IDEAS home Printed from https://ideas.repec.org/a/wsi/gejxxx/v12y2012i03n1524-5861.1822.html
   My bibliography  Save this article

Impact of FDI Restrictions on Inward FDI in OECD Countries

Author

Listed:
  • Madanmohan Ghosh

    (Environment Canada)

  • Peter Syntetos

    (Treasury Board of Canada)

  • Weimin Wang

    (Statistics Canada)

Abstract

Attracting FDI has become an integral part of the national development strategies in many economies, as it is generally believed that the benefits from foreign direct investment (FDI) outweigh its drawbacks. The UNCTAD in its World Investment Report (2006) highlights that there were 205 FDI related policy changes across the world in 2005, and most of these changes made conditions more favourable for foreign companies to enter and operate. However, FDI is still far less liberalized than trade in goods and services. Recent studies undertaken at the OECD show that although declined significantly since 1980s, barriers to inward FDI are still widespread in OECD countries. This paper explores the impact of FDI restrictions on inward FDI stocks using panel time series (1981-2004) data for 23 OECD countries. Our empirical results show that FDI restrictions do have significant impact on inward FDI stocks. The estimated short-run elasticity of inward FDI stocks with respect to FDI restrictions is in the range between –0.06 to –0.14, and the corresponding long-run elasticity is in the range between –0.64 to –1.49. This implies that by reducing barriers to FDI, countries such as Canada can significantly increase their level of inward FDI stocks.

Suggested Citation

  • Madanmohan Ghosh & Peter Syntetos & Weimin Wang, 2012. "Impact of FDI Restrictions on Inward FDI in OECD Countries," Global Economy Journal (GEJ), World Scientific Publishing Co. Pte. Ltd., vol. 12(3), pages 1-26, August.
    • Handle: RePEc:wsi:gejxxx:v:12:y:2012:i:03:n:1524-5861.1822
    DOI: 10.1515/1524-5861.1822
    as

