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Accolley, Delali (2003) The Determinants and Impacts of Foreign Direct Investment

Accolley, Delali (2003) The Determinants and Impacts of Foreign Direct Investment

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Publicado porDelali Accolley
Some theories on the determinants and impacts of Foreign Direct Investment (FDI) are presented and critically discussed. In the empirical investigations which follow this, the effects of some macroeconomic variables such as economic growth, market size, degree of openness, real effective exchange rate, and labor cost on flows of FDI into the USA have been tested. In the specification of the econometric model, account has been taken of the fact that economic growth could be both a determinant and impact of FDI inflows. The main finding is that economic growth in the USA does not explain the long-run behavior of the FDI inflows equation. It can explain its short run behavior but not significantly. Besides, it has been found that FDI inflows contribute to economic growth in the USA. Open-market operations have been proposed as economic policy to attract FDI flows.
Some theories on the determinants and impacts of Foreign Direct Investment (FDI) are presented and critically discussed. In the empirical investigations which follow this, the effects of some macroeconomic variables such as economic growth, market size, degree of openness, real effective exchange rate, and labor cost on flows of FDI into the USA have been tested. In the specification of the econometric model, account has been taken of the fact that economic growth could be both a determinant and impact of FDI inflows. The main finding is that economic growth in the USA does not explain the long-run behavior of the FDI inflows equation. It can explain its short run behavior but not significantly. Besides, it has been found that FDI inflows contribute to economic growth in the USA. Open-market operations have been proposed as economic policy to attract FDI flows.

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Published by: Delali Accolley on Mar 14, 2007
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04/30/2013

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Yet relatively little emphasis has fallen on what
might seem the two principal economic features of
direct investment by the international corporation:
(a) it ordinarily effects a net transfer of real capital
from one country to another; and (b) it represents
entry into a national industry by a firm established
in a foreign market.

- R E Caves

FFDI brings benefits and costs to both home and host countries. These impacts may
be economic, political, socio-cultural, etc and depend on the type of FDI –Greenfield
or M&A, horizontal or vertical. Some of these possible effects are presented in this
chapter. The impacts of FDI in the host countries are dealt with in section 1 and
section 2 presents the impacts of FDI in home countries.

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