WAGE-RATE SENSITIVITY OF FOREIGN DIRECT INVESTMENT A NEGLECTED ANALYSIS IN FDI POLICY
Keywords:
Foreign Direct Investment, Wage rate, Sensitivity Analysis, FDI determinantsAbstract
As foreign direct investment (FDI) has become a major driver of a country's growth, literature on FDI determinants has won scholars's continuous attention and gained significant space and momentum in the FDI literature. Although the inverse relationship between wage rate and foreign direct investment has been empirically confirmed, there has been no effort to derive the insight into the specific behaviors of the relationship. The absence of such insight, therefore, limits the scope of practical recommendation. This paper, as a result, aims to conceputally suggest that sensitivity analysis of FDI provides useful information for policymakers in predicting the length of time during which competitive wage rate of the country holds. This in turn helps policymakers craft appropriate long-term plans on infrastructure, capital stock, and human resource of the country.
References
Amaro, A., & Miles, W. (2006). Racing to the bottom for FDI? The changing role oflabor costs and infrastructure. The Journal of Developing Areas, 40(1), 1-13.
Auerbach, A. J., & Hassett, K. (1993). Taxation and foreign direct investment in the United States: A reconsideration of the evidence. In A. Giovannini, R. G. Hubbard, & J. Slemrod (Eds.), Studies in international taxation (pp.119–144). Chicago: University of Chicago Press.
Bajo-Rubio, O., & Sosvilla-Rivero, S. (1994). An econometric analysis of foreign direct investment in Spain, 1964 - 1989. Southern Economic Journal, 61(1), 104.
Belderbos, R., & Sleuwaegen, L. (1996). Japanese firms and the decision to invest abroad: Business groups and regional core networks. Review of Economics and Statistics, 78(2), 214–220.
Bevan A. A., & Estrin, S. (2004). The determinants of foreign direct investment into European transition economies. Journal of Comparative Economics, 32(4), 775–787.
Billington, N. (1999). The location of foreign direct investment: An empirical analysis. Applied Economics, 31(1), 65–76.
Blonigen, B. A. (1997). Firm-specific assets and the link between exchange rates and foreign direct investment. American Economic Review, 87(3), 447–465.
Blonigen, B. A. (2001). In search of substitution between foreign production and exports. Journal of International Economics, 53(1), 81–104.
Blonigen, B. A. (2005). A review of the empirical literature on FDI determinants. Atlantic Economic Journal, 33, 383–403
Blonigen, B. A., & Davies, R. B. (2004). The effects of bilateral tax treaties on U.S. FDI activity. International Tax and Public Finance, 11(5), 601-622.
Blonigen, B. A., Ellis, C. J., & Fausten, D. (2005). Industrial groupings and foreign direct investment. Journal of International Economics, 65(1), 75–91.
Calvet, A. L. (1981). A synthesis of FDI theories and theories of the multinational firm. Journal of International Business Studies, 12(1), 10' anniversary special issue (1981, Spring-Summer), 43–59.
Campa, J. M. (1993). Entry by foreign firms in the U.S. under exchange rate uncertainty. Review of Economics and Statistics, 75(4), 614–622.
Carstensen, K., & Toubal, F. (2004). Foreign direct investment in Central and Eastern European countries: A dynamic panel analysis. Journal of Comparative Economics, 32(1), 3–22.
Coase, R. H. (1937). The nature of the firm. Economica, 4, 386.
Cushman, D. O. (1985). Real exchange rate risk, expectations, and the level of direct investment. Review of Economics and Statistics, 67(2), 297–308.
de Mooij, R. A., & Ederveen, S. (2003). Taxation and foreign direct investment: A synthesis of empirical research. International Tax and Public Finance, 10(6), 673-693.
Dunning, J. H. (1988, Spring). The eclectic paradigm of international production, a restatement and some possible extensions. Journal of International Business Studies, 1–31.
Fedderke, J. W., & Romm, A. T. (2006). Growth impact and determinants of foreign direct investment into South Africa, 1956–2003. Economic Modelling, 23(5), 738.
Froot, K. A., & Stein, J. C. (1991). Exchange rates and foreign direct investment: An imperfect capital markets approach. Quarterly Journal of Economics, 106(4), 1191-1217.
Girma, S. (2002). The process of European integration and the determinants of entry by non-EU Multinationals in U.K. manufacturing. The Manchester School, 70(3), 315–335.
Goldberg, L. S. & Kolstad, C. D. (1995). Foreign direct investment, exchange rate variability and demand uncertainty. International Economic Review, 36(4), 855–873.
Grubert, H. & Mutti, J. (1991). Taxes, tariffs and transfer pricing in multinational corporate decision making. Review of Economics and Statistics, 73(2), 285–293.
Hallward-Dreimeier, M. (2003). Do bilateral investment treaties attract foreign direct investment? A bit ... and they could bite. World Bank Working Paper, No. 3121.
