Domestic Policy Variables and Foreign Direct Investment Inflows in Latin America

Willy Ryckeghem

Chapter 5 in International Trade, Foreign Direct Investment and the Economic Environment, 1998, pp 59-75 from Palgrave Macmillan

Abstract: Abstract The recent upsurge in foreign direct investment (FDI) inflows in Latin America is generally credited to the renewed confidence inspired by improved macro-policies and market-oriented reforms which were implemented by a majority of Latin American countries in the latter part of the 1980’s. Although foreign investment decisions must ultimately rest on micro-calculations comparing expected rates of return to the opportunity cost of capital, an improved investment climate created by a favorable macro-economic policy environment is likely to positively influence growth and profit expectations, and thus the level of capital inflows2. This chapter reports on an empirical test of this hypothesis using a pooled regression technique for the seven largest Latin American economies during the period 1970–1992. The results show a significant impact of import liberalization, of depreciation of the real effective exchange rate and of deficit reduction of FDI. Finally, there would seem to be country-specific factors exerting a significant influence, independent of the macro-economic performance or -policies.

Keywords: Foreign Direct Investment; Foreign Investment; Real Exchange Rate; Latin American Country; Domestic Investment (search for similar items in EconPapers)
Date: 1998
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DOI: 10.1007/978-1-349-14030-5_5

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