Hostname: page-component-78c5997874-lj6df Total loading time: 0 Render date: 2024-11-15T02:35:33.300Z Has data issue: false hasContentIssue false
  • English
  • Français

Foreign Direct Investment and Home-Country Political Risk: The Case of Brazil

Published online by Cambridge University Press:  05 September 2022

Sandra Aguiar ,
Luís Aguiar-Conraria ,
Mohamed Azzim Gulamhussen  and
Pedro C. Magalhães
Sandra Aguiar
Affiliation:
Indaqua S.A.
Luís Aguiar-Conraria
Affiliation:
University of Minho
Mohamed Azzim Gulamhussen
Affiliation:
Instituto Superior de Ciências do Trabalho e da Empresa
Pedro C. Magalhães
Affiliation:
Institute of Social Sciences of the University of Lisbon
Rights & Permissions [Opens in a new window]

Abstract

Core share and HTML view are not available for this content. However, as you have access to this content, a full PDF is available via the ‘Save PDF’ action button.

This article looks into the factors that explain foreign direct investment (FDI) in Brazil by country of origin. We collected a sample of 180 countries with and without FDI in Brazil. We use multiple estimation techniques and controls to isolate the effect of country political risk on outward foreign direct investment and show that countries with lower levels of political risk undertake more FDI in Brazil, and that features of the policy environment of home countries drive the negative relationship between risk and FDI. Furthermore, we show that the aspect of the political and institutional environment that is most likely to drive this negative relation between risk and investment into Brazil is related to the effectiveness of national governments. Our findings broaden the understanding of the puzzling influence of political risk on FDI observed in previous studies, correct for sampling and selection biases, and have substantive implications for policy design to attract FDI.

Resumo

Resumo

Neste trabalho analisamos que características dos países de origem explicam os investimento direto estrangeiro (IDE) no Brasil. Recolhemos dados para mais de 180 países investidores e não investidores no Brasil. Recorrendo a diversas técnicas de estimação e controlando outras variáveis isolamos o efeito que o risco político de cada país tem no IDE. Concluímos que países com menor risco político têm mais apetência para investir no Brasil. Mostramos ainda que a característica do ambiente institucional e político mais relevante para explicar este resultado prende-se com os níveis de eficácia governativa por parte dos diversos governos nacionais. Os nossos resultados contribuem para a compreensão entre a relação entre risco político e IDE encontrada em estudos anteriores, corrigem alguns problemas e enviesamentos amostrais e têm implicações relevantes sobre o tipo de políticas adequadas para atrair IDE.

Type
Research Article
Information
Latin American Research Review , Volume 47 , Issue 2 , 2012 , pp. 144 - 165
Copyright
Copyright © 2012 by the Latin American Studies Association

