Structural change and foreign direct investment: globalization and regional economic integration

Joao Jalles, Alvaro Pereira, Martin Andresen

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

This paper investigates flows of inward and outward foreign direct investment (FDI) and FDI-to-GDP ratios in a sample of 62 countries over a 30 year time span. Using several endogenous structural break procedures (allowing for one and two break points), we find that: (1) the great majority of the series have structural breaks in the last 15 years, (2) post-break FDI and FDI/GDP ratios are substantially higher than the pre-break values, and (3) most breaks seem to be related to globalization, regional economic integration, economic growth, or political instability. Static and dynamic panel-data analyses accounting for and/or addressing endogeneity, simultaneity, nonstationarity, heterogeneity and cross-sectional dependence show that FDI is negatively related to exchange rate volatility and GDP per capita, but positively related to some regional integration agreements, trade openness, GDP, and GDP growth. Most notably, the European Union is the only regional economic integration unit found to consistently have significant and positive effects on FDI.
Original languageEnglish
Pages (from-to)35-82
Number of pages48
JournalPortuguese Economic Journal
Volume11
Issue number1
Early online date14 Oct 2011
DOIs
Publication statusPublished - Apr 2012

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Regional economic integration
Structural change
Globalization
Foreign direct investment
Structural breaks
Outward foreign direct investment
GDP per capita
Political instability
Nonstationarity
European Union
Exchange rate volatility
Regional integration
Cross-sectional dependence
GDP growth
Trade openness
Simultaneity
Endogeneity
Dynamic panel data
Economic growth

Keywords

  • openness
  • structural breaks
  • endogeneity
  • heterogeneity
  • cross sectional dependence
  • common correlated effects

Cite this

Structural change and foreign direct investment : globalization and regional economic integration. / Jalles, Joao; Pereira, Alvaro; Andresen, Martin.

In: Portuguese Economic Journal, Vol. 11, No. 1, 04.2012, p. 35-82.

Research output: Contribution to journalArticle

Jalles, Joao ; Pereira, Alvaro ; Andresen, Martin. / Structural change and foreign direct investment : globalization and regional economic integration. In: Portuguese Economic Journal. 2012 ; Vol. 11, No. 1. pp. 35-82.
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