Scandinavian Working Papers in Economics

Seminar Papers,
Stockholm University, Institute for International Economic Studies

No 753: Determinants of Capital Intensive and R&D Intensive Foreign Direct Investment

Martin Gonzalez-Eiras () and Jr., Jose Mauricio Prado
Additional contact information
Martin Gonzalez-Eiras: Universidad de San Andres, Postal: Stockholm University, S-106 69 Stockholm, Sweden
Jr., Jose Mauricio Prado: Institute for International Economic Studies, Stockholm University, Postal: Stockholm University, S-106 69 Stockholm, Sweden

Abstract: We study the determinants of capital intensity and technology content of foreign direct investment, an important economic driving force for developing countries. For this purpose, we use sectoral industry data on U.S. foreign investment abroad, and data on host countries' institutional characteristics, like investment climate, protection of property rights, labor standards and constitutional arrangements. Our regressions show that better protection of property rights has a significant positive effect on R&D but not on capital intensive capital flows. There is evidence that an increase in workers' bargaining power results in a reduction of capital and technologically intensive foreign investment. And although the evidence with respect to constitutional arrangements is not very strong, presidential regimes appear to be less able than parliamentary ones to deliver policies attracting R&D intensive capital flows. This is consistent with recent research on the effects of constitutional arrangements on economic growth.

Keywords: FDI

JEL-codes: F21

29 pages, August 6, 2007

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