Corporate Governance and Foreign Direct Investment

7/30/2019 Corporate Governance and Foreign Direct Investment

1/21

$'%(FRQRPLFV:RUNLQJ3DSHU6HULHV

Corporate Governanceand Foreign Direct Investment

Joseph D. Alba, Donghyun Park, and Peiming Wang

No. 202 | May 2010


2/21


3/21

ADB Economics Working Paper Series No. 202

Corporate Governance

and Foreign Direct Investment

Joseph D. Alba, Donghyun Park, and Peiming Wang

May 2010

-RVHSK'$OEDLV$VVRFLDWH3URIHVVRUDWWKH1DQ\DQJ7HFKQRORJLFDO8QLYHUVLW\6LQJDSRUH'RQJK\XQ3DUN

LV3ULQFLSDO(FRQRPLVWLQWKH(FRQRPLFVDQG5HVHDUFK'HSDUWPHQW$VLDQ'HYHORSPHQW%DQN0DQLODDQG

3HLPLQJ:DQJLV$VVRFLDWH3URIHVVRUDWWKH$XFNODQG8QLYHUVLW\RI7HFKQRORJ\1HZ=HDODQG


4/21

$VLDQ'HYHORSPHQW%DQN

$'%$YHQXH0DQGDOX\RQJ&LW\

0HWUR0DQLOD3KLOLSSLQHV

ZZZDGERUJHFRQRPLFV

E\$VLDQ'HYHORSPHQW%DQN0D\

,661

3XEOLFDWLRQ6WRFN1R

7KHYLHZVH[SUHVVHGLQWKLVSDSHU

DUHWKRVHRIWKHDXWKRUVDQGGRQRW

QHFHVVDULO\UHHFWWKHYLHZVRUSROLFLHV

RIWKH$VLDQ'HYHORSPHQW%DQN

7KH$'%(FRQRPLFV:RUNLQJ3DSHU6HULHVLVDIRUXPIRUVWLPXODWLQJGLVFXVVLRQDQG

HOLFLWLQJIHHGEDFNRQRQJRLQJDQGUHFHQWO\FRPSOHWHGUHVHDUFKDQGSROLF\VWXGLHV

XQGHUWDNHQE\WKH$VLDQ'HYHORSPHQW%DQN$'%VWDIIFRQVXOWDQWVRUUHVRXUFH

SHUVRQV7KHVHULHVGHDOVZLWKNH\HFRQRPLFDQGGHYHORSPHQWSUREOHPVSDUWLFXODUO\

WKRVHIDFLQJWKH$VLDDQG3DFLFUHJLRQDVZHOODVFRQFHSWXDODQDO\WLFDORU

PHWKRGRORJLFDOLVVXHVUHODWLQJWRSURMHFWSURJUDPHFRQRPLFDQDO\VLVDQGVWDWLVWLFDOGDWD

DQGPHDVXUHPHQW7KHVHULHVDLPVWRHQKDQFHWKHNQRZOHGJHRQ$VLDVGHYHORSPHQW

DQGSROLF\FKDOOHQJHVVWUHQJWKHQDQDO\WLFDOULJRUDQGTXDOLW\RI$'%VFRXQWU\SDUWQHUVKLS

VWUDWHJLHVDQGLWVVXEUHJLRQDODQGFRXQWU\RSHUDWLRQVDQGLPSURYHWKHTXDOLW\DQG

DYDLODELOLW\RIVWDWLVWLFDOGDWDDQGGHYHORSPHQWLQGLFDWRUVIRUPRQLWRULQJGHYHORSPHQW

HIIHFWLYHQHVV

7KH$'%(FRQRPLFV:RUNLQJ3DSHU6HULHVLVDTXLFNGLVVHPLQDWLQJLQIRUPDOSXEOLFDWLRQ

ZKRVHWLWOHVFRXOGVXEVHTXHQWO\EHUHYLVHGIRUSXEOLFDWLRQDVDUWLFOHVLQSURIHVVLRQDO

MRXUQDOVRUFKDSWHUVLQERRNV7KHVHULHVLVPDLQWDLQHGE\WKH(FRQRPLFVDQG5HVHDUFK

'HSDUWPHQW


5/21

Contents

$EVWUDFW Y

, ,QWURGXFWLRQ

,, 'DWDDQG(PSLULFDO0RGHO

$ 'DWD

% (FRQRPHWULF0RGHO

& (VWLPDWLRQ

,,, 'HWHUPLQDQWVRI)',

,9 (PSLULFDO5HVXOWV

9 &RQFOXGLQJ2EVHUYDWLRQV

5HIHUHQFHV


6/21


7/21

Abstract

0HUJHUDQGDFTXLVLWLRQ0$DFWLYLW\LVPRWLYDWHGE\LQFUHDVLQJVKDUHKROGHU

YDOXHWKURXJKLPSURYHGFRUSRUDWHJRYHUQDQFH7KHUHIRUHVWURQJHUFRUSRUDWH

JRYHUQDQFHFDQUHGXFHWKHUHWXUQVIURP0$DFWLYLW\LQFOXGLQJ0$IRUHLJQ

GLUHFWLQYHVWPHQW)',7KLVLQWXUQFDQUHGXFHWKHUHWXUQVIURPQRQ0$)',

LQOLJKWRIWKHFRPSOHPHQWDU\UHODWLRQVKLSEHWZHHQ0$DQGQRQ0$)',:H

XVHUPOHYHOHYLGHQFHWRHPSLULFDOO\H[DPLQHWKHHIIHFWRIFRUSRUDWHJRYHUQDQFH

LQWKH8QLWHG6WDWHV86RQ-DSDQHVH0$DQGQRQ0$)',LQRZV,QGRLQJ

VRZHH[SDQGXSRQ$OED3DUNDQG:DQJZKLFKORRNHGRQO\DWWKH0$

)',LQRZV:HQGWKDWWZRODQGPDUN86FRUSRUDWHJRYHUQDQFHUHJXODWLRQVKHOSH[SODLQWKHVKDUSGURSLQERWK-DSDQHVH0$DQGQRQ0$)',LQWR

WKH86GXULQJWKHV7KHUHJXODWLRQVDSSDUHQWO\HQFRXUDJHG86UPVWR

LPSURYHWKHLUFRUSRUDWHJRYHUQDQFH2XUHYLGHQFHWKXVVXJJHVWVWKDWFRUSRUDWH

JRYHUQDQFHPD\DIIHFWERWK0$DQGQRQ0$)',


8/21


9/21

I. Introduction

7UDGLWLRQDOWKHRULHVRIIRUHLJQGLUHFWLQYHVWPHQW)',DUHEDVHGRQLQGXVWULDORUJDQL]DWLRQ

PRWLYHVUHODWHGWRWKHRZQHUVKLSRIUPVSHFLFDVVHWVVXFKDVDGYDQFHGWHFKQRORJ\

VXSHULRUPDQDJHPHQWVNLOOVDQGJOREDOPDUNHWLQJDQGGLVWULEXWLRQQHWZRUNV:KLOHVXFK

WUDGLWLRQDOWKHRULHVDUHXVHIXOWKH\IDLOWRH[SODLQWKHVW\OL]HGIDFWRI)',VRPHWLPHV

RFFXUULQJLQZDYHVDVKDSSHQHGLQWKHFDVHRI-DSDQHVH)',LQWRWKH8QLWHG6WDWHV

86GXULQJWKHVDQGV7RDGGUHVVWKLVJDS)URRWDQG6WHLQSXWIRUWK

UHODWLYHZHDOWKLHGHSUHFLDWLRQRIWKH86GROODULQFUHDVLQJWKHUHODWLYHZHDOWKRIIRUHLJQ

UPVDVDNH\GULYHURI)',LQWRWKH86$GHSUHFLDWLRQRIWKH86GROODULQFUHDVHVWKH

GROODUYDOXHRIWKRVHIXQGVDQGHQDEOHVIRUHLJQUPVWRELGPRUHDJJUHVVLYHO\IRU86

DVVHWV

7KH)URRWDQG6WHLQK\SRWKHVLVGRHVDJRRGMRERIH[SODLQLQJWKHVW\OL]HGIDFWVRIWKH

VDQGHDUO\V'XULQJWKDWWLPH-DSDQHVH)',LQWRWKH86URVHZKHQWKH

GROODUZHDNHQHGDQGIHOOZKHQWKHGROODUVWUHQJWKHQHG+RZHYHUDIWHU-DSDQHVH

