Information Externalities Affecting the Dynamic Pattern of Foreign Direct Investment: The Case of China

Sayuri Shirai and Dongpei Huang

No 1994/044, IMF Working Papers from International Monetary Fund

Abstract: The dynamic pattern of foreign direct investment (FDI) in developing countries shows a three-phase pattern. Despite government policies that promote it, initially the inflow of FDI is sluggish, followed by a period of considerable fluctuation before finally entering the stage of rapid growth. The paper explains the pattern through recourse to two concepts: the searching process of individual investors and the information externalities of investors in the aggregate. Policy implications that may serve to shift an economy of a developing country from small-scale FDI to one of rapidly expanding FDI are considered. As China is a clear example of this pattern, it has been selected to promote understanding of the process.

Keywords: WP; pioneer investor; investment environment; investors search; a number of investor; investors' expectation; investors from Hong Kong; Foreign direct investment; Special economic zones; Asia and Pacific; Southeast Asia (search for similar items in EconPapers)
Pages: 28
Date: 1994-04-01
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Citations: View citations in EconPapers (6)

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