Document Type

Article

Department

​Economics

Publication Date

2019

Abstract

This paper estimates a panel FDI investment function that seeks to identify some of the major economic and institutional determinants of net FDI flows to nine major Latin American countries during the 1980-2014 period. First, it utilizes Dunning’s OLI model to identify some of the major economic and institutional determinants of FDI. Second, the paper provides an overview of FDI flows to Latin America during the 1990-2017 period, with particular emphasis on their contribution to the financing of gross fixed capital formation. Third, an economic rationale is provided for the included variables and their expected signs. Fourth, the paper reports estimates for a Fully Modified Ordinary least Squares (FMOLS) panel regression designed to explain the variation in FDI flows to Latin America during the 1980-2014 period. The estimates suggest that real GDP (a proxy for market size), credit provided by the private banking sector, government expenditures on education, and the level of economic freedom as measured by the Fraser Institute have a positive and significant effect. On the other hand, public investment spending, the volatility of real GDP and the real exchange rate have a negative and significant effect on FDI flows. The panel unit root and (Pedroni) panel cointegration tests suggest that there is a stable, long-term relationship among the included variables; i.e., the selected variables in the reported regressions are cointegrated over the relevant time period.

Comments

Provided by the Trinity College Digital Repository in accordance with the publisher's distribution policies. Published version available:

Miguel D. Ramirez. “A FMOLS Analysis of FDI Flows to Latin America.” Applied Economics and Finance 6, no. 2 (2019): 86-98. DOI: https://doi.org/10.11114/aef.v6i2.4088

Publication Title

Applied Economics and Finance

Volume

6

Issue

2

First Page

86

Last Page

98

DOI

10.11114/aef.v6i2.4088

Included in

Economics Commons

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