)',IHOOVKDUSO\GHVSLWHDGHSUHFLDWLRQRIWKH86GROODU7RH[SODLQWKHSDUDGR[LFDOGURS

LQ-DSDQHVH)',.OHLQHWDOSURSRVHGWKHUHODWLYHDFFHVVWRFUHGLWK\SRWKHVLV

7KHEDVLFLGHDLVWKDWWKHVKDUSGURSLQ-DSDQHVH)',LQWKHVFDQEHH[SODLQHGE\

WKHUHGXFWLRQLQFUHGLWRZVWR-DSDQHVHUPV7KH.OHLQHWDOK\SRWKHVLVLVEDVHGRQ

WKHFRQXHQFHRIWZRVW\OL]HGIDFWVWKH-DSDQHVHEDQNLQJFULVLVRIWKHVDQGWKH

-DSDQHVHPDLQEDQNV\VWHP7KHGHWHULRUDWLRQRIWKHQDQFLDOKHDOWKRI-DSDQHVHEDQNV

DGYHUVHO\DIIHFWVWKHRZRIFUHGLWWR-DSDQHVHUPVIURPWKHLUPDLQEDQNV

$QRWKHUSRWHQWLDOH[SODQDWLRQIRUWKHVKDUSGHFOLQHRI-DSDQHVH)',LQWRWKH86GHVSLWH

WKHGROODUVGHSUHFLDWLRQKDVWRGRZLWKLPSURYHPHQWLQFRUSRUDWHJRYHUQDQFHLQWKH86

VLQFHWKHHDUO\V,QSDUWLFXODUWZRODQGPDUNFRUSRUDWHJRYHUQDQFHUHJXODWLRQVE\

WKH866HFXULWLHVDQG([FKDQJH&RPPLVVLRQ6(&LQUHVKDSHGWKH86FRUSRUDWH

JRYHUQDQFHODQGVFDSH7KLVH[SODQDWLRQLVHVSHFLDOO\UHOHYDQWIRUPHUJHUDQGDFTXLVLWLRQ

0$)',VLQFH0$DFWLYLW\LQWKH86DQGHOVHZKHUHKDVEHHQPRWLYDWHGWRDODUJH

H[WHQWE\LPSURYLQJFRUSRUDWHJRYHUQDQFHWRFUHDWHVKDUHKROGHUYDOXH7KHUHLVVRPH

HPSLULFDOHYLGHQFHIRUWKHQRWLRQWKDWFRUSRUDWHJRYHUQDQFHLQXHQFHV0$)',5RVVLDQG9ROSLQQGHYLGHQFHIURPDFURVVVHFWLRQRIFRXQWULHVWKDWSURWHFWLRQ

RIVKDUHKROGHUULJKWVKDVDQHJDWLYHHIIHFWRQ0$)',LQRZV$OED3DUNDQG:DQJ

DOVRQGWKDWLPSURYHGFRUSRUDWHJRYHUQDQFHLQWKH86KDGDQHJDWLYHHIIHFWRQ

WKHUDWHRIUPOHYHO-DSDQHVH0$)',LQWKH86,QWKLVSDSHUZHH[SDQGWKHHPSLULFDO

ZRUNRI$OED3DUNDQG:DQJE\DQDO\]LQJWKHLPSDFWRIWKHLPSURYHPHQWLQ86


10/21

FRUSRUDWHJRYHUQDQFHVLQFHRQERWK-DSDQHVH0$DQGQRQ0$)',LQWRWKH86

ZLWKDODUJHUGDWDVHW

,QWKLVSDSHUZHJREH\RQGWKHFRUSRUDWHJRYHUQDQFHDVDGHWHUPLQDQWRI0$)',

K\SRWKHVLVWRHPSLULFDOO\WHVWWKHSRVVLELOLW\WKDWFRUSRUDWHJRYHUQDQFHDOVRLQXHQFHVQRQ0$)',$OWKRXJK0$)',LVDQLPSRUWDQWIRUPRI)',LWLVRQO\RQHRIVHYHUDO

IRUPVRI)',DORQJZLWKQHZSODQWVDQGMRLQWYHQWXUHV+RZHYHUWKHUHDUHVWURQJ

JURXQGVIRUDWOHDVWVRPHFRPSOHPHQWDULW\EHWZHHQ0$DQGQRQ0$)',)RURQH

DVVHWVLQFOXGLQJDVVHWVDFTXLUHGDVDUHVXOWRI0$)',DUHXVXDOO\QRWSHUIHFWO\

GLYLVLEOH3HQURVH7KHUHIRUHXWLOL]LQJWKHLQGLYLVLEOHDVVHWVDFTXLUHGIURP0$)',

PRUHHIFLHQWO\PD\UHTXLUHDGGLWLRQDOQRQ0$)',7HHFH)RUH[DPSOHZKHQD

-DSDQHVHFRPSDQ\EX\VDKLJKWHFK86FRPSDQ\LWPD\EXLOGQHZSURGXFWLRQIDFLOLWLHV

LQWKH86RUHQWHULQWRMRLQWYHQWXUHVZLWK86UPVWRPRUHIXOO\XWLOL]HLWVQHZO\DFTXLUHG

WHFKQRORJ\DVVHWV,QIDFW&DOGHUyQHWDOQGWKDW0$)',LVIROORZHGE\RWKHU

W\SHVRI)',LQDODUJHVDPSOHRIFRXQWULHV7KLVLPSOLHVWKDWWRWKHH[WHQWWKDWLPSURYHG

FRUSRUDWHJRYHUQDQFHKDVDQHJDWLYHLPSDFWRQ0$)',LWPD\DOVRDGYHUVHO\DIIHFWRWKHUW\SHVRI)',VXFKDVQHZSODQWVDQGMRLQWYHQWXUHV

7KHFHQWUDOREMHFWLYHRIWKLVSDSHULVWRHPSLULFDOO\H[DPLQHWKHLPSDFWRIFRUSRUDWH

JRYHUQDQFHRQERWK0$DQGQRQ0$)',7RGRVRZHXVHUPOHYHOGDWDIURP

-DSDQHVH)',LQWRWKH86:HXVHWKHVDPHVHWRIUPOHYHOH[SODQDWRU\YDULDEOHVDV

.OHLQHWDOLHUHODWLYHDFFHVVWRFUHGLWUHODWLYHZHDOWKSURWDELOLW\DQGVL]H

,QDGGLWLRQZHLQFOXGHDGXPP\YDULDEOHWKDWFDSWXUHVWKHWZRODQGPDUNFRUSRUDWH

JRYHUQDQFHUHJXODWLRQVE\WKH866(&LQ)RURXUSXUSRVHVWKLVLVWKHPRVW

VLJQLFDQWYDULDEOHVLQFHZHVHHNWRLQYHVWLJDWHWKHUHODWLRQVKLSEHWZHHQFRUSRUDWH

JRYHUQDQFHDQG)',,QFRQWUDVWWR.OHLQHWDOZHXVHD0DUNRYELYDULDWH]HURLQDWHG

QHJDWLYHELQRPLDOUHJUHVVLRQPRGHOKHUHDIWHU0%=,1%ZKLFKLVZHOOVXLWHGWRSRVLWLYHO\FRUUHODWHGELYDULDWHSDQHOGDWDZLWKDKLJKSURSRUWLRQRI]HURVVXFKDVQXPEHURI0$

DQGQRQ0$)',SURMHFWV0%=,1%KDVWKHDGGHGDGYDQWDJHRIPRGHOLQJWKHVHULDO

GHSHQGHQFHRIUHSHDWHGREVHUYDWLRQVRYHUWLPHDVD0DUNRYFKDLQZLWKWUDQVLWLRQ

SUREDELOLWLHVWKDWGHSHQGRQFRYDULDWHV)RUFRPSDUDWLYHSXUSRVHVZHDOVRHVWLPDWHWKH

ELYDULDWH]HURLQDWHGQHJDWLYHELQRPLDOUHJUHVVLRQPRGHOKHUHDIWHU%=,1%ZKLFKLVD

VSHFLDOFDVHRI0%=,1%

II. Data and Empirical Model,QWKLVVHFWLRQZHGLVFXVVWKHGDWDDQGHPSLULFDOPRGHOWKDWZHXVHWRDQDO\]HWKH

LPSDFWRIFRUSRUDWHJRYHUQDQFHDQGRWKHUH[SODQDWRU\YDULDEOHVRQUPOHYHO-DSDQHVH

)',LQWRWKH862XUPRGHOLVEDVHGRQDVW\OL]HGWZRVWDJHLQYHVWPHQWSURFHVV,QWKH

UVWVWDJHZHORRNDWWKHSUREDELOLW\RIZKHWKHUWKH-DSDQHVHUPLQWHQGVWRLQYHVWLQ1 See Wang (2003) or a comprehensive discussion o the BZINB model.

