Examining the Regional Aspect of Foreign Direct Investment to Developing Countries
In: Univ. of Copenhagen Dept. of Economics Discussion Paper No. 09-02
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In: Univ. of Copenhagen Dept. of Economics Discussion Paper No. 09-02
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In: Sunesen , E R 2006 ' Measuring Idiosyncratic Risk : Implications for Capital Flows ' Department of Economics, University of Copenhagen , Cph.
This paper offers two refinements of the traditional risk measure based on the volatility of growth. First, we condition GDP growth on structural characteristics of the host country that move only slowly and therefore can be partly predicted by an investor. Second, we adjust conditional risk for the systematic components due to the global and regional interdependence between alternative investment locations. The decomposition of conditional risk into its systematic and idiosyncratic components reveals that not only are African countries on average characterised by a larger conditional risk than Asian and Latin American countries, but the idiosyncratic risk factor also represents a larger share than in other developing countries. As a final contribution, we search the empirical literature on foreign direct investment and risk in order to determine which of the suggested risk measures provide the best description of idiosyncratic risk. Using a general-to-specific methodology, we find that both economic and political risk factors are important elements in the investment decision. We also find that commercial
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In: World development: the multi-disciplinary international journal devoted to the study and promotion of world development, Volume 40, Issue 11, p. 2155-2176
In: Selaya , P & Sunesen , E R 2008 ' Does Foreign Aid Increase Foreign Direct Investment? ' Department of Economics, University of Copenhagen .
The notion that foreign aid and foreign direct investment (FDI) are complementary sources of capital is conventional among governments and international cooperation agencies. This paper argues that the notion is incomplete. Within the framework of an open economy Solow model we show that the theoretical relationship between foreign aid and FDI is indeterminate. Aid may raise the marginal productivity of capital by financing complementary inputs, such as public infrastructure projects and human capital investment. However, aid may also crowd out productive private investments if it comes in the shape of physical capital transfers. We therefore turn to an empirical analysis of the relationship between FDI and disaggregated aid flows. Our results strongly support the hypotheses that aid invested in complementary inputs draws in foreign capital while aid invested in physical capital crowds out FDI. The combined effect of these two types of aid is small but on average positive
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