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Determinants of foreign direct investment

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Frame of Image al flows, unlike capital flows in the stock and bond markets, it holds particular importance for developing countries. For these reasons, the determinants of FDI have been broadly studied from a variety of perspectives. Since FDI is determined by the behavior of multinational companies (MNEs), the motive behind the investment from the perspective of the investing firm is relevant. The first motive for FDI is to serve the local market by substituting exports from home to host country, called horizontal FDI. In this case, local market size and purchasing power strongly impact the location choice of MNEs. The second motive for FDI is to gain access to production factors including natural resources, raw materials, and human resources, called vertical FDI. In this case, availability of resources and lower factor costs play important roles. The third and last type of FDI is to relocate certain parts of production, produce goods, and then export them to third countries, which is called export-platform FDI. Since the main reason firms
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Korea Institute for International Economic Policy
Determinants of Foreign Direct Investment
2
seek export-platform FDI is to save production and trade costs, low labor costs, lax market regulations, and trade openness are crucial determinants. The UNCTAD World Investment Report (1998) classifies FDI determinants into three groups: business facilitation, economic factors, and political factors. A great number of studies try to identify whi


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Title Determinants of foreign direct investment
Similar Titles
Material Type Articles
Author(English)

Choi, Hyelin

Publisher

[Sejong, South Korea]:Korea Institute for International Economic Policy

Date 2016
Series Title; No KIEP opinions / no. 91
Pages 3
Subject Country South Korea(Asia and Pacific)
Language English
File Type Documents
Original Format pdf
Subject Economy < Direct Investment
Holding Korea Institute for International Economic Policy