Microdeterminants of Foreign Direct Investment into Developing Countries: Evidence from the Telecom Sector

Posted: 1 Aug 2011 Last revised: 31 Jul 2012

See all articles by Allison Kingsley

Allison Kingsley

University of Vermont - Grossman School of Business

Tom G. Noordewier

University of Vermont - School of Business Administration

Date Written: August 2011

Abstract

Existing literature has established that foreign direct investment flows into countries with more attractive markets and fewer political risks. We argue that the level of foreign direct investment is instead caused by risk mitigants instituted by the government and the foreign investor, which are contingent on country fundamentals. We employ a novel dataset on the universe of foreign direct investments in the telecom services sector in 103 emerging economies from 1990-1999 that incorporates 25 strategic contracting institutions for the 597 deals. To test the contingent hypotheses, we specify a linear regression model that includes interactions constructed as cross-products of market attractiveness and market risk mitigants, on the one hand, and policy stability and political risk mitigants, on the other. We avoid common model misspecification by including all main effects underlying the interactions. Our results confirm that (i) market and political risk mitigants determine levels of FDI, (ii) market attractiveness and policy stability moderate the relationship between risk mitigants and FDI, and (iii) government-instituted mitigants matter most.

Suggested Citation

Kingsley, Allison and Noordewier, Tom G., Microdeterminants of Foreign Direct Investment into Developing Countries: Evidence from the Telecom Sector (August 2011). APSA 2011 Annual Meeting Paper. Available at SSRN: https://ssrn.com/abstract=1900187

Allison Kingsley (Contact Author)

University of Vermont - Grossman School of Business ( email )

302 Kalkin Hall
Burlington, VT 05405-0158
United States
8026563464 (Phone)

HOME PAGE: http://allisonkingsley.com

Tom G. Noordewier

University of Vermont - School of Business Administration ( email )

212 Kalkin Hall
Burlington, VT 05405
United States

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