Determinants of Foreign Direct Investment: A Sectoral and Institutional Approach
IMF Working Papers, August 1, 2010
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- Determinants of Foreign Direct Investment: A Sectoral and Institutional Approach
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Bibliographic details
- Authors: Jiangyan Yu, James P Walsh
- Published: August 1, 2010
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781455202218.001
Research scope and methodology
- Dataset breaks down FDI flows into primary, secondary and tertiary sector investments.
- Employs a GMM dynamic approach to address concerns about endogeneity.
- Sample covers emerging market and developed economies.
- Authors: Jiangyan Yu, James P Walsh.
- Publication date: August 1, 2010.
- Series: Working Paper No. 2010/187; Issue: 187; Volume: 2010; Pages: 27.
- DOI: https://doi.org/10.5089/9781455202218.001
- Stock No: WPIEA2010187; ISBN: 9781455202218; ISSN: 1018-5941.
Key findings — sectoral differences
- Primary sector FDI flows:
- Show little dependence on the macroeconomic, developmental, and institutional/qualitative variables analyzed.
- Secondary and tertiary sector FDI flows:
- Are affected in different ways by countries’ income levels and exchange rate valuation.
- Respond to development indicators such as financial depth and school enrollment.
- Respond to institutional factors such as judicial independence and labor market flexibility.
- Effects often differ between advanced and emerging economies.
Determinants examined
- Macroeconomic variables:
- Exchange rate valuation (real effective exchange rates, real exchange rates).
- Countries’ income levels.
- Developmental indicators:
- Financial depth.
- School enrollment.
- Institutional / qualitative factors:
- Judicial independence.
- Labor market flexibility.
Subject classification and keywords
- 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.
Implications (implicit in findings)
- Policy and analytical emphasis should be sector-sensitive:
- Primary-sector FDI may be less sensitive to macroeconomic, developmental, and institutional reforms.
- Secondary- and tertiary-sector FDI are more responsive to improvements in financial depth, education (school enrollment), institutional quality (judicial independence), and labor market flexibility.
- Exchange rate policy and income-level considerations matter differently across sectors and between advanced and emerging economies.
Source: "Determinants of Foreign Direct Investment: A Sectoral and Institutional Approach", IMF Working Papers 2010, 187 (2010), Jiangyan Yu and James P Walsh, August 1, 2010.