Which Countries Export FDI, and How Much?

Efraim Sadka (), Assaf Razin () and Yona Rubinstein

No 226, 2004 Meeting Papers from Society for Economic Dynamics

Abstract: The paper provides a reconciliation of Lucas' paradox, based on fixed setup costs of new investments. With such costs, it does not pay a firm to make a "small" investment, even though such an investment is called for by marginal productivity conditions. Using a sample of 45 developed and developing countries we estimate jointly the participation equation (the decision whether to invest at all) and the FDI flow equation (the decision how much to invest). We find that countries which are more likely to serve as source for FDI exports than their characteristics project export lower flow of FDI than is predicted by their characteristics. This negative correlation suggests that the source countries with relatively low setup costs are also those with high marginal productivity of capital

Keywords: FDI; selection models; gravity equation; setup costs (search for similar items in EconPapers)
JEL-codes: F21 F36 F41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ifn and nep-sea
Date: Written
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Related works:
Working Paper: Which Countries Export FDI, and How Much? (2003)
Working Paper: Which Countries Export FDI and How Much? (2004)
Working Paper: Which Countries Export FDI, and How Much? (2004)
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