What Drives FDI from Non-traditional Sources? A Comparative Analysis of the Determinants of Bilateral FDI Flows

Maximiliano Sosa Andrés,Peter Nunnenkamp,Matthias Busse

doi:10.5018/economics-ejournal.ja.2013-1

Maximiliano Sosa Andrés, Peter Nunnenkamp + Show 1 more

Open Access

https://doi.org/10.5018/economics-ejournal.ja.2013-1

Copy DOI

Journal: Economics	Publication Date: Jan 22, 2013
Citations: 14	License type: CC BY 4.0

Affiliation: Kiel Institute for the World Economy

Abstract

Abstract Non-traditional source countries of FDI play an increasingly important role, notably in developing host countries. This raises the question of whether the location choices differ systematically between traditional and non-traditional source countries. We perform Logit and Poisson Pseudo Maximum Likelihood estimations to assess the determinants of bilateral FDI flows. We find that economic geography variables are more relevant for FDI from nontraditional sources. The risk aversion of non-traditional investors is not consistently weaker than that of traditional investors. Resource abundance and superior technology in the host countries represent minor pull factors of FDI from non-traditional sources.

Highlights

Multinational enterprises (MNEs) based outside the OECD have attracted a lot of interest recently
Location choices at this gatekeeping stage, as it is often called in the literature on the allocation of foreign aid, imply a binary dependent variable taking the value of one whenever FDI flows from a particular source country to a particular host country, and zero when there is no bilateral FDI flow in period t
We present Poisson Pseudo Maximum Likelihood estimations in terms of exponentiated coefficients, i.e., incidence rate ratios (IRRs) with the log of bilateral FDI flows as the dependent variable (Table 2)

Summary

Introduction

Multinational enterprises (MNEs) based outside the OECD have attracted a lot of interest recently. In most recent years (2009-2010), more than 28 percent of overall FDI outflows originated from developing and transition economies This suggests that non-traditional sources become increasingly important, even though the most developed source countries may regain some ground after overcoming the financial crisis. Aykut and Ratha (2003) find that more than one-third of FDI flows to developing economies originated from other developing economies in the 1990s already This leads to the question of whether foreign direct investors based in emerging markets and developing countries behave differently from traditional investors. This question has received little attention in the previous empirical literature on the determinants of FDI.

Previous literature and hypotheses

Gravity approach and data

Results

24 There is just one notable exception

Summary and conclusion