TY  - JOUR
AU  - Mody,Ashoka
AU  - Razin,Assaf
AU  - Sadka,Efraim
TI  - The Role of Information in Driving FDI Flows: Host-Country Tranparency and Source Country Specialization
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 9662
PY  - 2003
Y2  - May 2003
UR  - http://www.nber.org/papers/w9662
L1  - http://www.nber.org/papers/w9662.pdf
N1  - Author contact info:
Ashoka Mody
European Department
International Monetary Fund
700 19th Street, NW
Washington DC 20431
E-Mail: amody@imf.org

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

Efraim Sadka
Tel Aviv University
Eitan Berglas School of Economics
P.O.B. 39040
Ramat Aviv, Tel Aviv, 69978, ISRAEL
E-Mail: sadka@post.tau.ac.il
AB  - We develop a simple information-based model of FDI flows. On the one hand, the abundance of  intangible' capital in specialized industries in the source countries, which presumably generates expertise in screening investment projects in the host countries, enhances FDI flows. On the other hand, host-country corporate-transparency diminishes the value of this expertise thereby reducing the flow of FDI. Empirical evidence (from a sample of 12 source countries and 45 host countries over the 1980s and 1990s) analyzed in a gravity-equation model, provides support to the theoretical hypotheses. The model also demonstrates that the gains for the host country from foreign direct investment [over foreign portfolio investment (FPI)] are reflected in a more efficient size of the stock of domestic capital and its allocation across firms. These gains are shown to depend crucially (and positively) on the degree of competition among FDI investors.
ER  -