On the Determinants of Foreign Capital Flows - DAAD partnership ...

More documents

Recommendations

Info

Figure 3.1 Host Country Determinants of FDI- A summary No unanimously accepted single factor determines investment flow. Literature is supplied with various data on the full range of factors that are likely to propel the flow of foreign direct investment worldwide. In making decisions to invest abroad, firms are subject to a constellation of economic, geographic, political, social and cultural issues. While it is “difficult to determine the exact quantity and quality of FDI determinants that should be present in a location for it to attract a given level of inflows, it is nevertheless clear that a critical minimum of these determinants must be present before FDI inflows begin to occur” (Ngowi, 2001). The factors influencing the flow of FDI as per Lall’s table thus range from the size of markets to labour skills, infrastructure and stability to the availability of resources. Factors most appropriate to the Mauritian economy are laid below: • Market size and growth have showed to be most prominent determinants, particularly for market seeking investment flows. The market size hypothesis readily comes 8
with the idea that inward FDI is a function of the market size of a country. Thus, an economy with a large market size is important for FDI as it provides potential for local sales, greater profitability and relatively diverse resources, which make local sourcing more feasible (Pfefferman and Madarassy 1992). Studies by Edwards (1990) and Asiedu (2004) on the other hand have shown that there is no significant impact of growth or market size on FDI inflows which is rather surprising. To investigate into the matter, Loree and Guisinger (1996) find that market size and growth does impact but it only differs under different conditions. • Openness, namely the sum of exports and imports to Gross Domestic Product (GDP) of an economy also plays a role to induce FDI inflows. The more open an economy, the more likely it will pursue an appropriate trade and exchange rate regime to attract more FDI. The most common used measure of openness is the share of trade in GDP (Asiedu 2004). Thus, such positive relationship implies that countries that wish to attract more FDI should increase trade. In addition, as pointed by Brecher and Findlay (1983) in exploring the openness or restrictiveness of trade policies, investors generally like to invest in countries which have regional trade integration or where there are greater investment provisions in their trade agreements. Aizenman and Noy (2004) studied the effects of foreign investment flows and trade openness, and results demonstrated that both variables are closely linked. • Labor productivity also reside as a major FDI attraction in considering locational factors, especially when investment is export oriented (Mody and Srinivasan, 1998). Lower labour cost reduces the cost of production and cheap labour does attract overseas firms. In fact, recent empirical work by Hanson, Mataloni and Slaughter (2001) gives credit to multinationals for their concentration of production in low-wage countries Nowadays, however technologically intensive activities are more popular, thus there is rather demand for qualified human capital (Pigato, 2000). A recent study in China by Buckley et al (2003) found that productivity does cause FDI but the other way round is limited to some companies only and depend on other factors like economic climate and labor force. 9
Page 1 and 2: On the Determinants of Foreign Capi
Page 3 and 4: the theoretical framework and empir
Page 5 and 6: 3.1 MOTIVES BEHIND FDI Literature o
Page 7: Closely related, FDI can be taken a
Page 11 and 12: literature itself is ambiguous on t
Page 13 and 14: Investment. For the purpose of esti
Page 15 and 16: 0 100 200 300 400 FDI US 1970 1980
Page 17 and 18: Figure 5.3 Geographical distributio
Page 19 and 20: Dependent variable: LDFDI Table 5.4
Page 21 and 22: Inference from Multiple Regression
Page 23 and 24: LOPEN Yes 25.02 (0.0000) LINV No 2.
Page 25 and 26: ESTIMATION OF THE LONG RUN RELATION
Page 27 and 28: From the findings and analysis, it
Page 29 and 30: Dunning J D. 1981. Explaining the I
Page 31 and 32: Kravis I B, Lipsey R. 1982. Locatio
Page 33 and 34: SACTRA (Standing Advisory Committee

On the Determinants of Foreign Capital Flows - DAAD partnership ...

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?