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

The Story of Vietnam

A Link Between Transparency and FDI  Our research question: How does a country’s transparency influence the amount of FDI a country receives?  Our hypothesis: increased transparency has a positive correlation to FDI  Variables: HRV Index and FDI data  Methodology: STATA regression analysis  Results: confirm our hypothesis  Conclusion: increasing transparency increases FDI

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

Factors Independent Variable (x)  Transparency Freedom House/Heritage Foundation, newspaper circulation, fraction of WDI reported The HRV Index Dependent Variable (y)  Foreign Aid  GDP per capita  Foreign Direct Investment (BOP, constant USD)

Methodology: Regressions  Controls Country fixed effects Inflation (CPI) GDP growth rate (annual % change) Exports (% GDP) Imports (%GDP) Interest rate Exchange rate  Lag Transparency  “Diff and diff” method

Greater transparency leads to greater FDI Results:

Figure 1: Transparency and FDI (linear best fit)

Figure 2: Transparency and FDI (linear prediction with error bars)

Table 1: Results Table 1 The Effect of Transparency on Foreign Direct Investment (BOP, millions of constant USD) Variable (1) (2) (3) (4) (5) Transparency (HRV Index) *** *** *** *** *** ( ) ( ) ( ) ( ) ( ) Inflation (CPI) ( ) ( ) ( ) ( ) GDP growth (annual %) *** *** *** ( ) ( ) ( ) Exports (%GDP) (25.907) (33.177) Imports (%GDP) (44.338) Constant ** * ** * ( ) ( ) ( ) ( ) ( ) Number of observations Adj. R-squared Notes: Standard errors in parentheses. *** indicates significance at the one percent level, ** at the five percent level, and * at the ten percent level.

Conclusion  Increased transparency is positively correlated to increased FDI  Causal Logic: the benefits of increased information  Further research GDP per capita Foreign aid Instrumental variables  Significance: policy suggestions