TY  - JOUR
AU  - Goldstein,Itay
AU  - Razin,Assaf
TI  - Foreign Direct Investment vs. Foreiegn Portfolio Investment
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11047
PY  - 2005
Y2  - January 2005
UR  - http://www.nber.org/papers/w11047
L1  - http://www.nber.org/papers/w11047.pdf
N1  - Author contact info:
Itay Goldstein
Wharton School
University of Pennsylvania
Philadelphia, PA  19104
E-Mail: itayg@wharton.upenn.edu

Assaf Razin
Department of Economics
Cornell University
Uris 422
Ithaca, NY 14853
Tel: 607/255-9625
Fax: 607/255-2818
E-Mail: ar256@cornell.edu
AB  - The paper develops a model of foreign direct investments (FDI) and foreign portfolio investments (FPI). FDI is characterized by hands-on management style which enables the owner to obtain relatively refined information about the productivity of the firm. This superiority, relative to FPI, comes with a cost: a firm owned by the relatively well-informed FDI investor has a low resale price because of a "lemons" type asymmetric information between the owner and potential buyers. The model can explain several stylized facts regarding foreign equity flows, such as the larger ratio of FDI to FPI inflows in developing countries relative to developed countries, and the smaller volatility of FDI net inflows relative to FPI net inflows.
ER  -