World Market Integration Through the Lens of Foreign Direct Investors

40 Pages Posted: 30 Dec 2014  

Rui A. Albuquerque

Boston College, Carroll School of Management; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Norman Loayza

World Bank - Research Department

Luis Servén

World Bank - Office of the Chief Economist; World Bank - Development Research Group (DECRG)

Multiple version iconThere are 2 versions of this paper

Date Written: July 3, 2004

Abstract

This paper is motivated by the unparalleled increase in foreign direct investment to emerging market economies of the last 25 years. Using a large cross-country time-series data set, we evaluate the dependence of foreign direct investment on global factors, or worldwide sources of risk (i.e., factors that drive foreign direct investment across several countries). We construct a globalization measure that equals the share of explained variation in direct investment attributable to global factors. We show that our globalization measure has increased steadily for developing and developed countries. For the full sample of countries, the globalization measure rose by over ten-fold from 1985 to 1999. Furthermore, in recent years developing countries’ exposure to global factors has approached that of developed countries. Finally, our globalization measure correlates strongly with measures of capital market liberalization, supporting our hypothesis that increased market integration leads to a greater role for worldwide sources of risk. We discuss the implications of our results for public policies regarding capital market liberalization and policies directed at attracting foreign investment.

Keywords: Capital market integration, emerging economies, global factors, foreign direct investment

JEL Classification: F21, F23, F36, G15, G18, G28

Suggested Citation

Albuquerque, Rui A. and Loayza, Norman and Servén, Luis, World Market Integration Through the Lens of Foreign Direct Investors (July 3, 2004). Journal of International Economics, Vol. 66, 2005. Available at SSRN: https://ssrn.com/abstract=2543382

Rui A. Albuquerque (Contact Author)

Boston College, Carroll School of Management ( email )

140 Commonwealth Avenue
Chustnut Hill, MA 02467-3808
United States

HOME PAGE: http://ruialbuquerque.webs.com

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Norman Loayza

World Bank - Research Department ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

Luis Servén

World Bank - Office of the Chief Economist ( email )

Washington, DC 20433
United States
202-473-7451 (Phone)
202-522-3518 (Fax)

HOME PAGE: http://www.worldbank.org/research/bios/lserven.htm

World Bank - Development Research Group (DECRG)

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

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