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The impact of host country policies upon foreign direct investment : the Asia Pacific experience, 1970-1990 Korompai, Victor Thomas


This paper attempts to examine the relationship between host country policies towards foreign direct investment (FDI) and the amount of FDI that host countries receive. The paper first considers some of the issues involved in FDI and the type of policies developing economies have typically used towards it. Secondly, using World Bank and United Nations information, data on net FDI flows to host countries and on host country policies is presented from 1970-1990. Specifically, the FDI policies of ten Asia Pacific economies is examined over this period and their effects on FDI levels in these economies is assessed. Thirdly, using data from twenty-seven additional developing countries, multiple regression analysis is employed in order to attempt to empirically demonstrate the effect of FDI policies upon FDI levels in developing countries. The analysis suggests that general economic variables have greater significance in explaining the flow of FDI to developing economies, but FDI policies do seem to have a distinguishable effect when viewed at separate points in time. The paper concludes that locational advantages are crucial in attracting FDI flows but that these advantages are enhanced when policies favourable towards foreign investors are utilized. Some suggestions on improving the paper's approach and on possible future research issues are also provided.

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