Foreign Direct Investment: Analysis of Aggregate Flows

Foreign Direct Investment: Analysis of Aggregate Flows

Foreign Direct Investment: Analysis of Aggregate Flows

Foreign Direct Investment: Analysis of Aggregate Flows


The 1990s saw global flows of foreign direct investment increase some sevenfold, spurring economists to explore FDI from a micro- or trade-based perspective. Foreign Direct Investment is one of the first books to analyze the macroeconomics of FDI, treating FDI as a unique form of international capital flow between specific pairs of countries.

By examining the determinants of the aggregate flows of FDI at the bilateral, source-host-country level, Assaf Razin and Efraim Sadka present the first systematic global analysis of the singular features of FDI flows. Drawing on a wealth of fresh data, they provide new theoretical models and empirical techniques that illuminate the vital country-pair characteristics that drive these flows. Uniquely, Foreign Direct Investment examines FDI between developed and developing countries, and not just between developed countries. Among many other insights, the book shows that tax competition vis-a-vis FDI need not lead to a "race to the bottom." Foreign Direct Investment is an essential resource for graduate students, academics, and policy professionals.


Economists tend to favor the free flow of capital across national borders, because it allows capital to seek out the highest rate of return. These flows also offer several other advantages. First, they reduce the risk faced by owners of capital by allowing them to diversify their lending and investment. Second, the global integration of capital markets can contribute to the spread of best practices in corporate governance, accounting standards, and legal traditions. Third, the global mobility of capital limits the ability of governments to pursue bad policies.

Capital can flow across countries in a variety of ways. One can distinguish among three major ones: foreign direct investment (FDI), foreign portfolio investment (FPI), and loans. Among all these types, fdi, which involves a lasting interest and control, stands out. the world flows of fdi rose about sevenfold (in current U.S. dollars) over the 1990s; the vast majority flows between developed countries, but there are recently increased flows into emerging markets.

This book provides a treatise on the unique features of fdi flows, covering both theory and data. It focuses on the determinants of the aggregate flows of fdi at the source-host country level.

The book is likely to find its main readership among academics, graduate students, and trained policy professionals. the level of analysis is appropriate for an advanced graduate course, and could be accessible to anyone with some graduate training in economics. the book is also relatively self-contained, including a special chapter reviewing the econometric techniques used, which means that readers do not necessarily have to consult other reference books.

The scope of the book is specific to the topic studied. As a result, it could find some use as a textbook in a course designed to study foreign direct investment. Also, chapters of the book can be assigned as readings in a broader based international finance course.

To the best of our knowledge, there are no other books covering the same subject matter. There has been a great deal of work studying fdi from a microor trade-based perspective, but little has focused on the macroeconomics of fdi. the existing macroeconomic literature, available mostly in research papers (other than book form), tends to focus on fdi in developing countries. As a result, this book can be expected to fill a niche in the literature on fdi. We include also emerging and developed countries.

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