Determinants of Foreign Direct Investment: A Sectoral and Institutional Approach

August 1, 2010

Preview Citation

Format: Chicago

Jiangyan Yu, and James P Walsh. Determinants of Foreign Direct Investment: A Sectoral and Institutional Approach, (USA: International Monetary Fund, 2010) accessed December 26, 2024

Disclaimer: 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

Summary

Using a dataset which breaks down FDI flows into primary, 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 sector investments 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.

Subject: Emerging and frontier financial markets, Foreign direct investment, Labor market flexibility, Real effective exchange rates, Real exchange rates

Keywords: FDI flow, FDI inflow, FDI stock, Primary sector FDI, Tertiary sector, WP

Publication Details

Pages:

27
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2010/187
Stock No:

WPIEA2010187
ISBN:

9781455202218
ISSN:

1018-5941

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