Inflows of foreign direct investment spur growth in the receiving country and cause positive spillovers of technology and skill throughout the entire economy. FDI comes from source countries that can be broadly classified as traditional and nontraditional investors. Traditional refers to wealthy and developed economies, while nontraditional refers to emerging economies in the process of developing. The overarching hypothesis is that nontraditional source countries are less risk-averse than their wealthier counterparts. This is believed to be the case because multinational enterprises located in these regions are familiar with political and economic uncertainties at home; therefore, less than satisfactory investment conditions in the host economy abroad do not deter their interest. If FDI is originating in a more diverse set of source countries, does this mean receiving nations have more opportunities to attract FDI and subsequently experience positive growth? We test how the two source country types respond to different elements of risk using a random effects generalized least squares regression. Our main empirical findings support that political instability indeed does not deter FDI flows originating in nontraditional source countries, however quality of transport and trade-related infrastructure within the receiving economy does determine FDI flows from both source country types. Overall, we strongly emphasize that a blanket generalization concerning investment behavior between different types of source countries cannot be made, and encourage more research to be done in this relatively new field of study.
A large part of the growth gap in post-communist transition economies can be attributed to how well each country has internalized the inward capital injections from foreign direct investment (FDI) and its accompanying positive spillovers into tangible and sustainable economic growth. On the one hand, most of Central and Eastern European countries have achieved a rapid economic growth from FDI. On the other hand, countries like Georgia, Mongolia, and Tajikistan, are still struggling to use FDI to sustainably expand economically. Thus, this study hypothesizes that the economic successes of transition economies today were largely determined by the individual FDI absorptive capacities. Employing a panel data for a sample of 32 post-communist transition economies, this study finds that the most significant absorptive capacity factor of FDI is human capital. In support of past literature, the study also finds a positive, significant relationship between economic growth and R&D, development of financial and institutional systems, and openness to trade.
Since the North American Free Trade Agreement (NAFTA) was enacted in 1994, the amount of foreign direct investment (FDI) inflow in Mexico has increased significantly. After 20 years since NAFTA’s inception, this paper examines how FDI flows into Mexico compare to total factor productivity (TFP) for the 1960-2013 period. Results show there is a statistically significant unexplained portion of TFP positively affecting FDI. Factors used to determine TFP include total imports, total exports, and unemployment rate from 1980-2013. Results conclude that there are implications regarding international trade policy of the negative effects on FDI as they pertain to Mexico before and after the inauguration of NAFTA.
The main focus of this study is to examine factors that impact foreign direct invest based on differences in development of Latin American nations. Twenty-one countries are divided into low, middle, and high income groups based on wealth. All econometric tests are conducted for each individual economic subgroup. A random effects model is used to analyze the data. The study finds that there is a great deal of correlation between dependent and independent variables at the low level, less correlation at the middle level, and very little correlation at the high-income level. These results show that variables have different explanatory power based on how wealthy a nation is suggesting development effects a corporation’s decision to invest.
The main focus of this study is to test how certain geopolitical events affected the trend in foreign direct investment into Jordan from 1993-2011. This study uses prior research on foreign direct investment and economic growth in developing countries to create a theoretical framework for the determinants of FDI into Jordan. A robust ordinary least squares regression was used to best explain the model. The study finds that the 6 events chosen did not statistically impact FDI into Jordan, and only the economic wellbeing of Jordan significantly affected foreign direct investment. The implications of these results affect the Jordanian government and foreign investors to make more conscious decisions about the economic benefits of investing. Further research is necessary to expand this theoretical model in Jordan and throughout the world.
Over the last century, Latin American countries have experienced positive economic growth, but with one in five Latin Americans living in poverty throughout rural and urban communities, it is pertinent for Latin American countries to attract foreign direct investment. This paper contributes to economic literature by exploring the relationship between foreign direct investment, economic growth and human capital accumulation in 19 Latin American countries and finds that both foreign direct investment and human capital accumulation have a significant impact on gross domestic product (GDP) per capita. However, when the economic model controls for literacy rates, foreign direct investment loses its significance and explanatory power meaning that Latin American countries should concern themselves with, and implement policy changes that promote, the accumulation of human capital.