Chapter

Competition for Multinational Investment in Developing Countries: Human Capital, Infrastructure, and Market Size

David L. Carr, James R. Markusen and Keith E. Maskus

in Challenges to Globalization

Published by University of Chicago Press

Published in print April 2004 | ISBN: 9780226036151
Published online February 2013 | e-ISBN: 9780226036557 | DOI: http://dx.doi.org/10.7208/chicago/9780226036557.003.0011
Competition for Multinational Investment in Developing Countries: Human Capital, Infrastructure, and Market Size

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This chapter examines the patterns and determinants of foreign direct investment (FDI) flows to developing countries. Section 10.2 provides a review of recent theory, examining Markusen's “knowledge-capital” model that allows for both horizontal and vertical motives for foreign investment. Section 10.3 presents summary statistics about which countries attract inward investment. Section 10.4 sets out an econometric specification and provides estimates of this general-equilibrium model using data on outward investment from the United States to a large sample of countries from 1986 to 1997. Both the summary statistics and econometric estimates indicate that manufacturing FDI flows to countries with relatively large markets, a relatively high endowment of labor skills, laws and legal institutions that are friendly to investment, and sound economic infrastructure. The results do not support the sweatshop view of what features attract multinational enterprises. Rather, the estimates support the view that MNEs avoid the poorest countries in the world. A commentary is also included at the end of the chapter.

Keywords: foreign direct investment; developing countries; knowledge-capital model; multinational enterprises

Chapter.  10552 words. 

Subjects: International Economics

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