_$'%(FRQRPLFV:RUNLQJ3DSHU6HULHV1R


11/21

WKH86,QWKHVHFRQGVWDJHZHLQYHVWLJDWHWKHHIIHFWRIWKHYDULRXVGHWHUPLQDQWVRI)',

LQFOXGLQJ86FRUSRUDWHJRYHUQDQFHRQERWK0$DQGQRQ0$)',

A. Data

2XUVDPSOHFRQVLVWVRIUPVOLVWHGLQWKHUVWVHFWLRQRIWKH-DSDQ&RPSDQ\

+DQGERRNZLWKDWOHDVWRQH)',LQWKH86IURPWR(DFKUPLVDVVRFLDWHG

ZLWKRQHRIWKHEDQNVLGHQWLHGE\.OHLQHWDODVDPDLQEDQN7KHUHDUH

REVHUYDWLRQVLQWKHVDPSOHDQGHDFKREVHUYDWLRQLQGLFDWHVWKHQXPEHURIERWK

0$DQGQRQ0$)',SURMHFWVIRUDJLYHQUPLQDJLYHQ\HDU)RU0$)',

RIREVHUYDWLRQVDUH]HURVZLWKWKHVDPSOHPHDQDQGYDULDQFHDQG

UHVSHFWLYHO\)RUQRQ0$)',RIREVHUYDWLRQVDUH]HURVZLWKWKHVDPSOH

PHDQDQGYDULDQFHDWDQGUHVSHFWLYHO\7KHVDPSOHFRUUHODWLRQEHWZHHQ0$

DQGQRQ0$)',LVZLWKSYDOXHRI7KLVVXJJHVWVDKLJKSURSRUWLRQRI]HUR

FRXQWVDQGSRVLWLYHFRUUHODWLRQEHWZHHQ0$DQGQRQ0$)',LQWKHGDWD7KHQXPEHU

RI0$DQGQRQ0$)',SURMHFWVDUHFRPSLOHGIURPWKH8QLWHG6WDWHV,QWHUQDWLRQDO7UDGH$GPLQLVWUDWLRQ,7$SXEOLFDWLRQ)RUHLJQ'LUHFW,QYHVWPHQWLQWKH8QLWHG6WDWHV

7UDQVDFWLRQV,7$YDULRXV\HDUV:HXVHWKHQXPEHUUDWKHUWKDQWKHGROODUYDOXHVRI)',

SURMHFWVEHFDXVHWKH,7$GRHVQRWUHSRUWWKHYDOXHVRQPDMRULW\RIWKH)',SURMHFWV

,QDGGLWLRQWRGDWDRQ-DSDQHVH0$DQGQRQ0$)',LQWRWKH86RXUHPSLULFDO

DQDO\VLVDOVRUHTXLUHVGDWDRQWKUHHUPVSHFLFFKDUDFWHULVWLFVRI-DSDQHVHUPV

QDPHO\UHODWLYHZHDOWKSURWDELOLW\DQGVL]HDQGWKHFUHGLWUDWLQJVRIWKHLUUHVSHFWLYH

PDLQEDQNV7KHGDWDRQPDLQEDQNVFUHGLWUDWLQJVDUHIURP0RRG\VORQJWHUP

GHSRVLWUDWLQJV'DWDRQUPFKDUDFWHULVWLFVDUHIURPWKH3DFLF%DVLQ&DSLWDO0DUNHWV

'DWDEDVHV7KH86GROODU\HQH[FKDQJHUDWHZKLFKLVUHTXLUHGWRFDOFXODWHHDFKUPV

UHODWLYHZHDOWKLVIURPWKH,QWHUQDWLRQDO0RQHWDU\)XQGV,QWHUQDWLRQDO)LQDQFLDO6WDWLVWLFV7KH63LQGH[LVIURP*OREDO)LQDQFLDO'DWD

B. Econometric Model

,QWKLVVHFWLRQZHGHVFULEHWKH0%=,1%PRGHOXVHGIRUWKHHFRQRPHWULFDQDO\VLVLQWKLV

SDSHU)RUUP LOHW {( , ); ,..., }y x t nit it i = 1 EHDVHWRILWVUHSHDWHGREVHUYDWLRQVRYHUWLPHZKHUH y y yit it it = ( , )

( ) ( )1 2ZLWK y

it

( )1 DQG yit

( )2 UHFRUGVWKHQXPEHURI0$DQGQRQ0$)',

SURMHFWVLQ\HDUWUHVSHFWLYHO\DQG x x x xit it it it = ( , , )( ) ( ) ( )1 2 3

LVDYHFWRURIFRYDULDWHVZKHUHxitj( )

LVD ( )kj 1 YHFWRU j = 1 2 3, , . 7KH%=,1%PRGHODVVXPHVWKDW

L (DFKREVHUYDWLRQ yit LVJHQHUDWHGE\HLWKHURIWKHWZRVWRFKDVWLFSURFHVVHV

UHSUHVHQWHGE\DSDUWLDOO\REVHUYHGELQDU\UDQGRPYDULDEOH itZLWKit = 1ZKHQ

yit

( , )0 0 DQGit = 0 RUZKHQ yit = ( , ) .0 0 1RWHWKDWWKHWZRVWDWHVUHSUHVHQWHGE\it = 0 DQGit = 1FDQEHLQWHUSUHWHGDVWKHVLWXDWLRQZKHUHUPLGRHVQRWLQWHQGit = 0 RULQWHQGVit = 1WRHQJDJHLQ)',SURMHFWVLQ\HDUW0RUHRYHU

&RUSRUDWH*RYHUQDQFHDQG)RUHLJQ'LUHFW,QYHVWPHQW_


12/21

it IROORZVDWZRVWDWHUVWRUGHU0DUNRYFKDLQZLWKWKHSUREDELOLWLHVRIWKHLQLWLDO

VWDWHVDQGWKHWUDQVLWLRQSUREDELOLWLHVGHQHGE\

p i P S x

p i P S p i

p

i it

i

0 1 33

1 1 0

0

1 0

1 1 1 1

( ) ( ) ( )

( ) ( ) ( )

( )= = =

= = =

logit E

00 1 43

01

0 0

1

( ) ( | ) ( )

( ) ( |

( )( )it P S S x

p it P S

it i t it

it

= = = =

= = logit E

SS p it

p it P S S x

i t

it i t

( )

( )

) ( )

( ) ( | ) (

= =

= = = =1 00

11 1 5

0 1

1 1 logit E iit

it i t p it P S S p it

( )

( )

)

( ) ( | ) ( )

3

10 1 110 1 1= = = =

ZKHUH Ej j( , , )= 3 4 5 LVD ( )k3 1 YHFWRURIXQNQRZQSDUDPHWHUVDQG t ni= 2,...,

&RQGLWLRQDORQSit = 1 yit

IROORZVDELYDULDWHQHJDWLYHELQRPLDOGLVWULEXWLRQZLWK

f (y ) f y x x S )

y y

it it it it it

it it

11 2

1 2

1 2

1 =

=+

( | , , , , ,

(

( ) ( )

( ) (

))( ) ( )

)

( ) ! !

