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FDI Flows and Domestic Investment: Overview

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  • Assaf Razin

Abstract

The paper surveys theories of FDI and supporting evidence. A new theory flashes out a unique feature of FDI: hands on management style that enables investors to react in real time to changing economic environments. Equipped with superior intangible know how in screening firms, foreign direct investors can out bid portfolio equity investors for the top productivity firms. The implications of the theory are that investment is both more efficient (namely, made dependent on the firm-specific productivity) and, in plausible cases, also larger. The theory can explain both two way flows of FDI among developed economies, and one way flows between developed and developing economies. These predictions of the theory are consistent with panel data: larger FDI coefficients in domestic investment and output growth regressions, than those of the debt and portfolio equity coefficients. They are also consistent with gravity equations which explain FDI inflows by informational variables and degree of corporate transparency in the host country.(JEL F2)

Suggested Citation

  • Assaf Razin, 2003. "FDI Flows and Domestic Investment: Overview," CESifo Economic Studies, CESifo Group, vol. 49(3), pages 415-428.
    • Handle: RePEc:oup:cesifo:v:49:y:2003:i:3:p:415-428.
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    File URL: http://hdl.handle.net/10.1093/cesifo/49.3.415
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    Cited by:

    1. Diemo Dietrich, 2004. "Financing FDI into Developing Economies and the International Transmission of Business Cycle Fluctuations," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 140(IV), pages 449-481, December.
    2. Diemo Dietrich, 2004. "Financing FDI into Developing Economies and the International Transmission of Business Cycle Fluctuations," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 140(IV), pages 449-481, December.
    3. Yi-Hui Chiang & Yiming Li & Chih-Young Hung, 2007. "A Dynamic Growth Model for Flows of Foreign Direct Investment," DEGIT Conference Papers c012_047, DEGIT, Dynamics, Economic Growth, and International Trade.
    4. Karolyi, G. Andrew & Ng, David T. & Prasad, Eswar S., 2020. "The Coming Wave: Where Do Emerging Market Investors Put Their Money?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 55(4), pages 1369-1414, June.
    5. repec:zbw:iwhdps:165 is not listed on IDEAS

    More about this item

    JEL classification:

    • F2 - International Economics - - International Factor Movements and International Business

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