Transparency, Specialization and FDI

26 Pages Posted: 13 Apr 2004

See all articles by Assaf Razin

Assaf Razin

Tel Aviv University - Eitan Berglas School of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Efraim Sadka

Tel Aviv University - Eitan Berglas School of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Date Written: March 2004

Abstract

We develop a simple information-based model of FDI flows. On the one hand, the relative 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 relative corporate-transparency diminishes the value of this expertise, thereby reducing the flow of FDI.

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.

JEL Classification: F1

Suggested Citation

Razin, Assaf and Sadka, Efraim, Transparency, Specialization and FDI (March 2004). CESifo Working Paper Series No. 1161. Available at SSRN: https://ssrn.com/abstract=528208

Assaf Razin (Contact Author)

Tel Aviv University - Eitan Berglas School of Economics ( email )

P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978
Israel
+972 3 640 7303 (Phone)
+972 3 640 9908 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Efraim Sadka

Tel Aviv University - Eitan Berglas School of Economics ( email )

P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978
Israel
+972 3 640 9712 (Phone)
+972 3 642 8074 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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