( ) ( )

( ( )

( ) ( )

+

+

y yit it

itit it

y yit it

1 21 2

1

1 2

2

1 2

( ) )( ) ( )

ity yit it + + +

ZKHUH!LV WKHGLVSHUVLRQSDUDPHWHURIWKHELYDULDWHQHJDWLYHELQRPLDOGLVWULEXWLRQ

j j itjit x j ( ) exp( ), , ,( )= = 1 2 DQG Ej LVD ( )kj 1 YHFWRURIXQNQRZQSDUDPHWHUFRQGLWLRQDO

RQSit = 0 yit ( , )0 0 LH f y f y S it it it 0 0 0 1( ) ( | ) = = LI yit = ( , )0 0 DQGRWKHUZLVH

8QGHUWKHSUHFHGLQJDVVXPSWLRQVWKHOLNHOLKRRGIXQFWLRQRIWKHREVHUYHGGDWDD y x t ni it it i ={( , ); ,..., }1 IRUUP LLV

L p i f y p i f y p it f i i i uv ( , , , , , ) ( ( ) ( ) ( ) ( )) ( ) 1 2 3 4 5 0 0 1 1 1 11 1= + vv itvut

n

yi

( )===

0

1

0

1

2

)XUWKHUPRUHXQGHUWKHDVVXPSWLRQWKDWWKHVHULHVRIUHSHDWHGREVHUYDWLRQVIRUGLIIHUHQW

UPVDUHLQGHSHQGHQWRIHDFKRWKHUWKHORJOLNHOLKRRGIXQFWLRQRIWKHREVHUYHGGDWD Di

i

k

=1*

IRUNUPVLV l Liik

= ( )= log ( , , , , , ) 1 2 3 4 51

7KHPHDQDQGYDULDQFHRIERWK0$DQGQRQ0$)',IRUDQ\UP LLQ\HDUWDUHJLYHQ

UHVSHFWLYHO\E\

E y S it itj

it j( ) Pr( ) ( )( ) = = 1 O DQG

Var y S it it S it

j

it j j it ( ) Pr( ) ( )[ ( )(Pr( ) )]( ) = = + = + 1 1 1 1 IRUM



13/21

(TXDWLRQVDQGLQGLFDWHWKDWWKH0%=,1%PRGHOFDQDFFRXQWIRUWKHH[WUD

GLVSHUVLRQLQ)',FRXQWVUHODWLYHWRWKH3RLVVRQGLVWULEXWLRQ)XUWKHUPRUHHTXDWLRQ

FDQEHFDOFXODWHGE\

E y S it

p it p i t p

it

j

it j

j j j jt t t

( ) Pr( ) ( )

( ) ( ( ))

( )

= =

=

1

11 2 1 11

O

! ! jjjjj

j ji p i it tt

2

121

12 1

0

1

0

1

0

1

( ) ( ) ( )===

O

(TXDWLRQVKRZVWKDWWKHUDWHVRIERWK0$DQGQRQ0$)',IRUDQ\UPLQD\HDU

DUHDIIHFWHGQRWRQO\E\WKHFRQGLWLRQDOUDWHRIWKDWW\SH)',IRUDUPZLWKLQWHQWLRQRI

HQJDJLQJLQ)',LQWKDW\HDUEXWDOVRE\WKHSUREDELOLW\WKDWWKHUPKDVDQ\LQWHQWLRQ

RIHQJDJLQJLQ)',LQWKDW\HDUZKLFKLQWXUQGHSHQGVRQWKHSUREDELOLWLHVRIZKHWKHUWKH

UPKDGRUKDGQRWLQWHQGHGWRHQJDJHLQ)',LQWKHSDVW

7KHFRUUHODWLRQEHWZHHQ0$DQGQRQ0$)',IRUDQ\UP LLQ\HDUWLVGHWHUPLQHGE\

( , )Pr( )

( Pr( ) / ( ))

( ) ( )y yS

S it

it it it

jit j

1 2

1

2

1 1

1 1

=+ =

+ = +=

(TXDWLRQLQGLFDWHVWKDWWKHFRUUHODWLRQEHWZHHQ0$DQGQRQ0$)',LVQRQ

QHJDWLYH

6LQFHWKH%=,1%PRGHO:DQJLVDVSHFLDOFDVHRIWKH0%=,1%PRGHOZLWK

UHVWULFWLRQRI E E E3 4 5= = WKHOLNHOLKRRGUDWLRWHVWFDQEHDSSOLHGWRFRPSDUHWKH%=,1%

WRWKH0%=,1%PRGHODQGWHVWIRUWKHVHULDOGHSHQGHQFHRIUHSHDWHGREVHUYDWLRQVRYHUWLPH

$UPPD\KDYHQR)',SURMHFW LQDJLYHQ\HDUEXWWKLVGRHVQRWPHDQWKDW LWKDVQR

LQWHQWLRQWRXQGHUWDNHDQ\)',LQWKDW\HDU$UPPD\KDYHWKHLQWHQWLRQWRXQGHUWDNH

)',EXWIRUZKDWHYHUUHDVRQGRHVQRWXQGHUWDNHDQ\)',LQWKDW\HDU7KHUHIRUHLQ

WKH0%=,1%PRGHOZHFDQGLVWLQJXLVKEHWZHHQZKHWKHUDUPGRHVRUGRHVQRWLQWHQG

WRXQGHUWDNH)',E\DVVXPLQJWKDWWKHUPVLQWHQWLRQWRXQGHUWDNH)',LVDSDUWLDOO\

REVHUYDEOHELQDU\UDQGRPYDULDEOH it LIDUPKDVQRLQWHQWLRQRIHQJDJLQJLQ)',LQ

D\HDULWZLOOXQGHUWDNHQR0$DQGQRQ0$)',SURMHFWVLQWKDW\HDURWKHUZLVHWKH

QXPEHUVRI0$DQGQRQ0$)',SURMHFWVXQGHUWDNHQE\WKHUPLQWKDW\HDUIROORZWKH

ELYDULDWHQHJDWLYHELQRPLDOGLVWULEXWLRQZLWKDSRVLWLYHFRUUHODWLRQEHWZHHQ0$DQGQRQ0$)',DQGWKHUDWHVRI0$DQGQRQ0$)',IRUDUPZLWKLQWHQWLRQWRXQGHUWDNH

)',DUHPRGHOHGDVH[SRQHQWLDOIXQFWLRQVRI)',GHWHUPLQDQWV



14/21

$VQRWHGHDUOLHUWKHUHPD\EHFRPSOHPHQWDULWLHVEHWZHHQ0$)',DQGQRQ0$)',

6XFKFRPSOHPHQWDULWLHVLPSO\DSRVLWLYHFRUUHODWLRQEHWZHHQ0$DQGQRQ0$)',

)XUWKHUPRUHDUPPD\FKDQJHLWVLQWHQWLRQRIHQJDJLQJLQ)',RYHUWLPHEHFDXVHRI

FKDQJHVLQLWVQDQFLDOVLWXDWLRQRUEXVLQHVVHQYLURQPHQW7KHUHIRUHLQWKH0%=,1%

PRGHOZHFDQDVVHVVWKHLPSDFWRI)',GHWHUPLQDQWVRQWKHFKDQJHLQWKHUPVLQWHQWLRQRIHQJDJLQJLQ)',7KHLQWHQWLRQLVFKDUDFWHUL]HGE\D0DUNRYFKDLQLQZKLFK

ERWKWUDQVLWLRQSUREDELOLWLHVDQGSUREDELOLWLHVRIWKHLQLWLDOVWDWHVRIWKH0DUNRYFKDLQ

GHSHQGRQ)',GHWHUPLQDQWV,QFRQWUDVWWKH%=,1%PRGHODVVXPHVWKDWWKHUPV

LQWHQWLRQRIHQJDJLQJLQ)',LVLQGHSHQGHQWRYHUWLPH

C. Estimation

7RHVWLPDWHWKH0%=,1%PRGHOZHUVWXVHWKHH[SHFWDWLRQPD[LPL]DWLRQ(0DOJRULWKP

SURSRVHGE\'HPSVWHUHWDOXQWLOWKHSDUDPHWHUHVWLPDWHVFRQYHUJHDQGWKHQ

VZLWFKWRWKHTXDVL1HZWRQDOJRULWKPWRREWDLQWKHPD[LPXPOLNHOLKRRGHVWLPDWHVRI

WKHPRGHOSDUDPHWHUVDQGVWDQGDUGHUURUV,QWKHLPSOHPHQWDWLRQRIWKH(0DOJRULWKP

ZHWUHDWWKHSDUWLDOO\REVHUYDEOHELQDU\YDULDEOH it DVPLVVLQJLQIRUPDWLRQDQGGHQH

DFRPSOHWHGDWDVHWDV {( , , ( , , ), ( , , , )); ,..., , ,..., , , ,y x z i t u w i t u v i k t n u v it it i = = =1 1 0 11} ZKHUHz i t u( , , ) = 1LIS uit = DQGRWKHUZLVHDQGw i t u v ( , , , )) = 1LIS ui t( ) =1 DQGS vit = DQGRWKHUZLVH7KXVWKHORJOLNHOLKRRGRIWKHFRPSOHWHGDWDVHWLV

