A Clear Advantage: The Benefits of Transparency to Foreign Direct Investment By Elaine Shen and Mike Sliwinski

The Story of Vietnam

How does a country’s transparency influence the amount of FDI a country receives? Hypothesis: increased transparency has a positive correlation to FDI Variables: HRV Index and FDI data Methodology: regression analysis Results: increasing transparency increases FDI Theory: why transparency matters

Hypothesis Research Question: Does a country’s level of transparency affect the amount of FDI it receives? Yes! Strong positive relationship

Factors Explanatory Variable (x) Dependent Variable (y) Transparency The HRV Index Dependent Variable (y) Foreign Direct Investment (BOP, constant USD) Explain why we chose FDI over other factors. Here we will reference existing literature. How it differs from existing research: we will focus on measuring transparency using data dissemination HRV indicator. Previous literature focuses on (freedom of speech aspect? Freedom of information in general?) Thus our work is different and more accurate because it focuses on an economic measure of transparency

Methodology: Regressions Controls GDP (natural log) GDP/capita (natural log) GDP Growth rate (annual % change) Exports (% GDP) Trade Variable (imports+exports/GDP) Real Interest Rate Exchange Rate Inflation (CPI) Democracy Natural resource dependency Lagged FDI Country fixed effects Year fixed effects

Greater transparency leads to greater FDI Results: Greater transparency leads to greater FDI

Figure 1: Transparency and FDI (linear best fit)

Table 1: Results Table 2. The Effect of Transparency on Foreign Direct Investment (net inflows, millions of constant USD) Variable Name (Model 1) (Model 2) (Model 3) (Model 4) Transparency 0.246*** 0.099*** 0.164*** 0.191***   (0.025) (0.027) (0.032) Lagged FDI 0.000 (0.000) GDP (natural log) 1.090*** 1.001** 1.401*** (0.146) (0.392) (0.129) GDP Growth (annual % growth) 0.036*** 0.024*** 0.023*** (0.005) (0.006) (0.004) Trade Variable (imports+exports/GDP) 0.109 0.038 (0.070) (0.077) Democracy (Polity2) 0.015** -0.009 (0.007) (0.009) GDP/capita (natural log) 0.162 (0.377) Exports (annual % growth) (0.001) Real Interest Rate 0.002 (0.002) Exchange Rate -0.000** Inflation, consumer prices (annual %) -0.000 Natural Resource Dependency (resource rents as % GDP) 0.013** 0.013*** (0.003) Year Fixed Effects Yes Country Fixed Effects _cons 4.212*** -21.462*** -19.032*** -28.361*** (0.132) (3.492) (7.206) (3.049) Number of observations 3360 2648 1895 3076 Adj. R-squared 0.39 0.43 0.41 0.40 Notes: Standard errors in parentheses. *** indicates significance at the one percent level, ** at the five percent level, and * at the ten percent level.

But Why? 3 Reasons Decreases cost Decreases risk Investment management during crisis

Conclusion Increased transparency is positively correlated to increased FDI Further research Instrumental variables Differences in differences Significance: policy suggestions