Greenfield foreign direct investment: Social learning drives persistence

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

Journal of International Money and Finance, 2022, vol. 126, issue C

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.

Keywords: Greenfield FDI; Persistence; Information; Social learning (search for similar items in EconPapers)
JEL-codes: C23 D21 D22 F23 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0261560622000444
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Greenfield Foreign Direct Investment: Social Learning drives Persistence (2022)
Working Paper: Greenfield Foreign Direct Investment: Social Learning drives Persistence (2022)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:126:y:2022:i:c:s0261560622000444

DOI: 10.1016/j.jimonfin.2022.102641

Access Statistics for this article

Journal of International Money and Finance is currently edited by J. R. Lothian

More articles in Journal of International Money and Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().