References

Albuquerque, Rui 2003 “The Composition of International Capital Flows: Risk Sharing through Foreign Direct Investment.” Journal of International Economics 61 (2): 353–383.CrossRefGoogle Scholar
Balassa, Bela 1985 “Exports, Policy Choices, and Economic Growth in Developing Countries after the 1973 Oil Shock.” Journal of Development Economics 18 (1): 23–35.CrossRefGoogle Scholar
Belsley, David A. 1991 Conditioning Diagnostics: Collinearity and Weak Data in Regression. Wiley Series in Probability and Mathematical Statistics. New York: John Wiley and Sons.Google Scholar
Bevan, Alan A., and Estrin, Saul 2004 “The Determinants of Foreign Direct Investment in Transition Economies.” Journal of Comparative Economics 32:775–787.CrossRefGoogle Scholar
Biglaiser, Glen, and DeRouen, Karl Jr. 2006 “Economic Reforms and Inflows of Foreign Direct Investment in Latin America.” Latin American Research Review 41 (1): 51–75.CrossRefGoogle Scholar
Buckley, Peter J., and Casson, Mark 1976 The Future of the Multinational Enterprise. London: Macmillan.CrossRefGoogle Scholar
Büthe, Tim, and Milner, Helen V. 2008 “The Politics of Foreign Direct Investment into Developing Countries: Increasing FDI through International Trade Agreements?” American Journal of Political Science 52 (4): 741–762.CrossRefGoogle Scholar
Butler, Kirt C., and Joaquin, Domingo C. 1998 “A Note on Political Risk and the Required Return on Foreign Investment.” Journal of International Business Studies 29 (3): 599–607.CrossRefGoogle Scholar
Byers, John 2003 “Great Circle Distances” (accessed October 27, 2008, at http://www.chemical-ecology.net/download/earth.exe).Google Scholar
Central Bank of Brazil n.d. Investimento estrangeiro direto (accessed February 17, 2010, at http://www.bcb.gov.br/?INVEDIR).Google Scholar
Central Intelligence Agency 2006 The World Factbook 2006 (accessed June 17, 2007, at https://www.cia.gov/library/publications/the-world-factbook/index.html).Google Scholar
Cheibub, José Antonio, Gandhi, Jennifer, and Vreeland, James Raymond 2010 “Democracy and Dictatorship Revisited.” Public Choice 143 (1–2): 67–101.CrossRefGoogle Scholar
Deichmann, Joel 2010 “Foreign Direct Investment in the Czech Republic: The Role of Origin Effects and Government Promotion Abroad.” Comparative Economic Studies 52 (2): 249–272.CrossRefGoogle Scholar
Dunning, John H. 1979 “Explaining Changing Patterns of International Production: In Defence of the Eclectic Theory.” Oxford Bulletin of Economics and Statistics 41 (4): 269–296.CrossRefGoogle Scholar
Dunning, John H. 1998 “Globalization and the New Geography of Foreign Direct Investment.” Oxford Development Studies 26 (1): 47–69.CrossRefGoogle Scholar
Eichengreen, Barry, and Mody, Ashoka 2000 “What Explains Changing Spreads on Emerging-Market Debt: Fundamentals or Market Sentiment?” (National Bureau of Economic Research Working Paper No. 6408). In Capital Flows and the Emerging Economies: Theory, Evidence, and Controversies, edited by Edwards, Sebastian, 107–136. Chicago: University of Chicago Press.Google Scholar
Greene, William H. 2008 Econometric Analysis. 6th ed. Upper Saddle River, NJ: Prentice Hall.Google Scholar
Grinblatt, Mark, and Keloharju, Matti 2001 “How Distance, Language, and Culture Influence Stockholdings and Trades.” Journal of Finance 56 (3): 1053–1073.CrossRefGoogle Scholar
Grosse, Robert, and Trevino, Len J. 1996 “Foreign Direct Investment in the United States: An Analysis by Country of Origin.” Journal of International Business Studies 27 (1): 139–155.CrossRefGoogle Scholar
Heckman, James J. 1979 “Sample Selection Bias as a Specification Error.” Econometrica 47 (1): 153–161.CrossRefGoogle Scholar
Henisz, Witold J. 2000 “The Institutional Environment for Multinational Investment.” Journal of Law Economics and Organization 16:334–364.CrossRefGoogle Scholar
Hu, Luojia 2002 “Estimation of a Censored Dynamic Panel Data Model.” Econometrica 70 (6): 2499–2517.CrossRefGoogle Scholar
Hunya, Gábor 2000 Integration through Foreign Direct Investment: Making Central European Industries Competitive. Cheltenham, UK: Edward Elgar Publishing.Google Scholar
Janicki, Hubert, and Wunnava, Phanindra V. 2004 “Determinants of Foreign Direct Investment: Empirical Evidence from EU Accession Candidates.” Applied Economics 36 (5): 505–509.CrossRefGoogle Scholar
Jensen, Nathan M. 2003 “Democratic Governance and Multinational Corporations: Political Regimes and Inflows of Foreign Direct Investment.” International Organization 57 (3): 587–616.CrossRefGoogle Scholar
Jun, K. W., and Singh, H. 1996 “The Determinants of Foreign Direct Investment in Developing Countries.” Transnational Corporations 5:67–105.Google Scholar
Kaufmann, Daniel, Kraay, Aart, and Mastruzzi, Massimo 2009 “Governance Matters VIII: Aggregate and Individual Governance Indicators, 1996–2008.” Policy Research Working Paper No. 4978, World Bank, Washington, DC.CrossRefGoogle Scholar
Kekic, Laza 2011 “The Global Economic Crisis and FDI Flows to Emerging Markets.” In FDI Perspectives: Issues in International Investment, edited by Karl P. Sauvant, Lisa Sachs, Ken Davies, and Ruben Zandvliet, 2–6. New York: Vale Columbia Center on Sustainable International Investment (accessed February 16, 2010, at http://www.vcc.columbia.edu/files/vale/content/PerspectivesEbook.pdf).Google Scholar