    Download full text from publisher

    File URL: https://www.worldscientific.com/doi/abs/10.1515/1524-5861.1822
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://libkey.io/10.1515/1524-5861.1822?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Klein, Michael W. & Rosengren, Eric, 1994. "The real exchange rate and foreign direct investment in the United States : Relative wealth vs. relative wage effects," Journal of International Economics, Elsevier, vol. 36(3-4), pages 373-389, May.
    2. Kogut, Bruce & Chang, Sea Jin, 1991. "Technological Capabilities and Japanese Foreign Direct Investment in the United States," The Review of Economics and Statistics, MIT Press, vol. 73(3), pages 401-413, August.
    3. James R. MARKUSEN, 2021. "Multinationals, Multi-Plant Economies, And The Gains From Trade," World Scientific Book Chapters, in: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models, chapter 1, pages 3-24, World Scientific Publishing Co. Pte. Ltd..
    4. Bruce A. Blonigen, 2019. "Firm-Specific Assets and the Link Between Exchange Rates and Foreign Direct Investment," World Scientific Book Chapters, in: Foreign Direct Investment, chapter 3, pages 89-120, World Scientific Publishing Co. Pte. Ltd..
    5. Hélène Erkel‐Rousse & Daniel Mirza, 2002. "Import price elasticities: reconsidering the evidence," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 35(2), pages 282-306, May.
    6. James R. Markusen & Keith E. Maskus, 2002. "Discriminating Among Alternative Theories of the Multinational Enterprise," Review of International Economics, Wiley Blackwell, vol. 10(4), pages 694-707, November.
    7. Kenneth A. Froot & Jeremy C. Stein, 1991. "Exchange Rates and Foreign Direct Investment: An Imperfect Capital Markets Approach," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(4), pages 1191-1217.
    8. John H. Dunning, 1977. "Trade, Location of Economic Activity and the MNE: A Search for an Eclectic Approach," Palgrave Macmillan Books, in: Bertil Ohlin & Per-Ove Hesselborn & Per Magnus Wijkman (ed.), The International Allocation of Economic Activity, chapter 12, pages 395-418, Palgrave Macmillan.
    9. Barro, Robert J & Lee, Jong-Wha, 2001. "International Data on Educational Attainment: Updates and Implications," Oxford Economic Papers, Oxford University Press, vol. 53(3), pages 541-563, July.
    10. Ronald S. Saunders, 1982. "The Determinants of Interindustry Variation of Foreign Ownership in Canadian Manufacturing," Canadian Journal of Economics, Canadian Economics Association, vol. 15(1), pages 77-84, February.
    11. Kiviet, Jan F., 1995. "On bias, inconsistency, and efficiency of various estimators in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 68(1), pages 53-78, July.
    12. David L. Carr & James R. Markusen & Keith E. Maskus, 2021. "Estimating The Knowledge-Capital Model of the Multinational Enterprise," World Scientific Book Chapters, in: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models, chapter 5, pages 95-110, World Scientific Publishing Co. Pte. Ltd..
    13. Takeshi Koyama & Stephen S. Golub, 2006. "OECD's FDI Regulatory Restrictiveness Index: Revision and Extension to more Economies," OECD Working Papers on International Investment 2006/4, OECD Publishing.
    14. Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, number 9780195060119.
    15. Ignatius J. Horstmann & James R. Markusen, 2021. "Endogenous market structures in international trade (natura facit saltum)," World Scientific Book Chapters, in: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models, chapter 2, pages 25-45, World Scientific Publishing Co. Pte. Ltd..
    16. Robert E. Lipsey, 2002. "Home and Host Country Effects of FDI," NBER Working Papers 9293, National Bureau of Economic Research, Inc.
    17. Stephen S. Golub, 2003. "Measures of Restrictions on Inward Foreign Direct Investment for OECD Countries," OECD Economic Studies, OECD Publishing, vol. 2003(1), pages 85-116.
    18. Qin, Jie, 2000. "Exchange Rate Risk and Two-Way Foreign Direct Investment," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 5(3), pages 221-231, July.
    19. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
    20. Clark Don P. & Highfill Jannett & de Oliveira Campino Jonas & Rehman Scheherazade S., 2011. "FDI, Technology Spillovers, Growth, and Income Inequality: A Selective Survey," Global Economy Journal, De Gruyter, vol. 11(2), pages 1-44, July.
    21. Giuseppe Nicoletti & Stephen S. Golub & Dana Hajkova & Daniel Mirza & Kwang-Yeol Yoo, 2003. "Policies and International Integration: Influences on Trade and Foreign Direct Investment," OECD Economics Department Working Papers 359, OECD Publishing.
    22. Helpman, Elhanan, 1984. "A Simple Theory of International Trade with Multinational Corporations," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 451-471, June.
    23. T. Gao, 2003. "Multinational activity and country characteristics in OECD countries," Applied Economics Letters, Taylor & Francis Journals, vol. 10(4), pages 255-258.
    24. Ghosh Madanmohan & Wang Weimin, 2010. "Does FDI Accelerate Economic Growth? The OECD Experience Based on Panel Data Estimates for the Period 1980-2004," Global Economy Journal, De Gruyter, vol. 9(4), pages 1-23, January.
    25. S. Lael Brainard, 1993. "A Simple Theory of Multinational Corporations and Trade with a Trade-Off Between Proximity and Concentration," NBER Working Papers 4269, National Bureau of Economic Research, Inc.
    26. Kozo Kiyota & Shujiro Urata, 2004. "Exchange Rate, Exchange Rate Volatility and Foreign Direct Investment," The World Economy, Wiley Blackwell, vol. 27(10), pages 1501-1536, November.
    27. Isabel Faeth, 2005. "Determinants of FDI in Australia : Which Theory Can Explain it Best?," Department of Economics - Working Papers Series 946, The University of Melbourne.
