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Foreign direct investment in a small open economy

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  • Helga Kristj�nsd�ttir

Abstract

Think of a small open economy interestingly positioned between the trade blocs of the NAFTA and the EU, with FDI in recent years resembling the pattern before the economic crash, making a pre-crash data set useful for exploring potential long-term trends. In this research, investment is explained by geographic location and country size, using a gravity model to account for the country's exceptional remoteness and sparseness. A unique extension of the gravity model applies the inverse hyperbolic sine (IHS) function. The IHS functional form is estimated together with fixed difference between investment sectors and trade blocs being estimated simultaneously, an analysis that is rarely possible. Results indicate that under these conditions, investment appears to be more driven by wealth than market size effects.

Suggested Citation

  • Helga Kristj�nsd�ttir, 2013. "Foreign direct investment in a small open economy," Applied Economics Letters, Taylor & Francis Journals, vol. 20(15), pages 1423-1425, October.
    • Handle: RePEc:taf:apeclt:v:20:y:2013:i:15:p:1423-1425
    DOI: 10.1080/13504851.2013.815306
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    Cited by:

    1. Helga Kristjansdottir & Fjola Bjork Karlsdottir, 2020. "Uk Foreign Direct Investment In The Oecd, Culture And Geography," Baltic Journal of Economic Studies, Publishing house "Baltija Publishing", vol. 6(5).
    2. Bassem Kahouli & Anis Omri & Anissa Chaibi, 2014. "Environmental Regulations, Trade, and Foreign Direct Investment: Evidence from Gravity Equations," Working Papers 2014-189, Department of Research, Ipag Business School.
    3. Drapkin, I. & Mariev, O. & Chukavina, K., 2015. "Inflow and Outflow Potentials of Foreign Direct Investment in the Russian Economy: Numerical Estimation Based on the Gravity Approach," Journal of the New Economic Association, New Economic Association, vol. 28(4), pages 75-95.
    4. Kahouli, Bassem & Omri, Anis, 2017. "Foreign direct investment, foreign trade and environment: New evidence from simultaneous-equation system of gravity models," Research in International Business and Finance, Elsevier, vol. 42(C), pages 353-364.
    5. Helga Kristjánsdóttir & Stefanía Óskarsdóttir, 2021. "European FDI in Ireland and Iceland: Before and after the Financial Crisis," JRFM, MDPI, vol. 14(1), pages 1-12, January.
    6. Mariev Oleg & Drapkin Igor & Chukavina Kristina, 2016. "Is Russia successful in attracting foreign direct investment? Evidence based on gravity model estimation," Review of Economic Perspectives, Sciendo, vol. 16(3), pages 245-267, September.

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