Temas

WP/10/187

Determinants of Foreign Direct Investment: A Sectoral and Institutional Approach
James P. Walsh and Jiangyan Yu

© 2010 International Monetary Fund

WP/10/187

IMF Working Paper Asia Pacific Department Determinants of Foreign Direct Investment: A Sectoral and Institutional Approach Prepared by James P. Walsh and Jiangyan Yu Authorized for distribution by Laura Papi July 2010Abstract This Working Paper should not be reported as representing the views of the IMF.
The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Using a dataset which breaks down FDI flows intoprimary, secondary and tertiary sector investments and a GMM dynamic approach to address concerns about endogeneity, the paper analyzes various macroeconomic, developmental, and institutional/qualitative determinants of FDI in a sample of emerging market and developed economies. While FDI flows into the primary sector show little dependence on any of these variables, secondary and tertiary sectorinvestments are affected in different ways by countries’ income levels and exchange rate valuation, as well as development indicators such as financial depth and school enrollment, and institutional factors such as judicial independence and labor market flexibility. Finally, we find that the effect of these factors often differs between advanced and emerging economies.

JEL Classification Numbers:F21, F23 Keywords: Foreign direct investment, determinants, institutional development, international finance. Author’s E-Mail Address: jwalsh@imf.org, jyu@imf.org

2 Contents I. II. III. IV. Page

Introduction ........................................................................................................................3 Background........................................................................................................................4 Data and Methodology .......................................................................................................7 Results ................................................................................................................................9 A. Macroeconomic Variables and FDI.............................................................................9 B. Qualitative Variables .................................................................................................12 C. Developed versus Developing Economies ................................................................15 V. Conclusion........................................................................................................................21 References ................................................................................................................................24 Tables 1. FDI and Macroeconomic Variables ..................................................................................11 2. Total FDI and Institutions.................................................................................................12 3. Primary FDI and Institutions ............................................................................................13 4. Secondary FDI and Institutions ........................................................................................14 5. Tertiary FDI and Institutions ............................................................................................15 6.FDI and Macroeconomic Variables-By Level of Development .......................................16 7. Total FDI and Qualitative Determinants-By Level of Development................................17 8. Primary FDI and Qualitative Determinants-By Level of Development ...........................18 9. Secondary FDI and Qualitative Determinants-By Level of Development .......................19 10....