Investment, trade openness and foreign direct investment: Social capability matters

Dong-Hyeon Kim, Shu-Chin Lin and Yu-Bo Suen

International Review of Economics & Finance, 2013, vol. 26, issue C, 56-69

Abstract: This paper investigates whether the impacts of trade and foreign direct investment (FDI) on domestic investment depend upon social capability of a country. Applying the instrumental variable threshold regressions approach to cross-sectional data for 85 countries, it finds that social capability such as human capital, financial development, and political institutions defines the impacts of trade and FDI on domestic investment. Particularly, trade adversely affects investment in low-human-capital, less-financially-developed, or more-corrupted countries, but positively affects it in countries with opposite attributes. In contrast, FDI has a positive effect on investment in countries with low human capital, less-developed financial sectors, or high corruption, but a negative impact in countries with opposite attributes.

Keywords: Trade openness; Foreign direct investment; Investment; Social capability; Instrumental variable threshold regressions (search for similar items in EconPapers)
JEL-codes: C21 F43 O11 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:26:y:2013:i:c:p:56-69

DOI: 10.1016/j.iref.2012.08.008

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