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Economic Reforms and Inflows of Foreign Direct Investment in Latin America

Published online by Cambridge University Press:  05 October 2022

Glen Biglaiser  and
Karl DeRouen Jr.
Glen Biglaiser
Affiliation:
Texas Tech University
Karl DeRouen Jr.
Affiliation:
The University of Alabama
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Abstract

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This paper seeks to explain the effect of different economic reforms for attracting foreign direct investment (FDI) in Latin America. Controlling for macroeconomic and good governance factors, we find that governments that implement economic reforms are not always more likely to attract FDI inflows. Instead, attempts to minimize expropriation risk complement domestic financial and trade reforms, which enhances foreign investor interest. Elements of both good governance and reform are important. The results provide reasons for optimism—the fact that most economic reforms are not essential for attracting FDI suggests that countries seeking FDI will encounter fewer obstacles.

Resumen:

RESUMEN:

Este trabajo busca explicar el efecto de diferentes reformas econornicas con el objetivo de atraer inversion extranjera directa (lED) en America Latina. Controlando factores macroeconomicos y de gobernabilidad, encontramos que los gobiernos que implementan reformas econornicas no siempretiendenaatraerentradasde JED. Parotrolado, intentosparaminimizar el riesgo de expropiacion complementan las reformas a nivel financiero y de comercio, que elevan el interes de los inversionistas extranjeros. De todas maneras, elementos tanto de gobernabilidad como de reforrna no dejan de ser importantes. Los resultados proporcionan optimismo—el hecho de que la mayoriade las reformas económicas nos sean esenciales para atraer IED sugiere que paises que busquen IED tropezarán con menos obstáculos.

Type
Research Article
Information
Latin American Research Review , Volume 41 , Issue 1 , February 2006 , pp. 51 - 75
Copyright
Copyright © 2006 by the University of Texas Press

Footnotes

1.

The authors acknowledge the help of David Brulé, Hye Jee Cho, Harvey Kline, Monty Marshall, Uk Heo, Geoffrey Garrett, Ron Rogowski, Michael New, John Tures, and three anonymous reviewers. Special thanks to Nate Jensen for his many useful suggestions on this work.

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