A cross country analysis of outward foreign direct investment patterns

Abstract

Purpose – To evaluate the relevance of the source country idiosyncratic factors in determining the firm's foreign direct investment (FDI) propensity and consequently the country's outward FDI position. Design/methodology/approach – A sample containing all countries with positive outward FDI flows for the whole period between 1976 and 1999 is selected. The sample consists of 25 countries and is divided in three groups, namely advanced countries, middle-income countries and developing countries. An econometric model is estimated for each country group aiming to determine the variables affecting outward FDI position. Findings – Market structure differentiation and openness are the only variables affecting outward FDI in all country groups. Marginal efficiency of capital is the significant variable in advanced and middle-income countries. All other variables, namely technology, human capital and exchange rate affect outward FDI position of advanced countries. Research limitations/implications – The list of FDI explanatory variables is not an exhaustive one. Changes of country income indicating changes of economic development may be explicitly introduced among others as an explanatory variable in a model, with outward FDI changes as the dependent variable in order to identify any relation between the two. Practical implications – A very useful source of information for policy makers. Originality/value – The validity of the model is tested over each country income group aiming at capturing variations in the statistical significance of the FDI explanatory variables between countries that have passed certain economic development thresholds.Countries, Direct investment, Economic policy