Foreign direct investment location and host country institutions in Latin America
Velásquez Riveros, Rocío (2013)
Velásquez Riveros, Rocío
2013
Kuvaus
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Tiivistelmä
In this study, I look at how host-country competitiveness and the institutional environments in particular affect the location of FDI, in the case of Latin America. In the last years, the global economy has become more interconnected and decisions of internationalization are a commonplace for many companies around the world. This study is focused in the host-country institutional environment as a determinant of country competitiveness and as important determinant of FDI decision; I discuss about the existing literature related to institutions, national competitiveness, FDI and location. I present a general view of Latin America and the behavior of FDI in the region.
I use a logistic regression approach to estimate a model using information from a sample of Latin American companies and country-level data that help us to understand if higher levels of competitiveness augment the probability for foreign companies of investing and, if a strong institutional environment increases the preference of a Latin American MNC to invest in the host country.
The results show that most of the control variables used are significant. Large companies will invest in several markets; MNCs with many subsidiaries around the world are more likely to invest in neighbor countries; geographical distance reduces the probability of investment and the economic behavior in the host country is positively related with FDI decisions. The estimation shows that in the case of Latin America, competitiveness measured by GCI, is not relevant. On the other hand, the institutional environment is relevant for FDI decisions. An important message from the study is that managers need to look at the institutional environment in the host-country.
I use a logistic regression approach to estimate a model using information from a sample of Latin American companies and country-level data that help us to understand if higher levels of competitiveness augment the probability for foreign companies of investing and, if a strong institutional environment increases the preference of a Latin American MNC to invest in the host country.
The results show that most of the control variables used are significant. Large companies will invest in several markets; MNCs with many subsidiaries around the world are more likely to invest in neighbor countries; geographical distance reduces the probability of investment and the economic behavior in the host country is positively related with FDI decisions. The estimation shows that in the case of Latin America, competitiveness measured by GCI, is not relevant. On the other hand, the institutional environment is relevant for FDI decisions. An important message from the study is that managers need to look at the institutional environment in the host-country.