Greenfield Foreign Direct Investment: Social Learning drives Persistence

Joe Cho Yiu Ng (), Thomas Chao Hung Chan, Byron Kwok Ping Tsang and Charles Leung

ISER Discussion Paper from Institute of Social and Economic Research, Osaka University

Abstract: This paper argues that the persistence of greenfield foreign direct investment (FDI) comes from information frictions. First, our simple social learning model shows that, through signaling effects, information frictions generate persistent greenfield FDI inflows. Second, we show empirically that the autoregressive coefficient of greenfield FDI increases in value with different proxies for information frictions, including six institutional and governance indicators and two common language measures. We also find that greenfield FDI persistence varies across industries. In particular, greenfield FDI by service firms is more persistent than that by manufacturing firms. Finally, our findings suggest that better governance, predictability, and transparency reduce information frictions and thereby avoiding drastic and persistent ups and downs in FDI.

Date: 2022-03
New Economics Papers: this item is included in nep-cwa, nep-fdg and nep-int
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Citations: View citations in EconPapers (1)

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Journal Article: Greenfield foreign direct investment: Social learning drives persistence (2022)
Working Paper: Greenfield Foreign Direct Investment: Social Learning drives Persistence (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:dpr:wpaper:1171

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