Gravity for FDI

Kleinert, Jörn; Toubal, Farid

doi:10.1111/j.1467-9396.2009.00869.x

Cited by 164 publications

(124 citation statements)

References 15 publications

(23 reference statements)

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“…Investing in a foreign country with lower inflation rates can gain the investor a competitive advantage (Kleinert & Toubal, 2010). We use the data of the GDP deflator (instead of the Consumer Price Index (CPI)) from the World Bank as a measurement of the inflation level of the 22 African countries being considered.…”

Section: Control Variablesmentioning

confidence: 99%

Attracting Chinese FDI in Africa

Shan

Lin

et al. 2018

CPOIB

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Purpose The purpose of this paper is to examine the effect of natural resources, market size and five major institutional factors (voice and accountability; political stability and absence of violence; regulatory quality; rule of law and control of corruption) on Chinese foreign direct investment (FDI) in Africa. Design/methodology/approach This study uses regression analysis on panel data across 22 countries for the period 2008-2014. Findings Natural resources did not play a significant role in attracting Chinese investments, but market size did. Among the institutional factors, only voice and accountability had a significant and positive effect on attracting Chinese FDI; the effects of rule of law and control of corruption were not significant and political stability and regulatory quality had a significant and negative effect. Research limitations/implications Chinese investment in Africa is only a recent phenomenon, and is growing rapidly; further studies should examine factors that are unique to the context such as bilateral political link. Practical implications African countries that are struggling with improving their poor institutional quality in the short term could effectively attract Chinese investment by reducing investor psychic distance, e.g. establishing a closer political link with China. Nevertheless, in the long term, measures of improving institutional quality are important. Originality/value This study reveals for the first time that what attracts Chinese investment is market size rather than natural resources, and different institutional factors of an African country show varying effects on attracting Chinese FDI.

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Section: Control Variablesmentioning

confidence: 99%

Attracting Chinese FDI in Africa

Shan

Lin

et al. 2018

CPOIB

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“…As is common practice with FDI gravity models (e.g., Kleinert and Toubal, 2010), the initial setup starts with the assumption of a Cobb-Douglas utility function for variety-loving consumers in the host country,…”

Section: The Setupmentioning

confidence: 99%

Homeward bound FDI: Are migrants a bridge over troubled finance?

2016

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Migrants can lower cross-border investment barriers, help investors by providing information about their homeland and reduce transaction costs by sharing expertise on regulations, customs and procedures. In addition to generating these well-known networking effects, migrants can also provide valuable information about local finance, thereby easing the credit constraints foreign investors faced during the 2007 financial crisis. This paper sheds new light on the underlying mechanisms through which migration may affect foreign investment in the migrant's homeland by distinguishing between the effects on FDI's intensive and extensive margins. Gravity estimates for 140 countries for the period 2003-2012 suggest that migrants exert a positive effect on bilateral FDI. However, financial constraints moderate this effect, primarily through the extensive margin. Additionally, quantile regression reveals that the interaction between migration and credit constraints is significant only for the lower levels of FDI. Our findings contribute to a better understanding of the interplay among migration, financial constraints and FDI.

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“…With this in mind, we keep physical distance from home as a determinant of FDI in our analysis and use a gravity model in our empirical work, first introduced for international trade by Tinbergen (1962) and used by others to establish a link between distance and trade flows (Anderson, 1979;Bergstrand, 1985;Anderson and Wincoop, 2003;Disdier and Head, 2008;Feenstra et al, 2001). The gravity model has also been used in other work on international flows, including venture capital investments (Cumming and Dai, 2010), mergers and acquisitions (Di Giovanni, 2005), and FDI flows (Kleinert and Toubal, 2010;Hattari and Rajan, 2009;Head and Ries, 2008;Bergstrand and Egger, 2007;Bloingen, 2005;Grosse and Trevino, 1996). Different methodologies have been used in estimating the gravity equation (Anderson and Wincoop, 2003;Egger, 2000;Santos Silva and Tenreyno, 2006).…”

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confidence: 99%

Home bias persistence in foreign direct investments

Levis

Muradoğlu

Vasileva³

2015

The European Journal of Finance

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The purpose of this paper is to analyse the issues related to home bias and foreign direct investments. We study the role of physical, cultural, and institutional distances from home on foreign direct investment decisions taken by corporations to assess whether the globalization of the past two decades has reduced their influence. Using the "home bias" framework from the finance literature and the gravity model from the economics literature, we utilize a large sample of both developed and emerging markets, using foreign direct investment (FDI) flows of 6,263 unique bilateral country pairs over a 30-year period. We find strong empirical evidence of persistent home bias in FDI outflows, and we show that not only physical distance but also cultural and institutional similarities between host and source countries remain a decisive factor in foreign corporate investment decisions. We also show that such home bias is persistent over time and is observed around the world.

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Gravity for FDI

Cited by 164 publications

References 15 publications

Attracting Chinese FDI in Africa

Attracting Chinese FDI in Africa

Homeward bound FDI: Are migrants a bridge over troubled finance?

Home bias persistence in foreign direct investments

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