TY - JOUR
T1 - An information-based trade off between foreign direct investment and foreign portfolio investment
AU - Goldstein, Itay
AU - Razin, Assaf
PY - 2006/9
Y1 - 2006/9
N2 - The paper develops a model of foreign direct investments (FDI) and foreign portfolio investments (FPI). FDI enables the owner to obtain refined information about the firm. This superiority, relative to FPI, comes with a cost: a firm owned by the FDI investor has a low resale price because of asymmetric information between the owner and potential buyers. The model can explain several stylized facts regarding foreign equity flows, such as the larger ratio of FDI to FPI inflows in developing countries relative to developed countries, and the greater volatility of FDI net inflows relative to FPI net inflows.
AB - The paper develops a model of foreign direct investments (FDI) and foreign portfolio investments (FPI). FDI enables the owner to obtain refined information about the firm. This superiority, relative to FPI, comes with a cost: a firm owned by the FDI investor has a low resale price because of asymmetric information between the owner and potential buyers. The model can explain several stylized facts regarding foreign equity flows, such as the larger ratio of FDI to FPI inflows in developing countries relative to developed countries, and the greater volatility of FDI net inflows relative to FPI net inflows.
KW - Corporate control
KW - Foreign direct investment
KW - Foreign portfolio investment
KW - Liquidity
KW - Transparency
UR - http://www.scopus.com/inward/record.url?scp=33747787652&partnerID=8YFLogxK
U2 - 10.1016/j.jinteco.2005.12.002
DO - 10.1016/j.jinteco.2005.12.002
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AN - SCOPUS:33747787652
VL - 70
SP - 271
EP - 295
JO - Journal of International Economics
JF - Journal of International Economics
SN - 0022-1996
IS - 1
ER -
