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Information Technology and Bilateral FDI: Theory and Evidence

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  • Jeon, Bang Nam
  • Tang, Linghui
  • Zhu, Lei

Abstract

This paper investigates the impact of communication cost on the FDI activities of multinational corporations (MNCs). First, we provide a theoretical foundation for a gravity-type FDI model, which shows that physical distance and communication technology are important determinants of FDI activities. Second, we apply the IT-augmented gravity model to bilateral FDI data for a total of 47 OECD and non-OECD countries from 1980 to 1997 and find that distance is negatively related to inward FDI stocks while the growth of IT, measured by teledensity and celldensity, has encouraged FDI significantly. The impact is found to be more prominent on FDI from G7 countries to OECD countriesthan to non-OECD countries, and more prominent in the 1990s than in the 1980s. Moreover, IT plays a more effective role by reducing communication cost when distance is beyond a threshold range.

Suggested Citation

  • Jeon, Bang Nam & Tang, Linghui & Zhu, Lei, 2012. "Information Technology and Bilateral FDI: Theory and Evidence," MPRA Paper 36628, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:36628
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    Cited by:

    1. Wang, Zhe & Jiang, Dianchun & Zhang, Ming, 2024. "Seeking new location advantages: Analysis of emerging digital cross-border M&As—Based on TIMG index," International Business Review, Elsevier, vol. 33(2).
    2. KARGI, Bilal, 2014. "Portfolio in Turkish Economy, and A Long Termed Relation Between Foreign Direct Investments and The Growth, and The Structural Breakage Analysis (1980-2012)," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 6(1), pages 70-81.
    3. Francisco Callado-Muñoz & Jana Hromcová & Natalia Utrero-González, 2014. "Openness and Technology Diffusion in Payment Systems: The Case of NAFTA," Computational Economics, Springer;Society for Computational Economics, vol. 43(4), pages 497-519, April.
    4. repec:unt:escsti:sti84 is not listed on IDEAS

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    More about this item

    Keywords

    communication cost; FDI; distance;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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