Country Competitiveness: an Empirical Study

What makes countries competitive? What economic policies effectively influence country competitiveness? The aim of this research paper is to analyse country competitiveness empirically, in order to explore the factors that make countries competitive. This can allow governments to structure their business environment differently, and to elaborate strategies aimed at improving their countries’ overall competitiveness. Economic size and trading conditions have proven important for economic success throughout history. Individual competitiveness and business competitiveness are commonly talked about. The author analyses the overall economic competitiveness of countries. The author argues that trade is subject to various factors, including entrepreneurship and economic openness. Competitiveness is analysed in this current research, using IMD World Competitiveness Yearbook data for 55 countries in the estimation sample. This unique research applies a Multinomial Logistic procedure, and a Heckman Two-Step procedure in its accountancy for market size, exports, openness, and foreign direct investment. The business environment factors for estimation are highlighted. Also, several macro-economic modifications of the basic model specification are tested, providing further empirical analysis. Results indicate that the ten most competitive countries tend to be driven by foreign direct investment, exports and entrepreneurship

Determinants of Foreign Direct Investment in Iceland

This paper investigates whether the low foreign direct investment in Iceland can be explained by its geographical location together with market size measures. The effects of these factors on inward FDI are analyzed by means of the gravity model. The model is also applied to analyze sector, trade bloc and country specific effects. The research is based on panel data, running over countries, sectors and years. Results indicate that distance negatively affects FDI and that FDI appears to be more driven by wealth effects than market size effects.foreign direct investment; gravity model

A Gravity Model for Exports from Iceland

This paper applies a gravity model to examine the determinants of Icelandic exports. The model specifications tested allow for sector and trade bloc estimation. Also, a combination of an export ratio and a gravity model is tested, as well as marine product subsamples. The estimates are based on panel data on exports from 4 sectors, to 16 countries, over a period of 11 years. Estimates indicate that the size and wealth of Iceland does not seem to matter much for the volume of exports, not even when correted for the country’s small size. Finally, results indicate that trade bloc and sector effects matter and that marine products vary considerable in their sensitivity to distance and country factors.export; gravity model

What Drives Sector Allocation of Foreign Direct Investment in Iceland?

The objective of this paper is to examine how the driving forces of investment in a small country like Iceland differ from those in larger countries. Special attention is given to the dominating investment sector in Iceland due to its resource intensity. Estimates are based on 1989-1999 panel data on foreign direct investment in various sectors. This may help explain why the investment pattern in Iceland differs from the general case.foreign direct investment; multinational corporations

The Knowledge-Capital Model and Small Countries

In this paper, Knowledge-Capital model estimates for a small country are compared to estimates obtained for larger economies. The model is based on unique panel data on foreign direct investment in Iceland. Estimates obtained for the Knowledge-Capital model differ considerable from what has been obtained in earlier research, indicating that the driving forces behind foreign direct investment in small countries appear to be different from those in large countries.foreign direct investment; knowledge-capital

Estimating the Impact of Time-Invariant Variables on FDI with Fixed Effects

This paper applies the panel fixed effects with vector decomposition estimator to three FDI datasets to estimate the impact of time-invariant variables on FDI while including fixed effects. We find that the omission of fixed effects significantly biases several of these variables, especially those proxying for trade costs and culture. After including fixed effects, we find that many time-invariant variables indicate the importance of vertical FDI. We also find that by eliminating these biases, the differences across datasets largely disappear. Thus, controversies in the literature that are driven by differences in data sets may be resolved by using this estimation technique.Foreign Direct Investment, Trade Costs, Culture

DOES INVESTMENT REPLACE AID AS COUNTRIES BECOME MORE DEVELOPED?

This paper looks at the correlation between aid inflow and foreign direct investment inflow to the heavily indebted poor countries Malawi, Mozambique and Ghana, classified as developing countries. Data covers World Bank measures for aid and foreign direct investment in these countries. Also, crop production index is accounted for, as well as current account balance, and the gross domestic product of the countries analyzed. Dataset runs from 1970 through 2004, using a simultaneous equation system to determine the interrelation. Due to the occasional small scale of flow, the inverse hyperbolic sine function is used, rather than a logarithmic function. Results indicate that when the sample countries experience a higher income per capita, complementary effects diminish at the cost of supplementary effects. Therefore, FDI can be considered to replace aid after a certain development has been reached within the developing economies analyzed. The answer to the paper title is yes, investment does replace aid as countries become more developed

Substitution between inward and outward foreign direct investment

This paper offers a new combination of the knowledge-capital and the gravity models. The model combination is applied to a small, remote country, which allows for testing the corner case. Furthermore, the substitution effects between inward and outward foreign direct investment (FDI) are estimated by the use of a simultaneous equation system, and the estimates indicate that inward and outward FDI can be considered to be substitutes for each other.Peer reviewe

EU-country and non-EU-country at the time of crisis : Foreign direct investment

The global financial crisis affected the flows of foreign direct investment (FDI). This study focuses on two countries in the midst of the financial crisis: Iceland with IMF backup, and Ireland with ECB backup. The research focus is on the situation from the broad perspective of international economics and political atmosphere, combining government decisions with economic consequences. We analyze inward foreign direct investment, incorporating factors like economic size and stock market firms, receiving portfolio investment, rather than FDI. Our findings indicate that before the crisis the economic wealth in the domestic market to have positive effects on FDI, and firms receiving portfolio investment on the stock market are competing with FDI. This is the case for both Ireland and Iceland. However, after the crisis, these factors have insignificant impact on FDI.Peer reviewe

European FDI in Ireland and Iceland : Before and after the Financial Crisis

This paper analyses Foreign Direct Investment (FDI) investment in Ireland and Iceland from other European countries during two periods, i.e., the pre-financial crisis period of 2000–2007 and the financial crisis period of 2008–2010. The aim of this research is to determine what made the countries interesting to foreign investors in both good and bad times; and, secondly, to examine whether European Union membership (and the Euro) made a difference in this respect. The results were obtained by using data from the OECD, the World bank, and other sources. The model constructed for the study applies the inverse hyperbolic sine transformation of the gravity model, which is a novel approach. The results demonstrate that before the financial crisis of 2008, European Union (EU) membership did not help Ireland attract more FDI from other EU countries. However, once it had been hit by the crisis, Ireland attracted more FDI from other EU countries. Iceland, on the other hand, which is not an EU country, attracted FDI from non-EU countries rather than from EU countries before the financial crisis. After the crisis, however, the origin within Europe, of FDI in Iceland had no significant effect on the flow of FDI into the country.Peer reviewe