Q z i p i z i p i

w i t u v

i

k

= +( )

+

= ( , , ) log ( ) ( , , ) log ( )

( , , , )log

1 0 1 11 10 11

pp it z i t f yuvvut

n

i

k

it

t

n

i

ki i

( ) ( , , )log ( )

==== ==

+0

1

0

1

21

1

11

1

,QWKH(VWHSRIWKH(0DOJRULWKPWKHSDUWLDOO\PLVVLQJLQIRUPDWLRQ z i t u( , , ) DQG

w i t u v ( , , , ) LVHVWLPDWHGE\WKHFRQGLWLRQDOH[SHFWDWLRQV ( , , ) { ( , , ) | ,..., }z i t u E z i t u y y i ini= 1 DQG ( , , , ) { ( , , , ) | ,..., }w i t u v E w i t u v y y i ini= 1 UHVSHFWLYHO\:HXVHWKHUHFXUVLYHIRUPXODSURSRVHGE\%DXPHWDOIRUWKHFRPSXWDWLRQRIWKHFRQGLWLRQDOH[SHFWDWLRQV,Q

WKH0VWHSRIWKH(0DOJRULWKPZHUHSODFH z i t u( , , ) DQGw i t u v ( , , , ) LQ4E\ ( , , )z i t u DQG

( , , , )w i t u v WRGHQHDIXQFWLRQ DQGPD[LPL]H WRREWDLQWKHSDUDPHWHUHVWLPDWHV

6LQFHWKH(0DOJRULWKPGRHVQRWFRQYHUJHDVIDVWDVWKHTXDVL1HZWRQDOJRULWKPZH

XVHWKHODWWHUZKHQWKHFKDQJHLQSDUDPHWHUHVWLPDWHVEHFRPHVVPDOOXQGHUWKH(0

DOJRULWKP2XUVWXG\VKRZVWKDWWKHFRPELQDWLRQRIWKH(0DQGTXDVL1HZWRQDOJRULWKPV

ZRUNVEHWWHUWKDQHLWKHURIWKHWZRDOJRULWKPV



15/21

III. Determinants of FDI

.DSODQSRLQWVRXWWKDWWZRODQGPDUNFRUSRUDWHJRYHUQDQFHUHJXODWLRQVE\WKH

866(&LQSOD\HGDSLYRWDOUROHLQUHVKDSLQJ86FRUSRUDWHJRYHUQDQFHLQWKH

V2QHUHJXODWLRQORZHUHGWKHVKDUHKROGHUVFRVWRIFRRUGLQDWLQJFKDOOHQJHVDJDLQVWXQGHUSHUIRUPLQJPDQDJHPHQWWHDPVE\UHOD[LQJSUR[\UXOHVUHJDUGLQJVKDUHKROGHU