    28. James R. Markusen & Keith E. Maskus, 2001. "General-Equilibrium Approaches to the Multinational Firm: A Review of Theory and Evidence," NBER Working Papers 8334, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kottaridi, Constantina & Louloudi, Konstantina & Karkalakos, Sotiris, 2019. "Human capital, skills and competencies: Varying effects on inward FDI in the EU context," International Business Review, Elsevier, vol. 28(2), pages 375-390.
    2. Zongo, Amara, 2020. "The Impact of Restrictive Measures on Bilateral FDI in OECD Countries," MPRA Paper 101929, University Library of Munich, Germany.
    3. Ogbeifun Lawrence & Shobande Olatunji Abdul, 2020. "Causality Analysis of Disaggregated FDI Inflows on Sectorial Growth in OECD Area," Studia Universitatis „Vasile Goldis” Arad – Economics Series, Sciendo, vol. 30(4), pages 92-110, December.
    4. Fernando Mistura & Caroline Roulet, 2019. "The determinants of Foreign Direct Investment: Do statutory restrictions matter?," OECD Working Papers on International Investment 2019/01, OECD Publishing.
    5. Amara Zongo, 2022. "The effects of restrictive measures on cross‐border investment: Evidence from OECD and emerging countries," The World Economy, Wiley Blackwell, vol. 45(8), pages 2428-2477, August.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Fernando Mistura & Caroline Roulet, 2019. "The determinants of Foreign Direct Investment: Do statutory restrictions matter?," OECD Working Papers on International Investment 2019/01, OECD Publishing.
    2. Isabel Faeth, 2009. "Determinants Of Foreign Direct Investment – A Tale Of Nine Theoretical Models," Journal of Economic Surveys, Wiley Blackwell, vol. 23(1), pages 165-196, February.
    3. Bruce Blonigen, 2005. "A Review of the Empirical Literature on FDI Determinants," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 33(4), pages 383-403, December.
    4. Raphael Chiappini & François Viaud, 2021. "Macroeconomic, institutional, and sectoral determinants of outward foreign direct investment: Evidence from Japan," Pacific Economic Review, Wiley Blackwell, vol. 26(3), pages 404-433, August.
    5. Erdey, László, 2004. "A működőtőke-áramlás a telephelyválasztás elméletének tükrében [The flow of operating capital in the light of the theory of location choice]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(5), pages 472-494.
    6. Chiara Franco & Francesco Rentocchini & Giuseppe Vittucci Marzetti, 2008. "Why do firms invest abroad? An analysis of the motives underlying Foreign Direct Investments," Department of Economics Working Papers 0817, Department of Economics, University of Trento, Italia.
    7. Aizenman, Joshua, 2003. "Volatility, employment and the patterns of FDI in emerging markets," Journal of Development Economics, Elsevier, vol. 72(2), pages 585-601, December.
    8. Conconi, Paola & Sapir, André & Zanardi, Maurizio, 2016. "The internationalization process of firms: From exports to FDI," Journal of International Economics, Elsevier, vol. 99(C), pages 16-30.
    9. van der Ploeg, Frederick & Poelhekke, Steven, 2010. "Do Natural Resources Attract FDI? Evidence from Non-Stationary Sector-Level Data," CEPR Discussion Papers 8079, C.E.P.R. Discussion Papers.
    10. Lee, Seungrae & Park, Seung Jae & Seshadri, Sridhar, 2017. "Plant location and inventory level decisions in global supply chains: Evidence from Korean firms," European Journal of Operational Research, Elsevier, vol. 262(1), pages 163-179.
    11. Camarero, Mariam & Moliner, Sergi & Tamarit, Cecilio, 2021. "Japan's FDI drivers in a time of financial uncertainty. New evidence based on Bayesian Model Averaging," Japan and the World Economy, Elsevier, vol. 57(C).
    12. Smith, Pamela J., 2001. "How do foreign patent rights affect U.S. exports, affiliate sales, and licenses?," Journal of International Economics, Elsevier, vol. 55(2), pages 411-439, December.
    13. Isabel Faeth, 2005. "Determinants of FDI in Australia : Which Theory Can Explain it Best?," Department of Economics - Working Papers Series 946, The University of Melbourne.
    14. Rosa Forte, 2004. "The relationship between foreign direct investment and international trade. Substitution or complementarity? A survey," FEP Working Papers 140, Universidade do Porto, Faculdade de Economia do Porto.
    15. Mariam Camarero & Sergi Moliner & Cecilio Tamarit, 2021. "Is there a euro effect in the drivers of US FDI? New evidence using Bayesian model averaging techniques," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 157(4), pages 881-926, November.
    16. Laura Alfaro & Andrew Charlton, 2009. "Intra-industry Foreign Direct Investment," American Economic Review, American Economic Association, vol. 99(5), pages 2096-2119, December.
    17. Syarifuddin, Ferry, 2020. "The Dynamics of Foreign Direct Investment and Exchange Rates: An Interconnection Approach in ASEAN," MPRA Paper 104596, University Library of Munich, Germany.
    18. Andre Jungmittag, 2019. "Service trade restrictiveness and internationalisation of retail trade," International Economics and Economic Policy, Springer, vol. 16(2), pages 293-333, April.
    19. Irac, D., 2006. "Revisiting the proximity-concentration trade-off: Distance and Horizontal Foreign Direct Investment in OECD countries," Working papers 153, Banque de France.
    20. Sarker, Bibhuti & Serieux, John, 2023. "Multilevel determinants of FDI: A regional comparative analysis," Economic Systems, Elsevier, vol. 47(3).

    More about this item

    Keywords

    FDI; FDI restriction;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wsi:gejxxx:v:12:y:2012:i:03:n:1524-5861.1822. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Tai Tone Lim (email available below). General contact details of provider: https://www.worldscientific.com/worldscinet/gej .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.