Premium
The Determinants of Foreign Direct Investments: Sensitivity Analyses of Cross‐Country Regressions
Author(s) -
Chakrabarti Avik
Publication year - 2001
Publication title -
kyklos
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.766
H-Index - 58
eISSN - 1467-6435
pISSN - 0023-5962
DOI - 10.1111/1467-6435.00142
Subject(s) - foreign direct investment , economics , openness to experience , econometrics , per capita , robustness (evolution) , international economics , macroeconomics , population , biochemistry , psychology , social psychology , chemistry , demography , sociology , gene
A vast empirical literature has used ad hoc linear cross‐country regressions to search for the determinants of FDI. The literature is extensive and controversial. Can policy‐makers use this body of research to learn anything that can help them stimulate FDI? The author uses Extreme Bound Analysis (EBA) to examine if any of the conclusions from the existing studies is robust to small changes in the conditioning information set. The EBA upholds the robustness of the correlation between FDI and market‐size, as measured by per‐capita GDP, but indicates that the relation between FDI and many of the controversial variables (namely, tax, wage, openness, exchange rate, tariff, growth, and trade balance)bare highly sensitive to small alterations in the conditioning information set. The author also studies the distribution of the estimated coefficients of the controversial explanatory variables to rank them in order of their likelihood of their being correlated with FDI.