FRPPXQLFDWLRQ7KHRWKHUUHJXODWLRQUHTXLUHGSXEOLFFRPSDQLHVWRSURYLGHPRUHGHWDLOHG

GLVFORVXUHRIWRSH[HFXWLYHFRPSHQVDWLRQDQGLWVUHODWLRQWRWKHUPVVWRFNSHUIRUPDQFH

7KHFRQVHTXHQWLPSURYHPHQWLQ86FRUSRUDWHJRYHUQDQFHPD\KDYHUHGXFHGGRPHVWLF

DQGFURVVERUGHU0$DFWLYLW\$OED3DUNDQG:DQJQGHPSLULFDOHYLGHQFH

VXSSRUWLYHRIWKHFRUSRUDWHJRYHUQDQFHDVDGHWHUPLQDQWRI)',K\SRWKHVLV0RUH

VSHFLFDOO\XVLQJDGDWDVHWRI-DSDQHVHUPVIRUWKH\QGWKDWWKH

LPSURYHPHQWLQ86FRUSRUDWHJRYHUQDQFHVLQFHKDGDQHJDWLYHLPSDFWRQ-DSDQHVH

0$)',LQWRWKH86

$FFRUGLQJWR)URRWDQG6WHLQDGHSUHFLDWLRQRIWKH86GROODU LQFUHDVHV)', LQWR

WKH867KHLUNH\DVVXPSWLRQLVLPSHUIHFWFDSLWDOPDUNHWVZLWKDV\PPHWULFLQIRUPDWLRQ

DERXWWKHDVVHWVSD\RII7KHRZQHUVRIDVVHWVNQRZWKHDVVHWVUHDOL]HGSD\RIIVZLWKRXW

FRVWEXWH[WHUQDOFUHGLWRUVFDQYHULI\WKHSD\RIIVRQO\DWDFRVW7KLVPDNHVH[WHUQDO

QDQFHPRUHH[SHQVLYHWKDQLQWHUQDOQDQFHDQGIRUHLJQUPVZKRZLVKWRELGIRU

86DVVHWVUDLVHPRVWRIWKHLUIXQGVLQWHUQDOO\6LQFHLQWHUQDOIXQGVRIIRUHLJQUPVDUH

GHQRPLQDWHGLQIRUHLJQFXUUHQF\DGHSUHFLDWLRQRIWKH86GROODULQFUHDVHVIRUHLJQUPV

UHODWLYHZHDOWKDQGDOORZVWKHPWRELGPRUHDJJUHVVLYHO\IRU86DVVHWV0RYHPHQWVRI

WKHH[FKDQJHUDWHGRDJRRGMRERIH[SODLQLQJXFWXDWLRQVLQ)',LQRZVLQWRWKH86LQ

WKHV+RZHYHU)',HVSHFLDOO\IURP-DSDQIHOOPDUNHGO\LQWKHVHYHQWKRXJK

WKHGROODUZHDNHQHGVXEVWDQWLDOO\

7RH[SODLQWKHVKDUSGURSLQ-DSDQHVH)',RZVLQWRWKH86DIWHUGHVSLWHWKH

GHSUHFLDWLRQRIWKH86GROODU.OHLQHWDOSURSRVHWKHUHODWLYHDFFHVVWRFUHGLW

K\SRWKHVLV$FFRUGLQJWRWKLVK\SRWKHVLV-DSDQHVHUPVUHGXFHGDFFHVVWRFUHGLW

UHVXOWLQJIURPWKHGHWHULRUDWLRQRIWKHQDQFLDOKHDOWKRIWKHLUPDLQEDQNVFRQWULEXWHG

WRWKHVKDUSGHFOLQHLQ-DSDQHVH)',LQWRWKH86LQWKHV7RWHVWWKHLUK\SRWKHVLV

.OHLQHWDOXVH0RRG\VORQJWHUPGHSRVLWFUHGLWUDWLQJWRPHDVXUHWKHQDQFLDOSRVLWLRQ

RIWKHPDLQEDQNDQGFRQWUROIRUUHODWLYHZHDOWK8VLQJUPOHYHOGDWD.OHLQHWDOQGWKDW

-DSDQHVHUPVZLWKKHDOWKLHUPDLQEDQNVDUHPRUHOLNHO\WRLQYHVWLQWKH86,QDGGLWLRQ

WKH\QGWKDWFUHGLWUDWLQJGRZQJUDGHVRIPDLQEDQNVKDYHDQHJDWLYHHIIHFWRQ-DSDQHVH

UPV)',LQWRWKH86

,QGHQLQJWKHUHJUHVVRUVRIWKH0%=,1%PRGHOZHIROORZ)',GHWHUPLQDQWVIURP

.OHLQHWDOWRFRQWUROIRUUPVSHFLFFKDUDFWHULVWLFVVXFKDVUHODWLYHDFFHVVWRFUHGLW

UHODWLYHZHDOWKSURWDELOLW\DQGVL]H)RUD-DSDQHVHUPZLWKLQWHQWLRQWRLQYHVWLQWKH

86WKHFRQGLWLRQDOUDWHVRI0$DQGQRQ0$)',DUHGHWHUPLQHGE\WKHVDPHVHW

RIWKHUHJUHVVRUVLH x xit it

( ) ( )1 2= 7KHVHLQFOXGHVLQJOHDQGPXOWLSOHGRZQJUDGHVLQWKH



16/21

0RRG\VORQJWHUPGHSRVLWUDWLQJRIWKHUPVPDLQEDQNGHQRWHGDVDR it1 DQGDR it2

UHVSHFWLYHO\DQGWKHFKDQJHLQWKHUPVUHODWLYHZHDOWKSURWVDQGVL]HGHQRWHGDVDRW

it, DFPit, DQGDFSit UHVSHFWLYHO\:HH[SDQG.35VHPSLULFDOIUDPHZRUNE\DGGLQJ

DFRUSRUDWHJRYHUQDQFHGXPP\YDULDEOHGHQRWHGDV DCitZKLFKLVIURPWR

DQGIURPWR)RUUHDVRQVRXWOLQHGHDUOLHUPDUNHGDSLYRWDO\HDULQ86FRUSRUDWHJRYHUQDQFHZKLFKLVOLNHO\WRKDYHLPSURYHGVLJQLFDQWO\VLQFHWKHQ:H

H[SHFWDQHJDWLYHFRHIFLHQWRQWKLVGXPP\EHFDXVHVWURQJHUFRUSRUDWHJRYHUQDQFH

UHGXFHVRSSRUWXQLWLHVIRUUPVWRFUHDWHVKDUHKROGHUYDOXHWKURXJK0$)','XHWR

SRWHQWLDOFRPSOHPHQWDULWLHVEHWZHHQ0$DQGQRQ0$)',WKHUHGXFWLRQLQ0$)',

PD\OHDGWRDUHGXFWLRQLQQRQ0$)',

7KHSUREDELOLW\RIZKHWKHUD-DSDQHVHUPLQWHQGVWRLQYHVWLQWKH86LVUHJUHVVHGRQD

VLQJOHDQGPXOWLSOHGRZQJUDGHLQ0RRG\VUDWLQJ DR it1 DQGDR it2 WKHUPVVL]HFSit

SURWVFPit DQGUHODWLYHZHDOWKFWit7KRVHUHJUHVVRUVDUHGHQRWHGDV xit( )3

IV. Empirical Results

,QWKLVVHFWLRQZHUHSRUWDQGGLVFXVVWKHUHVXOWVRIRXUHPSLULFDODQDO\VLV7DEOHUHSRUWV

WKHUHVXOWVRISDUDPHWHUHVWLPDWHVWUDWLRVDQGORJOLNHOLKRRGYDOXHIRUWKH0%=,1%

PRGHO$OOWKHFRHIFLHQWHVWLPDWHVRIDVLQJOHGRZQJUDGHLQWKHPDLQEDQNVFUHGLWUDWLQJ

'5DQGPXOWLSOHGRZQJUDGH'5LQWKHFRQGLWLRQDORQWKH-DSDQHVHUPVLQWHQGLQJ

WRLQYHVWLQWKH86UDWHVRIDUPV0$DQGQRQ0$)',DUHQHJDWLYH7KHFRHIFLHQW

HVWLPDWHRI'5LVVLJQLFDQWDWWKHOHYHOIRUERWK0$DQGQRQ0$)',7KLV

VXJJHVWVWKDWWKHGHWHULRUDWLRQRIQDQFLDOKHDOWKRIDUPVPDLQEDQNKDVDQHJDWLYHLPSDFWRQERWKW\SHVRI)',SURMHFWV7KHUHVXOWOHQGVVXSSRUWWR.OHLQHWDOVUHODWLYH

DFFHVVWRFUHGLWK\SRWKHVLV)XUWKHUPRUHWKHFRQGLWLRQDOUDWHRI0$)',LVSRVLWLYHO\

DVVRFLDWHGZLWKUPVL]H')6DWOHYHORIVLJQLFDQFH7KLVVXJJHVWVWKDWUPV

XQGHUWDNLQJ0$)',WHQGWREHODUJHZKLFKLVFRQVLVWHQWZLWKWKHLQGXVWULDORUJDQL]DWLRQ

H[SODQDWLRQIRU)',7KHFRQGLWLRQDOUDWHRIQRQ0$)',LVSRVLWLYHO\DVVRFLDWHGZLWK

UHODWLYHZHDOWK'5:DWOHYHORIVLJQLFDQFHZKLFKVXSSRUWVWKHUHODWLYHZHDOWK

K\SRWKHVLVSURSRVHGE\)URRWDQG6WHLQ



17/21

Ta

ble1:

Es

tima

tes

,t-r

atios

,an

dlog-l

ike

lihoo

dfor

the

BZINBan

dMBZINBMo

de

ls

BZINB

MBZINB

Es

timate

t-ra

tio

Es

tima

te

t-

ratio

Es

tima

te

t-ra

tio

Es

tima

te

t-ra

tio

Es

tima

te

t-ra

tio

M&A

Non

M&A

M&A

Non

M&A

Intercept

1.4

139**

*

11.4

445

0.2

729***

2.9

766

1.3

570***

10.9

395

0.2

136**

2.3

710

DR1

0.0

669

0.3

468

0.0

175

0.1

256

0.0

737

-0.3

876

0.0

319

0.2

375

DR2

0.7

182**

2.0

430

0.6

037**

2.5

443

0.7

952**

2.3

151

0.6

883***

3.0

887

DRW

0.2

397

1.1

410

0.4

356***

2.9

770

0.1

556

0.7

403

0.3

467**

2.3

750

DFP

6.0

595

1.0

706

2.7

175

0.6

309

6.5

200

1.1

744

1.3

351

0.3

202

DFS

1.5

372**

2.2

471

0.4

020

0.8

023

1.6

342**

2.2

859

0.2

956

0.5

775

DC

0.8

597**

*

3.8

232

0.3

152**

2.4

025

0.7

972***

3.4

719

0.2

503*

1.8

252

Zero-Probability

p0

p00

p11

Intercept

7.4

265**

*

3.0

312

3.6

053

0.7

687

2.4

172

0.6

012

11.4

992

**

2.2

359

DR1

0.3

146

1.0

880

1.5

549***

2.9

645

0.3

646

0.8

106

0.3

807

0.5

537

DR2

0.1

136

0.2

181

2.1

172

0.1

427

0.4

802

0.5

441

1.3

225

0.9

396

FW

0.6

440**

2.0

875

1.1

596

1.7

358

0.3

870

0.6

999

0.6

257

0.8

504

FP

8.2

283

1.4

389

7.9

351

0.5

774

7.0

670

0.8

884

8.3

005

0.7

651

FS

0.9

450**

*

8.4

851

0.9

502***

4.3

497

0.0

580

0.3

386

1.2

427

***

6.2

497

Ln()

0.3

632**

2.2

281

0.5

244***

3.1

515

Log-likelihood

2347.8

5

2330.7

5

*Signifcantat10%;**signifcan

tat5%;***signifcantat10%.

Note:

ThelikelihoodratioteststatisticorcomparingtheMBZINBwiththe

BZINBis34.2

1withp-valueo0.0

06.



