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Determinants of Foreign Direct Investment
Author(s) -
Biswas Romita
Publication year - 2002
Publication title -
review of development economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.531
H-Index - 50
eISSN - 1467-9361
pISSN - 1363-6669
DOI - 10.1111/1467-9361.00169
Subject(s) - foreign direct investment , multinational corporation , investment (military) , economics , foreign portfolio investment , corporation , panel data , value (mathematics) , return on investment , maximization , international trade , open ended investment company , business , international economics , microeconomics , macroeconomics , econometrics , politics , finance , production (economics) , political science , machine learning , computer science , law
Despite the growing interest in capital and technology issues, certain issues still remain to be explored regarding the determinants of foreign direct investment by a multinational corporation and the corporation’s consequent choice of investment location. This paper addresses some of these concerns by analyzing the determinants of foreign direct investment by a multinational corporation, both theoretically and empirically. For this purpose, the paper integrates a number of traditional and nontraditional variables into the standard theory of investment based on the maximization of the expected value of the firm. The theoretical model implies that both traditional as well as nontraditional factors matter in determining the flows of foreign direct investment in a country. The generalized investment theory on US foreign direct investment then is tested empirically utilizing panel data for 44 countries from 1983 to 1990. The estimation results provide considerable support for the importance of both traditional and nontraditional factors in determining flows of foreign direct investment in a country. Furthermore, the country‐specific dummies show high level of significance, reflecting the importance of the country‐specific characteristics in explaining flows of foreign direct investment.