Information Technology and Bilateral FDI: Theory and Evidence

Bang Jeon and Linghui Tang ()
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Linghui Tang: The University of Southern Mississippi, Postal: Department of Economics, Finance, and International Business,, College of Business and Economic Development, The University of Southern Mississippi, Hattiesburg, MS, 39406, USA

Journal of Economic Integration, 2005, vol. 20, 613-630

Abstract:

This paper investigates the impact of communication cost on the FDI activities of multinational corporations (MNCs). First, we provide a theoretical foundation for a gravity-type FDI model, which shows that physical distance and communication technology are important determinants of FDI activities. Second, we apply the ITaugmented gravity model to bilateral FDI data for a total of 47 OECD and non- OECD countries from 1980 to 1997 and find that distance is negatively related to inward FDI stocks while the growth of IT, measured by teledensity and celldensity, has encouraged FDI significantly. The impact is found to be more prominent on FDI from G7 countries to OECD countries, than to non-OECD countries, and more prominent in the 1990s than in the 1980s. Moreover, IT plays a more effective role by reducing communication cost when distance is beyond a threshold range.

Keywords: Communication cost; FDI; Distance (search for similar items in EconPapers)
JEL-codes: F21 F23 (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (4)

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Working Paper: Information Technology and Bilateral FDI: Theory and Evidence (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:ris:integr:0333

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