Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/263307 
Year of Publication: 
2022
Series/Report no.: 
ISER Discussion Paper No. 1171
Publisher: 
Osaka University, Institute of Social and Economic Research (ISER), Osaka
Abstract: 
This paper argues that the persistence of greenfield foreign direct investment (FDI) comes from information frictions. First, our simple social learning model shows that, through signaling effects, information frictions generate persistent greenfield FDI inflows. Second, we show empirically that the autoregressive coefficient of greenfield FDI increases in value with different proxies for information frictions, including six institutional and governance indicators and two common language measures. We also find that greenfield FDI persistence varies across industries. In particular, greenfield FDI by service firms is more persistent than that by manufacturing firms. Finally, our findings suggest that better governance, predictability, and transparency reduce information frictions and thereby avoiding drastic and persistent ups and downs in FDI.
Subjects: 
Greenfield FDI
persistence
information
social learning
JEL: 
C23
F23
D21
D22
Document Type: 
Working Paper

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