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Macroeconomic Deeds, Not Reform Words: The Determinants of Foreign Direct Investment in Latin America

Published online by Cambridge University Press:  05 September 2022

Alfred P. Montero
Alfred P. Montero*
Affiliation:
Carleton College
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Abstract

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Numerous studies on the determinants of foreign direct investment flows in Latin America underscore the importance of risk- and cost-mitigating institutions that support good governance, political and economic freedom, and demonstrate a credible commitment to economic reform by regional governments. This study tests these variables against market size, macroeconomic policy, and factor controls to assess which combinations of variables explain the distribution of foreign inflows. Using a time-series cross-sectional data set of fifteen Latin American economies from 1985 to 2003, the study concludes that past performance on the current account provides sufficient commitment by regional governments and that regime, good governance, and reform variables are, by comparison, inconsistent predictors of foreign direct investment.

Resumo

Resumo

Numerosos estudios sobre los factores que determinan el flujo de inversión extranjera en Latinoamérica subrayan la importancia de las instituciones que rebajan el riesgo y los costes de inversión, las instituciones que apoyan el buen gobierno, las libertades políticas y económicas, y que muestran la dedicación de la región a la reforma económica. Este estudio investiga estas variables en comparación con el tamaño del mercado, las políticas macroeconómicas y factores de producción para averiguar las combinaciones de variables que explican la distribución de los flujos de inversión extranjera. Para el estudio se utilizó una base de datos comparativos y longitudinales de quince economías latinoamericanas desde 1985 a 2003. El estudio concluye que el reciente desempeño del balance comercial proporciona un compromiso suficiente de los gobiernos regionales y por otro lado asegura que el tipo de régimen, buen gobierno y reformas son, por comparación, determinantes débiles de la inversión directa extranjera.

Type
Research Article
Information
Latin American Research Review , Volume 43 , Issue 1 , 2008 , pp. 55 - 83
Copyright
Copyright © 2008 by the University of Texas Press

Footnotes

*

I thank the three anonymous reviewers for their comments on a previous version of this article. Special thanks to Sam Whittemore for his valuable research assistance. All errors that remain are the author's responsibility.

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