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FDI Flow Volatility and ASEAN Members: An Exploratory Approach

  • James P. Gander
  • Steve Reynolds
  • Richard Fowles
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    The volatility of Foreign Direct Investment (FDI) flows, particularly those into ASEAN countries is well known. Still researchers will continue to use regression approaches to analyze this volatility. This paper is an exploratory approach to analyzing the behavior of FDI with no attempt to design a complete regression model. Our approach is probabilistic in that we treat the FDI flows from home or source country to various members of ASEAN as random independent events over the time period 1999-2003 and over ISIC manufacturing sectors. We then show how closely the random plots of FDI fit two common cumulative distribution functions (CDF), the Gumbel and the Weibull and whether the plots are from multi-regimes or not. A brief econometric analysis shows FDI volatility within the ISIC industrial sectors. The essential thesis (or hypothesis) is that if capital markets are in a general equilibrium across hosts, home, industrial sectors, and time, then the return on capital (the marginal efficiency of capital) is equalized everywhere, and a home investor’s dollar will be randomly allocated across hosts, industrial sectors, and time.

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    Paper provided by University of Utah, Department of Economics in its series Working Paper Series, Department of Economics, University of Utah with number 2010_01.

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    Length: 23 pages
    Date of creation: 2010
    Date of revision:
    Handle: RePEc:uta:papers:2010_01
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    1. Benoit Mandelbrot, 1963. "The Variation of Certain Speculative Prices," The Journal of Business, University of Chicago Press, vol. 36, pages 394.
    2. Sylvia Gottschalk & Stephen Hall, 2008. "Foreign direct investment and exchange rate uncertainty in South-East Asia," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 13(4), pages 349-359.
    3. Cheong, David & Plummer, Michael, 2009. "FDI Effects of ASEAN Integration," MPRA Paper 26004, University Library of Munich, Germany.
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