Size, Geography, and Foreign Direct Investment∗
نویسنده
چکیده
This paper analyzes the cross-country distribution and volume of Foreign Direct Investment (FDI), its barriers, and its impact on welfare. From the observed patterns of FDI, three facts stand out: a very small fraction of countries engages in FDI; geography remains a significant impediment to FDI; countries’ size is important in determining the existence and volume of bilateral FDI. I present a theory which treats FDI as sales of affiliates of multinational firms, and qualitatively captures the salient features of the data. FDI is introduced into a competitive, multicountry, general equilibrium model with fixed costs. This model delivers a structural equation for bilateral FDI that predicts zero as well as positive volumes between country-pairs, and where positive flows are related to technology and barriers. Using data on bilateral sales of affiliate plants, for OECD and non-OECD countries, I estimate barriers to FDI using an indirect inference procedure derived from the theory. Estimates suggest that distance remains the most important impediment to FDI, with countries twice as far facing a 45% higher cost. Policy variables, such as preferential treaties or taxes, have small effects. Finally, welfare calculations show that there are large, unrealized gains of removing bilateral barriers to FDI. ∗I would like to thank Fernando Alvarez, Christian Broda, Thomas Chaney, William Fuchs, Robert Lucas, Alejandro Rodriguez, Robert Shimer, Nancy Stokey, and Balazs Szentes for their comments and discussions. I benefited from comments of participants at seminars at the University of Chicago and Universidad Torcuato Di Tella. All remaining errors are mine. †Department of Economics, University of Chicago, 1126 E. 59th St., of. 331 (RO), Chicago, IL 60637. E-mail: [email protected].
منابع مشابه
The Impact of Economic Sanctions and other Factors on Attracting Foreign Direct Investment in OPEC Countries
Abstract Foreign direct investment (FDI) is considered as a one of the important channels of financing capital internationally. FDI, in addition to compensating for the lack of capital, entails the transfer of technology, the entry of expert human capital, management, and knowledge; therefore, in order to Realizing the continuous and stable economic growth is necessary to scientifically identi...
متن کاملRegional Inequality, Industry Agglomeration and Foreign Trade The Case of China
How do foreign trade and foreign direct investment affect regional inequality? Foreign trade and investment may affect internal economic geography, and the resulting industry agglomeration may contribute to regional inequality. This paper provides empirical evidence supporting this linkage. The results indicate that the increasing regional inequality in China has been accompanied by an increase...
متن کاملEnvironmental Quality and Growth Effects of Foreign Direct Investment in Nigeria
Abstract The study examines the growth effects of foreign direct investment on environmental quality in Nigeria between 1970 and 2013. Variables like per capita income, environmental degradation, foreign direct investment, human capital, inflation, trade openness, interest rate, and the interaction term between foreign direct investment and carbon emission were employed in the study. A long r...
متن کاملGeography Matters: Kohonen Classification of Determinants of Foreign Direct Investment in Transition Economies
متن کامل
The Effects of Good Governance on Foreign Direct Investment in Middle-Income Countries
This is undoubtedly recognized that economic performance for each country over time is related to a great extent to its political, institutional and legal environment. In fact, these institutions and policies are that determine the governance quality. Â In a panel data study, we applied newly developed indices to examine the effects of good governance on FDI for fifteen middle-income countri...
متن کامل