18/21

7KHFKDQJHLQFRUSRUDWHJRYHUQDQFHKDVDQHJDWLYHHIIHFWRQWKHFRQGLWLRQDOUDWHVRI

0$DQGQRQ0$)',DWWKHDQGOHYHOVUHVSHFWLYHO\7KLVLQGLFDWHVWKDWWKH

SRVWLPSURYHPHQWLQWKH86FRUSRUDWHJRYHUQDQFHUHGXFHGERWK0$DQGQRQ0$

)',LQWRWKH86E\-DSDQHVHUPV6SHFLFDOO\WKHFRQGLWLRQDOUDWHVRI0$DQGQRQ

0$)',IRUD-DSDQHVHUPZLWKLQWHQWLRQWRXQGHUWDNH)',LQWKH86KDYHGHFOLQHGE\DQGUHVSHFWLYHO\KROGLQJDOORWKHUIDFWRUVFRQVWDQW 7KHQHJDWLYH

LPSDFWRIWKHFKDQJHLQ86FRUSRUDWHJRYHUQDQFHLVPXFKODUJHURQ-DSDQHVH0$)',

WKDQRQQRQ0$)',-DSDQHVH0$)',LVPRUHVHQVLWLYHWR86FRUSRUDWHJRYHUQDQFH

WKDQ-DSDQHVHQRQ0$)',7KLVLVLQWXLWLYHO\SODXVLEOHVLQFHFRUSRUDWHJRYHUQDQFHKDV

DPRUHGLUHFWLPSDFWRQ0$)',WKDQRQRWKHUW\SHVRI)',

7KHFRHIFLHQWHVWLPDWHRI)',GHWHUPLQDQWLQSLVSRVLWLYHIRUDVLQJOHGRZQJUDGH'5

DQGQHJDWLYHIRUUPVL]H)6DQGERWKDUHVLJQLFDQWDWOHYHO,IDUPVPDLQ

EDQNVXIIHUHGDVLQJOHGRZQJUDGHLQFUHGLWUDWLQJLQLWZDVOHVVOLNHO\WRKDYHWKH

LQWHQWLRQWRHQJDJHLQ)',LQWKH86LQWKDW\HDU2QWKHRWKHUKDQGLWZDVPRUHOLNHO\IRU

DODUJHU-DSDQHVHUPWRKDYHWKHLQWHQWLRQWRHQJDJHLQ)',LQWKH86LQ6LQFHWKHFRHIFLHQWHVWLPDWHRI)6LQSLVSRVLWLYHDQGVLJQLFDQWDWWKHOHYHOJLYHQLWKDG

WKHLQWHQWLRQWRHQJDJHLQ)',WKHSUHYLRXV\HDUDUPLVPRUHOLNHO\WRKDYHWKHLQWHQWLRQ

WRHQJDJHLQ)',WKLV\HDULILWKDVEHFRPHODUJHU1RWHWKDWQRQHRIWKHFRHIFLHQW

HVWLPDWHVRIWKHUPOHYHO)',GHWHUPLQDQWVDUHVLJQLFDQWLQS7KLVLPSOLHVWKDWZKHQ

D-DSDQHVHUPKDVQRLQWHQWLRQWRLQYHVWLQWKH86LQDSDUWLFXODU\HDU)',GHWHUPLQDQWV

GRQRWKDYHDQ\LPSDFWRQWKHFKDQJHLQWKHUPVLQWHQWLRQWRHQJDJHLQ)',LQWKH86

WKHQH[W\HDU2XUQGLQJVVKHGOLJKWRQKRZUPOHYHO)',GHWHUPLQDQWVDIIHFW-DSDQHVH

)',LQWRWKH86

:HWHVWIRUVHULDOGHSHQGHQFHRYHUWLPHIRUWKH0%=,1%PRGHODJDLQVWWKH%=,1%PRGHO

7KHVWDWLVWLFRIWKHOLNHOLKRRGUDWLRWHVWLVZLWKSYDOXHRI:HFDQWKXVUHMHFWWKH%=,1%PRGHOLQIDYRURIWKH0%=,1%PRGHO7KLVPHDQVWKDWWKH0%=,1%PRGHO

LVPRUHDSSURSULDWHIRUMRLQWO\DQDO\]LQJ0$DQGQRQ0$)',7DEOHDOVRVKRZV

WKHGLVFUHSDQFLHVLQSDUDPHWHUHVWLPDWHVDQGWUDWLRVEHWZHHQWKH0%=,1%DQG%=,1%

PRGHOV)RUH[DPSOHWKHFRHIFLHQWHVWLPDWHRIWKHFRUSRUDWHJRYHUQDQFHGXPP\

YDULDEOH'&LQWKHFRQGLWLRQDOUDWHRIQRQ0$)',LVVLJQLFDQWDWWKHOHYHOXQGHU

WKH%=,1%PRGHOEXWLVVLJQLFDQWDWOHYHOXQGHUWKH0%=,1%PRGHO,QDGGLWLRQ

WKHQHJDWLYHHIIHFWRILPSURYHG86FRUSRUDWHJRYHUQDQFHLVODUJHUXQGHUWKH%=,1%

PRGHOWKDQWKH0%=,1%PRGHO7KHUHIRUHIDLOLQJWRDFFRXQWIRUVHULDOGHSHQGHQFH

RYHUWLPHPD\OHDGWRZURQJSDUDPHWHUHVWLPDWHVDQGVWDQGDUGHUURUVDQGLQDFFXUDWH

LQWHUSUHWDWLRQVDERXWWKHUHODWLRQVKLSEHWZHHQ)',DQGLWVGHWHUPLQDQWV

2 The percentage o the change in the conditional rate between the prior and post-1992 improvement in UScorporate governance is calculated by (exp(-0.7972)-1) = -54.94% or M&A FDI and (exp(-0.2503)-1) = 22.14% ornon-M&A FDI.



19/21

V. Concluding Observations

,QWKLVSDSHUZHHPSLULFDOO\LQYHVWLJDWHWKHLPSDFWRIDQLPSURYHPHQWLQ86FRUSRUDWH

JRYHUQDQFHRQERWK0$DQGQRQ0$)',LQWRWKH86E\-DSDQHVHUPV0RUH

VSHFLFDOO\ZHDQDO\]HWKHLPSDFWRIWKHWZRODQGPDUNFRUSRUDWHJRYHUQDQFHUHJXODWLRQVE\WKH866(&LQRQERWKW\SHVRI)',FRQWUROOLQJIRURWKHUGHWHUPLQDQWVRI

