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FDI Flows to Latin America: A Pooled and Cointegration Analysis, 1980-2014

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  • Miguel D. Ramirez

    (Department of Economics, Trinity College)

Abstract

This paper estimates a pooled (fixed-effects) FDI investment function that seeks to identify some of the major economic and institutional determinants of net FDI flows to nine major Latin American countries during the 1980-2014 period. First, it develops a conceptual framework of analysis that seeks to identify some of the major economic and institutional determinants of FDI. Second, the paper gives an overview of FDI flows to Latin America during the 1990-2015 period, with particular emphasis on their contribution to the financing of gross capital formation. Third, an empirical model for FDI flows to Latin America is outlined and an economic rationale is provided for the included variables and their expected signs. Fourth, the estimates from a panel regression designed to explain the variation in FDI flows to Latin America during the 1980-2014 period suggests that market size (proxied by real GDP), credit provided by the private banking sector, government expenditures on education, and the level of economic freedom as measured by the Fraser Institute have a positive and significant effect. On the other hand, public investment spending, the volatility of real GDP and the real exchange rate have a negative and significant effect on FDI flows. The panel unit root tests on the residuals of the relevant panel regressions also suggest that there is a stable, long-term relationship among the included variables; i.e., the selected variables in the reported regressions are cointegrated over the relevant time period.Finally, the paper summarizes the major findings and offers some policy prescriptions for attracting FDI flows to the region and enhancing their positive direct and indirect effects.

Suggested Citation

  • Miguel D. Ramirez, 2017. "FDI Flows to Latin America: A Pooled and Cointegration Analysis, 1980-2014," Working Papers 1703, Trinity College, Department of Economics.
    • Handle: RePEc:tri:wpaper:1703
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    References listed on IDEAS

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    More about this item

    Keywords

    ADF Fisher statistic. Economic Freedom Index (EFI); Foreign Direct Investment (FDI); Latin America; Panel Unit Root Tests; Pedroni Residual Cointegration Test; Pooled Regression; Remittances of FDI profits; and Seemingly Unrelated Regression (SUR).;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • O50 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - General

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