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Published byMalcolm Bradley Modified over 9 years ago
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Contribution of FDI inflows to the Efficiency of Investment Assaf Razin
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Corporate Governance What is the essential difference between FDI and FPI from the point of view of corporate governance?
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FDI has been growing faster than world income
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FDI FLOWS: FAMILIAR FEATURES FDI has been growing faster than world GDP. Commercial motives for offshore production: access to domestic markets, access to lower price inputs, tariff jumping. Government influence on offshore production: foreign tax, domestic tax, foreign labor market policies, domestic labor market policies, foreign tariffs, foreign merger law, and domestic merger law.
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Main Points of the Talk FDI promotes growth through a higher amount and more efficient allocation of investment. Gains to the host country depend on foreign industry specific cost advantage in cream- skimming efficient projects, host-country corporate transparency, and degree of competition among FDI investors
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Empirical Strategy:Comparing gravity equations Imports of goods Inflows of FDI Inflows of FPI
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Table 2: Determinants of Growth OLS TSLS Foreign Direct Investment, FDI 0.09 (3.0) 0.20 (5.0) Long run effect[1] of FDI on DY[1] 0.1 0.23 Loan Inflows, L 0.01 (0.2) 0.02 (0.4) Long run effect of L on DY 0.01 0.02 Portfolio Inflows, P 0.05 (0.6) 0.10 (1.0) Long run effect of P on DY 0.06 0.11
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Determinants of FDI Inflows OLS TSLS Output Growth, DY 0.02 (1.3) 0.05 (2.2) Lagged Foreign Direct Investment, FDI(-1) 0.45 (13.4) 0.49 (13.4) Domestic Investment, I 0.07 (3.8) 0.08 (3.7)
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A Theory
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Fraction of industry with efficient investment is larger when FDI inflows finance domestic investment rather than FPI inflows.
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