)',VXFKDVWKHQDQFLDOKHDOWKRIWKHUPVPDLQEDQNDQGWKHUPVUHODWLYHZHDOWK

SURWDELOLW\DQGVL]H7RFDUU\RXWRXUHPSLULFDODQDO\VLVZHGHYHORSDQGDSSO\D0DUNRY

ELYDULDWHQHJDWLYHELQRPLQDOUHJUHVVLRQPRGHOIRUWKHMRLQWDQDO\VLVRIELYDULDWHSDQHO

FRXQWGDWD7KHPRGHODOORZVIRUDKLJKSURSRUWLRQRIH[FHVV]HURVSRVLWLYHFRUUHODWLRQ

EHWZHHQ0$DQGQRQ0$)',DQGVHULDOGHSHQGHQFHRIUHSHDWHGREVHUYDWLRQV

RYHUWLPH:HQGWKDWWKHWZRODQGPDUNUHJXODWLRQVKDGDQHJDWLYHLPSDFWRQ0$

)',LQWRWKH86E\-DSDQHVHUPV7KLVLVFRQVLVWHQWZLWKWKHQRWLRQWKDWLPSURYHG

FRUSRUDWHJRYHUQDQFHUHGXFHVWKHVFRSHIRUFUHDWLQJVKDUHKROGHUYDOXHWKURXJKEHWWHU

PDQDJHPHQWDQGWKXVUHGXFHVWKHVFRSHIRU0$DFWLYLW\LQFOXGLQJ0$)',,WLVDOVR

FRQVLVWHQWZLWKWKHIHZH[LVWLQJHPSLULFDOVWXGLHVRIWKLVLVVXH2XUQGLQJVDOVROHQG

VXSSRUWWRWKHUHODWLYHDFFHVVWRFUHGLWDQGUHODWLYHZHDOWKH[SODQDWLRQVRI)',

7KHPDLQRULJLQDOFRQWULEXWLRQRIWKLVSDSHUKDVEHHQWRHPSLULFDOO\H[DPLQHWKH

UHODWLRQVKLSEHWZHHQFRUSRUDWHJRYHUQDQFHDQGQRQ0$)',$WDFRQFHSWXDOOHYHO

WKHUHODWLRQVKLSEHWZHHQFRUSRUDWHJRYHUQDQFHDQGQRQ0$)',LVQRWDV

VWUDLJKWIRUZDUGDVWKHUHODWLRQVKLSEHWZHHQFRUSRUDWHJRYHUQDQFHDQG0$)',7KH

TXDOLW\RI86FRUSRUDWHJRYHUQDQFHLHKRZHIFLHQWO\86FRPSDQLHVDUHPDQDJHGKDV

QRREYLRXVGLUHFWLPSOLFDWLRQVIRU-DSDQHVHUPVLQFHQWLYHVIRUQHZSODQWVMRLQWYHQWXUHV

RURWKHUQRQ0$)',LQWRWKH86+RZHYHULQOLJKWRIWKHLQGLYLVLELOLW\RIDVVHWVDFTXLUHG

GXULQJ0$)',WKHUHDUHJURXQGVIRUFRPSOHPHQWDULW\EHWZHHQ0$DQGQRQ0$)',

0RUHSUHFLVHO\HIFLHQWO\XWLOL]LQJWKHLQGLYLVLEOHDVVHWVPD\UHTXLUHDGGLWLRQDOQRQ0$

)',)RUH[DPSOHDIWHUWKH-DSDQHVHUP%ULGJHVWRQHDFTXLUHGWKH86UP)LUHVWRQH

LWH[SDQGHGLWV86SURGXFWLRQIDFLOLWLHVIRUSURGXFLQJV\QWKHWLFUXEEHUZKLFKLVDFRUH

SURGXFWRI)LUHVWRQH

2XUHPSLULFDOHYLGHQFHLQGLFDWHVWKDWWKHWZRODQGPDUN86FRUSRUDWHJRYHUQDQFH

UHJXODWLRQVKDGDQHJDWLYHHIIHFWRQ-DSDQHVHQRQ0$)',LQWRWKH86$OWKRXJK

FRUSRUDWHJRYHUQDQFHKDVDSUHGLFWDEO\VWURQJHUHIIHFWRQ0$)',LWQHYHUWKHOHVVDOVR

LQXHQFHVQRQ0$)',7KLVVXJJHVWVWKDWWKHFRPSOHPHQWDULWLHVEHWZHHQ0$DQG

QRQ0$)',DUHVLJQLFDQWHQRXJKIRUDQHJDWLYHHIIHFWRQ0$)',WRWUDQVODWHLQWR

DQHJDWLYHHIIHFWRQQRQ0$)',7KHXSVKRWLVWKDWDVWURQJHUFRUSRUDWHJRYHUQDQFH

HQYLURQPHQWPD\UHGXFHQRWRQO\0$)',LQRZVEXWDOVRRYHUDOO)',LQRZV2XUSDSHU

VXJJHVWVDWOHDVWWKUHHIUXLWIXODYHQXHVIRUIXWXUHUHVHDUFK2QHLVWRLQYHVWLJDWHWKH

GHWHUPLQDQWVRIGLIIHUHQWPRGHVRI)',UDWKHUWKDQ)',DVDZKROH)',LVKHWHURJHQHRXV

DQGGLIIHUHQWPRGHVRI)',DUHRIWHQGULYHQE\GLIIHUHQWXQGHUO\LQJIDFWRUV$VHFRQG

DYHQXHLVWRH[DPLQHWKHUHODWLRQVKLSEHWZHHQFRUSRUDWHJRYHUQDQFHDQG)',2XU

HYLGHQFHVXJJHVWVWKDWFRUSRUDWHJRYHUQDQFHPD\LQXHQFHQRWRQO\0$)',EXWDOVR

QRQ0$)',$WKLUGDYHQXHIRUIXWXUHUHVHDUFKLVWRLQYHVWLJDWHWKHUHODWLRQVKLSEHWZHHQ

0$DQGQRQ0$)',



20/21

References

$OED-''3DUNDQG3:DQJ&RUSRUDWH*RYHUQDQFHDQG0HUJHUDQG$FTXLVLWLRQ

0$)',)LUPOHYHO(YLGHQFHIURP-DSDQHVH)',LQWRWKH86 -RXUQDORI0XOWLQDWLRQDO

)LQDQFLDO0DQDJHPHQW%DXP/(73HWULH*6RXOHVDQG1:HLVV$0D[LPL]DWLRQ7HFKQLTXH2FFXUULQJLQWKH

6WDWLVWLFDO$QDO\VLVRI3UREDELOLVWLF)XQFWLRQVRI0DUNRY&KDLQV 7KH$QQDOVRI0DWKHPDWLFDO

6WDWLVWLFV

&DOGHURQ&1/R]D\DDQG/6HUYHQ*UHHQHOG)RUHLJQ'LUHFW,QYHVWPHQWDQG0HUJHUV

DQG$FTXLVLWLRQV)HHGEDFNDQG0DFURHFRQRPLF(IIHFWV3ROLF\5HVHDUFK:RUNLQJ3DSHU

6HULHV7KH:RUOG%DQN:DVKLQJWRQ'&

'HPSVWHU$310/DLUGDQG'%5XELQ0D[LPXP/LNHOLKRRGIURP,QFRPSOHWH'DWD

YLDWKH(0$OJRULWKPZLWKGLVFXVVLRQ -RXUQDORIWKH5R\DO6WDWLVWLFDO6RFLHW\%

)URRW.DQG-6WHLQ([FKDQJH5DWHVDQG)RUHLJQ'LUHFW,QYHVWPHQW$Q,PSHUIHFW

&DSLWDO0DUNHWV$SSURDFK4XDUWHUO\-RXUQDORI(FRQRPLFV

,7$YDULRXV\HDUV)RUHLJQ'LUHFW,QYHVWPHQWLQWKH8QLWHG6WDWHV7UDQVDFWLRQV,QWHUQDWLRQDO

7UDGH$GPLQLVWUDWLRQ'HSDUWPHQWRI&RPPHUFH:DVKLQJWRQ'&

.DSODQ67KH(YROXWLRQRI86&RUSRUDWH*RYHUQDQFH:HDUH$OO+HQU\.UDYLV1RZ-RXUQDORI3ULYDWH(TXLW\)DOO

.OHLQ0-3HHNDQG(5RVHQJUHQ7URXEOHG%DQNV,PSDLUHG)RUHLJQ'LUHFW,QYHVWPHQW

7KH5ROHRI5HODWLYH$FFHVVWR&UHGLW$PHULFDQ (FRQRPLF5HYLHZ

5RVVL6DQG359ROSLQ&URVVFRXQWU\'HWHUPLQDQWVRI0HUJHUVDQG$FTXLVLWLRQV

-RXUQDORI)LQDQFLDO(FRQRPLFV

7HHFH'(FRQRPLHVRI6FRSHDQGWKH6FRSHRIWKH(QWHUSULVH-RXUQDORI(FRQRPLF

%HKDYLRUDQG2UJDQL]DWLRQ

:DQJ3$%LYDULDWH=HURLQDWHG1HJDWLYH%LQRPLDO5HJUHVVLRQ0RGHOIRU&RXQW'DWDZLWK

([FHVV=HURV(FRQRPLFV/HWWHUV

3HQURVH(7KH7KHRU\RIWKH*URZWKRIWKH)LUP1HZ


21/21

About the Paper

Joseph D. Alba, Donghyun Park, and Peiming Wang use frm-level evidence rom Japaneseoreign direct investment (FDI) into the United States (US) to investigate the eect o UScorporate governance on merger and acquisition (M&A) and non-M&A Japanese FDI. Theresults indicate that stronger US corporate governance contributed to the decline in bothM&A and non-M&A Japanese FDI into the US during the 1990s. The evidence thus suggeststhat corporate governance may aect both M&A and non-M&A FDI.

About the Asian Development Bank

ADBs vision is an Asia and Pacifc region ree o poverty. Its mission is to help its developingmember countries substantially reduce poverty and improve the quality o lie o theirpeople. Despite the regions many successes, it remains home to two-thirds o the worldspoor: 1.8 billion people who live on less than $2 a day, with 903 million struggling onless than $1.25 a day. ADB is committed to reducing poverty through inclusive economicgrowth, environmentally sustainable growth, and regional integration.

Based in Manila, ADB is owned by 67 members, including 48 rom the region. Its maininstruments or helping its developing member countries are policy dialogue, loans, equityinvestments, guarantees, grants, and technical assistance.

Asian Development Bank6 ADB Avenue, Mandaluyong City1550 Metro Manila, Philippineswww.adb.org/economicsISSN: 1655-5252Publication Stock No. Printed in the Philippines

Documents

Corporate Governance and Foreign Direct Investment