Kennedy, Peter 2008 A Guide to Econometrics. 6th ed. Oxford, UK: Blackwell Publishing.Google Scholar
Kim, Young-Han 2007 “Impacts of Regional Economic Integration on Industrial Relocation through FDI in East Asia.” Journal of Policy Modeling 29:165–180.CrossRefGoogle Scholar
Kobrin, Stephen J. 1979 “Political Risk: A Review and Reconsideration.” Journal of International Business Studies 10 (1): 67–80.CrossRefGoogle Scholar
Kogut, Bruce, and Singh, Harbir 1988 “The Effect of National Culture on the Choice of Entry Mode.” Journal of International Business Studies 19:411–432.CrossRefGoogle Scholar
Kokko, Ari 2006 “The Home Country Effects of FDI in Developed Economies.” Working Paper Series 01/2006, European Institute of Japanese Studies, Stockholm.Google Scholar
Le, Quan Vu, and Zak, Paul J. 2006 “Political Risk and Capital Flight.” Journal of International Money and Finance 25:308–329.CrossRefGoogle Scholar
Li, Quan, and Resnick, Adam 2003 “Reversal of Fortunes: Democratic Institutions and Foreign Direct Investment Inflows to Developing Countries.” International Organization 57:175–211.CrossRefGoogle Scholar
Liu, Xiaming, Song, Haiyan, Wei, Yingqi, and Romilly, Peter 1997 “Country Characteristics and Foreign Direct Investment in China: A Panel Data Analysis.” Review of World Economics 133:313–329.CrossRefGoogle Scholar
Markusen, James R. 1995 “The Boundaries of Multinational Enterprises and the Theory of International Trade.” Journal of Economic Perspectives 9 (2): 169–189.CrossRefGoogle Scholar
Marshall, Monty, and Jaggers, Keith 2009 Polity IV Project: Political Regime Characteristics and Transitions, 1800–2007. Vienna, VA: Center for Systemic Peace.Google Scholar
Montero, Alfred P. 2008 “Macroeconomic Deeds, Not Reform Words: The Determinants of Foreign Direct Investment in Latin America.” Latin American Research Review 43 (1): 55–83.CrossRefGoogle Scholar
Montero, Alfred P. 2009 “Political Governance and Macroeconomic Variables in Determining Foreign Direct Investment Flows: A Reply to John P. Turnan.” Latin American Research Review 44 (1): 195–198.CrossRefGoogle Scholar
Nicoletti, Cheti 2006 “Nonresponse in Dynamic Panel Data Models.” Journal of Econometrics 132 (2): 461–489.CrossRefGoogle Scholar
Nigh, Douglas 1986 “Political Events and the Foreign Direct Investment Decision: An Empirical Examination.” Managerial and Decision Economics 7:99–106.CrossRefGoogle Scholar
Nigh, Douglas, and Schollhammer, Hans 1987 “Foreign Direct Investment, Political Conflict and Co-operation: The Asymmetric Response Hypothesis.” Managerial and Decision Economics 8:307–312.CrossRefGoogle Scholar
Ortega, C., and Griffin, C. 2009 “Investment Promotion Essentials: What Sets the World's Best Investment Facilitators Apart from the Rest.” Investment Climate in Practice 6:1–12.Google Scholar
Sakurai, Teiji 2004 “Como atrair capital estrangeiro para o Brasil.” Jetro, São Paulo (accessed January 15, 2010, at http://www.jetro.go.jp/brazil/painel/index.html/atraircapitalestrangbr.pdf).Google Scholar
Schneider, Friedrich, and Frey, Bruno S. 1985 “Economic and Political Determinants of Foreign Direct Investment.” World Development 13:161–175.CrossRefGoogle Scholar
Tallman, Stephen B. 1988 “Home Country Political Risk and Foreign Direct Investment in the United States.” Journal of International Business Studies 19 (2): 219–233.CrossRefGoogle Scholar
Thomas, Douglas E., and Grosse, Robert 2001 “Country-of-Origin Determinants of Foreign Direct Investment in an Emerging Market: The Case of Mexico.” Journal of International Management 7 (1): 59–79.CrossRefGoogle Scholar
Tobin, James 1958 “Estimation for Relationships with Limited Dependent Variables.” Econometrica 26 (1): 24–36.CrossRefGoogle Scholar
Turnan, John P. 2006 “Regime Type, Rights, and Foreign Direct Investment in Latin America: A Brief Comment.” Latin American Research Review 41 (2): 183–196.Google Scholar
Turnan, John P. 2009 “The Political and Economic Determinants of Foreign Direct Investment in Latin America: A Brief Comment on 'Macroeconomic Deeds, Not Reform Words: The Determinants of Foreign Direct Investment in Latin America,' by Alfred P. Montero, 'LARR,' Volume 43, Number 1.” Latin American Research Review 44 (1): 191–194.Google Scholar
Turnan, John Peter, and Emmert, Craig F. 2004 “The Political Economy of US Foreign Direct Investment in Latin America: A Reappraisal.” Latin American Research Review 39 (3): 9–28.Google Scholar
UNCTAD (UN Conference on Trade and Development) 2009a Promoting Investment and Trade: Practices and Issues. Investment Advisory Series A(4). New York: United Nations.Google Scholar
UNCTAD (UN Conference on Trade and Development) 2009b World Investment Report 2009: Transnational Corporations, Agricultural Production, and Development. New York: United Nations.Google Scholar
Vernon, R. 1966 “International Investment and International Trade in the Product Cycle.” Quarterly Journal of Economics 80:190–207.CrossRefGoogle Scholar
Zhao, Hongxin 2003 “Country Factor Differentials as Determinants of FDI Flow to China.” Thunderbird International Business Review 45:149–169.CrossRefGoogle Scholar