Excessive FDI Flows under Asymmetric Information

Assaf Razin, Efraim Sadka and C.-W. Yuen

Working Papers from Tel Aviv

Abstract: In Razin, Sadka and Yuen (1998, 1999a), we explored the policy implications of the home-bias in international portfolio investment as a result of asymmetric information problems in which domestic savers, being "close" to the domestic market, have an informational advantage over foreign portfolio investors, who are "far away" from the domestic market. However, FDI is different from foreign portfolio investment, concerning relevant information about domestic firms. Through the stationing of managers from the headquarters of multinational firms in the foreign direct establishments in the destination countrie under their control. FDIors can monitor closely the operation of such establishments, thus circumventing these informational problems.

Keywords: FINANCIAL MARKET; INVESTMENTS; ASYMETRIC INFORMATION (search for similar items in EconPapers)
JEL-codes: D82 F21 G10 (search for similar items in EconPapers)
Pages: 22 pages
Date: 1999
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Citations: View citations in EconPapers (15)

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Journal Article: Excessive FDI flows under asymmetric information (1999)
Working Paper: Excessive FDI Flows Under Asymmetric Information (1999)
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