Hartman, D. G. (1984). Tax policy and foreign direct investment in the United States. National Tax Journal, 37(4), 475–487.
Head, K., Ries, J., & Swenson, D. (1995). Agglomeration benefits and location choice: Evidence from Japanese manufacturing investments in the United States. Journal of International Economics, 38(3Y4), 223 - 247.
Hill, C. W. L. (2007). International business: Competing in the global marketplace (6" Ed.). New York:The McGraw-Hill Companies, Inc.
Hines, J. R., Jr. (1995). Altered states: Taxes and the location of foreign direct investment in America. American Economic Review, 86(5), 1076–1094.
Hoshi, T., Kashyap, A., & Scharfstein, D. (1991). Corporate structure, liquidity, and investment: Evidence from Japanese industrial groups. Quarterly Journal of Economics, 106(1), 33–60.
Janicki, H. P., & Wunnava, P. V. (2004). Determinants of foreign direct investment: Empirical evidence from EU accession candidates. Applied Economics, 36(5), 505–509.
Kindleberger, C. P. (1969). American business abroad : Six lectures on direct investment. New Haven: Yale University Press.
Klein, M. W., & Rosengren, E. S. (1994). The real exchange rate and foreign direct investment in the United States: Relative wealth vs. relative wage effects. Journal of International Economics, 36(3-4), 373–389.
Kogut, B., & Chang, S. J. (1991). Technological capabilities and Japanese foreign direct investment in the United States. Review of Economics and Statistics, 78(2), 401-413.
Kogut, B., & Chang, S. J. (1996). Platform investments and volatile exchange rates: Direct investment in the U.S. by Japanese electronics companies. Review of Economics and Statistics, 78(2), 221–231.
Kyriaco, A., & Stilianos, F. (1996). An empirical analysis of inward foreign direct investment flows in the EU with emphasis on the market enlargement hypothesis. Journal of Common Market Studies, 3 4 (4), 571-583.
Lipsey, R. E., & Weiss, M. Y. (1981). Foreign production and exports in manufacturing industries. Review of Economics and Statistics, 63(4), 488–494.
Lipsey, R. E., & Weiss, M. Y. (1984). Foreign production and exports of individual firms. Review of Economics and Statistics, 66(2), 304–307.
Liu, B. J., & Huang, F. M. (2005). Outward direct investment, reverse import, domestic production: Evidence from Taiwanese manufacturing firms. Hitotsubashi Journal of Economics, 46(1), 65–84.
Mork, R., & Yeung, B. (1992). Internalization: An event study test. Journal of International Economics, 33 (1-2), 41–56.
Nigel, P. (1993). An econometric analysis of foreign direct investment in the United Kingdom. Scottish Journal of Political Economy, 40(1), 1
Pannell, D.J. (1997). Sensitivity analysis of normative economic models: Theoretical framework and practical strategies. Agricultural Economics 16: 139-152.
Reisen, H. (2001, Summer [226/227]). Durable flows, durable benefits. The OECD (Organisation for Economic Cooperation and Development, Paris) Observer, 42–43.
Salehizadeh, M. (2005). Foreign direct investment inflows and the U.S. economy: An empirical analysis. Economic Issues, 10(2), 29–50.
Scholes, M. S., & Wolfson, M. A. (1990). The effects of changes in tax law on corporate reorganization activity. Journal of Business, 63, S141-164.
Slemrod, J. (1990). Tax effects on foreign direct investment in the U.S.: Evidence from a cross-country comparison. In A. Razin & J. Slemrod (Eds.), Taxation in the Global Economy (pp. 79–117). Chicago:University of Chicago Press.
Stevens, G. V. G. (1998). Exchange rates and foreign direct investment: A note. Journal of Policy Modeling, 20(3), 393—401.
Swenson, D. L. (1994). The impact of U.S. tax reform on foreign direct investment in the United States. Journal of Public Economics, 54(2), 243–266.
Tung, S., & Cho, S. (2001). Determinants of regional investment decisions in China: An econometric model of tax incentive policy. Review of Quantitative Finance and Accounting, 17(2), 167.
Wei, S.-J. (2000a). How taxing is corruption on international investors? Review of Economics and Statistics, 82(1), 1-11.
Wei, S.-J. (2000b). Local corruption and global capital flows. Brookings Papers on Economic Activity, 2000 (2), 303–354.
Wei, Y., Liu, X., Parker, D., & Vaidya, K. (1999). The regional distribution of foreign direct investment in China. Regional Studies, 33(9), 857–867
Williamson, O. E. (1975). Market and hierarchies: Analysis and anti-trust implication. New York: Free Press.
Yang, J. Y. Y., Groenewold, N., & Tcha, M. (2000). The determinants of foreign direct investment in Australia. Economic Record, 76(232), 45–54.
Downloads
Published
How to Cite
Issue
Section
License
Content and information of the article published at Suthiparithat Journal are based on the sole opinions and responsibility of author(s) only. Neither the editorial board involve in......
