Bilateral FDI Flows: Threshold Barriers and Productivity Shocks

Assaf Razin, Efraim Sadka and Hui Tong

No 11639, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: A positive productivity shock in the host country tends typically to increase the volume of the desired FDI flows to the host country, through the standard marginal profitability effect. But, at the same time, such a shock may lower the likelihood of making any new FDI flows by the source country, through a total profitability effect, derived from the a general-equilibrium increase in domestic input prices. This is the gist of the theory that we develop in the paper. For a sample of 62 OECD and Non-OECD countries over the period 1987-2000, we provide supporting evidence for the existence of such conflicting effects of productivity change on bilateral FDI flows. We also uncover sizeable threshold barriers in our data set and link the analysis to the Lucas Paradox.

JEL-codes: F2 F3 (search for similar items in EconPapers)
Date: 2005-09
New Economics Papers: this item is included in nep-ifn
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Published as Razin, Assaf, Efraim Sadka and Hui Tong. "Bilateral FDI Flows: Threshold Barriers and Productivity Shocks." CESifo Economic Studies 54, 3 (2008):451-470.

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Journal Article: Bilateral FDI Flows: Threshold Barriers and Productivity Shocks (2008)
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