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    Determinants of Foreign Direct Investment

    Choi, Hyelin | August 2016
    Abstract
    As the world economy becomes integrated and foreign investment becomes liberalized, most governments compete to attract foreign direct investment (FDI) to their country based on the belief that foreign firms bring advanced technology, create jobs, and boost economic growth. Also, since FDI is one of the most stable capital flows, unlike capital flows in the stock and bond markets, it holds particular importance for developing countries. For these reasons, the determinants of FDI have been broadly studied from a variety of perspectives. Since FDI is determined by the behavior of multinational companies (MNEs), the motive behind the investment from the perspective of the investing firm is relevant. The first motive for FDI is to serve the local market by substituting exports from home to host country, called horizontal FDI. In this case, local market size and purchasing power strongly impact the location choice of MNEs. The second motive for FDI is to gain access to production factors including natural resources, raw materials, and human resources, called vertical FDI. In this case, availability of resources and lower factor costs play important roles. The third and last type of FDI is to relocate certain parts of production, produce goods, and then export them to third countries, which is called export-platform FDI. Since the main reason firms seek export-platform FDI is to save production and trade costs, low labor costs, lax market regulations, and trade openness are crucial determinants.
    Citation
    Choi, Hyelin. 2016. Determinants of Foreign Direct Investment. © Korea Institute for International Economic Policy. http://hdl.handle.net/11540/10549.
    Keywords
    Economic Crisis
    Economic Efficiency
    Economic Policies
    Financial Stability
    Financial Management System
    Financial Restructuring
    Capital Market Development
    Market Development
    Economics
    Erosion
    International Economics
    Macroeconomic
    Macroeconomic Analysis
    Performance Evaluation
    Impact Evaluation
    Foreign and Domestic Financing
    Foreign Direct Investment
    Economies in transition
    Economic agreements
    Social condition
    Economic dependence
    Economic assistance
    Crisis
    Taxation
    Public Accounting
    National Budget
    Municipal Bonds
    Local Government
    Local Taxes
    International Monetary Relations
    International Financial Market
    Multilateral Financial Institutions
    Economic Recession
    Market
    Crisis
    Economic indicators
    Growth models
    Gross domestic product
    Macroeconomics
    Economic forecast
    Business Financing
    Investment Requirements
    Corruption
    Money laundering
    Financial crisis
    Labor economics
    Regional economics
    Business recessions
    Multilateral development banks
    Regulatory reform
    Capital
    Exports
    Economic development projects
    Economic policy
    Economic forecasting
    Investment Requirements
    Banks
    International banks and banking
    Capital movements
    Central banks and banking
    Bills of exchange
    Swaps
    Banks and banking
    Financial crisis
    Credit control
    Credit allocation
    Capital market
    International liquidity
    Liquidity
    Exchange rate
    Use tax
    Taxing power
    State of taxation
    Tax-sales
    Tax revenue estimating
    Tax planning
    Spendings tax
    Special assessments
    Tax administration and procedure
    Sales tax
    Real property and taxation
    Progressive taxation
    Effect of taxation on land use
    Effect of taxation on labor supply
    Intergovernmental tax relations
    Inheritance and transfer tax
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    Citable URI
    http://hdl.handle.net/11540/10549
    Metadata
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    KIEPopinions_no91.pdf (316.0Kb)
    Author
    Choi, Hyelin
    Theme
    Finance
    Economics
     
    Copyright 2016-2021 Asian Development Bank Institute, except as explicitly marked otherwise
    Copyright 2016-2021 Asian Development Bank Institute, except as explicitly marked otherwise