The determinants of Foreign Direct Investment

Abstract

Over the past two decades, governments worldwide have continued to liberalise restrictions on international investment with only occasional relapses. Yet, FDI liberalisation remains an unfinished agenda in various parts of the world and across sectors. This paper sheds light on their potential costs in terms of foregone investments. Applying an augmented gravity model, covering 60 advanced and emerging countries over the period 1997–2016, it estimates the elasticity of bilateral FDI positions and cross-border M&A activity to FDI restrictions as measured by the OECD FDI Regulatory Restrictiveness Index. Results suggest that reforms liberalising FDI restrictions by about 10% as measured by the Index could increase bilateral FDI in stocks by 2.1% on average. Effects are greater for FDI in the services sector, but even manufacturing sectors – which are typically open to FDI – are negatively affected by countries’ overall restrictiveness. Foreign equity limitations and FDI screening policies are also scrutinised.

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 129 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.