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Do changes in the rules of the game affect FDI flows in Latin America? A look at the macroeconomic, institutional and regional integration determinants of FDI

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  • Sánchez-Martín, Miguel Eduardo
  • de Arce, Rafael
  • Escribano, Gonzalo

Abstract

This paper aims to identify the main determinants of FDI in Latin America during the period 1990–2010. Evidence points to positive influences on FDI inflows of trade openness, maintaining low short-term debt levels and presenting a balance of payment deficit, government stability and low expropriation risk. Countries such as Argentina, Bolivia, Ecuador and Venezuela, in which the investment framework has become relatively less stable over the last decade, are finding it more difficult to attract foreign investors. From a risk-management perspective, both public solutions (such as sovereign guarantees) and private institutions have important roles to play in reducing the uncertainty involved in foreign investment decisions. Another result is that the DR CAFTA agreement does not seem to have played a significant role in the recent increase in investment directed towards Central America.

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  • Sánchez-Martín, Miguel Eduardo & de Arce, Rafael & Escribano, Gonzalo, 2014. "Do changes in the rules of the game affect FDI flows in Latin America? A look at the macroeconomic, institutional and regional integration determinants of FDI," European Journal of Political Economy, Elsevier, vol. 34(C), pages 279-299.
    • Handle: RePEc:eee:poleco:v:34:y:2014:i:c:p:279-299
    DOI: 10.1016/j.ejpoleco.2014.02.001
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    2. Akhtaruzzaman, M. & Berg, Nathan & Hajzler, Christopher, 2017. "Expropriation risk and FDI in developing countries: Does return of capital dominate return on capital?," European Journal of Political Economy, Elsevier, vol. 49(C), pages 84-107.
    3. Di Ubaldo, Mattia & Gasiorek, Michael, 2022. "Non-trade provisions in trade agreements and FDI," European Journal of Political Economy, Elsevier, vol. 75(C).
    4. Kayalvizhi, P.N. & Thenmozhi, M., 2018. "Does quality of innovation, culture and governance drive FDI?: Evidence from emerging markets," Emerging Markets Review, Elsevier, vol. 34(C), pages 175-191.
    5. Lucke, Bernd & Rehfeldt, Erik, 2022. "How does expropriation affect FDI? A synthetic control analysis of oil and gas sector nationalizations in South America," MPRA Paper 115374, University Library of Munich, Germany.
    6. Omer Ali Ibrahim & Sufian Eltayeb Mohamed Abdel-Gadir, 2015. "Motives and Determinants of FDI: A VECM Analysis for Oman," Global Business Review, International Management Institute, vol. 16(6), pages 936-946, December.
    7. Zhou, Jing, 2023. "A double-edged sword: Chinese direct investment in Latin America," Structural Change and Economic Dynamics, Elsevier, vol. 67(C), pages 234-249.
    8. Lucke, Bernd & Rehfeldt, Erik, 2023. "How does expropriation affect FDI? A synthetic control analysis of oil and gas sector nationalizations in South America," European Journal of Political Economy, Elsevier, vol. 80(C).
    9. Bouzid,Bechir Naier & Toumi,Sofiene, 2020. "The Determinants of Regional Foreign Direct Investment and Its Spatial Dependence : Evidence from Tunisia," Policy Research Working Paper Series 9484, The World Bank.
    10. Sanchez-Martin, Miguel Eduardo & de Pinies, Jaime & Antoine, Kassia, 2015. "Measuring the determinants of backward linkages from FDI in developing economies : is it a matter of size ?," Policy Research Working Paper Series 7185, The World Bank.
    11. Kechagia, Polyxeni & Metaxas, Theodore, 2016. "FDI in Latin America: The case of Peru," MPRA Paper 72399, University Library of Munich, Germany.
    12. Cong Minh Huynh & Vu Hong Thai Nguyen & Hoang Bao Nguyen & Phuc Canh Nguyen, 2020. "One-way effect or multiple-way causality: foreign direct investment, institutional quality and shadow economy?," International Economics and Economic Policy, Springer, vol. 17(1), pages 219-239, February.
    13. Basu, Debarati & Mitra, Shabana & Purohit, Archana, 2023. "Does effective democracy explain MNE location choice?: Attractiveness to FDI and cross-border M&As," Journal of Business Research, Elsevier, vol. 167(C).
    14. Tag, Mehmet Nasih & Degirmen, Suleyman, 2022. "Economic freedom and foreign direct investment: Are they related?," Economic Analysis and Policy, Elsevier, vol. 73(C), pages 737-752.
    15. Omer Ali Ibrahim & Sonal Devesh & Mughees Shaukat, 2022. "Institutional determinants of FDI in Oman: Causality analysis framework," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(4), pages 4183-4195, October.
    16. Yu Fu & Agus Supriyadi & Tao Wang, 2018. "China’s Outward FDI in Indonesia: Spatial Patterns and Determinants," Sustainability, MDPI, vol. 10(12), pages 1-20, December.

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