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Information Externalities Affecting the Dynamic Pattern of Foreign Direct Investment: The Case of China

Author

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  • Sayuri Shirai
  • Dongpei Huang

Abstract

The dynamic pattern of foreign direct investment (FDI) in developing countries shows a three-phase pattern. Despite government policies that promote it, initially the inflow of FDI is sluggish, followed by a period of considerable fluctuation before finally entering the stage of rapid growth. The paper explains the pattern through recourse to two concepts: the searching process of individual investors and the information externalities of investors in the aggregate. Policy implications that may serve to shift an economy of a developing country from small-scale FDI to one of rapidly expanding FDI are considered. As China is a clear example of this pattern, it has been selected to promote understanding of the process.

Suggested Citation

  • Sayuri Shirai & Dongpei Huang, 1994. "Information Externalities Affecting the Dynamic Pattern of Foreign Direct Investment: The Case of China," IMF Working Papers 1994/044, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1994/044
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    Cited by:

    1. Comino, Stefano, 2006. "Entry and exit with information externalities," Journal of Economic Behavior & Organization, Elsevier, vol. 60(1), pages 85-99, May.
    2. Graham Bird & Ramkishen S. Rajan, 2004. "Coping with, and Cashing in on, International Capital Volatility," Palgrave Macmillan Books, in: International Finance and the Developing Economies, chapter 11, pages 181-203, Palgrave Macmillan.
    3. Dees, Stephane, 1998. "Foreign Direct Investment in China: Determinants and Effects," Economic Change and Restructuring, Springer, vol. 31(2-3), pages 175-194.
    4. Shi, Yizheng, 2001. "Technological capabilities and international production strategy of firms: the case of foreign direct investment in China," Journal of World Business, Elsevier, vol. 36(2), pages 184-204, July.

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