determinants of FDI activities. Second, we apply the IT-augmented gravity model to bilateral FDI data for a total of 47 OECD and non-OECD countries from 1980 to 1997 and find that distance is negatively related to inward FDI stocks while the growth of IT, measured by teledensity and celldensity, has encouraged FDI significantly. The impact is found to be more prominent on FDI from G7 countries to OECD countriesthan to non-OECD countries, and more prominent in the 1990s than in the 1980s. Moreover, IT plays a more effective role by reducing communication cost when distance is beyond a threshold range.

Suggested Citation

  • Jeon, Bang Nam & Tang, Linghui & Zhu, Lei, 2012. "Information Technology and Bilateral FDI: Theory and Evidence," MPRA Paper 36628, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:36628

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    References listed on IDEAS

    1. David L. Carr & James R. Markusen & Keith E. Maskus, 2001. "Estimating the Knowledge-Capital Model of the Multinational Enterprise," American Economic Review, American Economic Association, vol. 91(3), pages 693-708, June.
    2. Richard G. Harris, 1995. "Trade and Communication Costs," Canadian Journal of Economics, Canadian Economics Association, vol. 28(s1), pages 46-75, November.
    3. Markusen, James R., 1984. "Multinationals, multi-plant economies, and the gains from trade," Journal of International Economics, Elsevier, vol. 16(3-4), pages 205-226, May.
    4. Bruce A. Blonigen & Ronald B. Davies, 2004. "The Effects of Bilateral Tax Treaties on U.S. FDI Activity," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 11(5), pages 601-622, September.
    5. Markusen, James R. & Venables, Anthony J., 1998. "Multinational firms and the new trade theory," Journal of International Economics, Elsevier, vol. 46(2), pages 183-203, December.
    6. James R. Markusen, 1995. "The Boundaries of Multinational Enterprises and the Theory of International Trade," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 169-189, Spring.
    7. Nam Jeon , Bang & F. Stone , Susan, 2000. "Foreign Direct Investment and Trade in the Asia-Pacific Region: Complementarity, Distance and Regional Economic Integration," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 15, pages 460-485.
    8. Toru Kikuchi & Tetsuro Ichikawa, 2002. "Congestible communications networks and international trade," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 8(1), pages 81-81, February.
    9. Toru Kikuchi, 2003. "Interconnectivity of communications networks and international trade," Canadian Journal of Economics, Canadian Economics Association, vol. 36(1), pages 155-167, February.
    10. Wilfred J. Ethier, 1986. "The Multinational Firm," The Quarterly Journal of Economics, Oxford University Press, vol. 101(4), pages 805-833.
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    Cited by:

    1. Francisco Callado-Muñoz & Jana Hromcová & Natalia Utrero-González, 2014. "Openness and Technology Diffusion in Payment Systems: The Case of NAFTA," Computational Economics, Springer;Society for Computational Economics, vol. 43(4), pages 497-519, April.
    2. KARGI, Bilal, 2014. "Portfolio in Turkish Economy, and A Long Termed Relation Between Foreign Direct Investments and The Growth, and The Structural Breakage Analysis (1980-2012)," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 70-81.

    More about this item


    communication cost; FDI; distance;

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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