Discussion Paper

No. 2012-52 | October 10, 2012
What Drives FDI from Non-traditional Sources? A Comparative Analysis of the Determinants of Bilateral FDI Flows


Non-traditional source countries of FDI play an increasingly important role, notably in developing host countries. This raises the question of whether the location choices differ systematically between traditional and non-traditional source countries. We perform Logit and Poisson Pseudo Maximum Likelihood estimations to assess the determinants of bilateral FDI flows. We find that economic geography variables are more relevant for FDI from nontraditional sources. The risk aversion of non-traditional investors is not consistently weaker than that of traditional investors. Resource abundance and superior technology in the host countries represent minor pull factors of FDI from non-traditional sources.


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Cite As

Maximiliano Sosa Andrés, Peter Nunnenkamp, and Matthias Busse (2012). What Drives FDI from Non-traditional Sources? A Comparative Analysis of the Determinants of Bilateral FDI Flows. Economics Discussion Papers, No 2012-52, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2012-52

Comments and Questions

Anonymous - Referee Report 1
November 02, 2012 - 11:21

Is the contribution of the paper potentially significant?
The key contribution of this paper stems from looking closely at the question as to whether the determinants of foreign direct investment differ systematically between traditional and non-traditional source countries. This timely and challenging issue has been thoroughly addressed by the ...[more]

... authors. The methodology is well suited. The manuscript is very well written and reflects the authors' superior analytical skills. Careful attention is paid to relevant detail. Results are presented and interpreted in a meaningful fashion that is likely to generate interest of readers and researchers alike. Based on my assessment, this contribution merits publication in any top journal of economics.

Is the analysis correct?
While the "correctness" of any economic analysis can always be subjected to debate, it would be remiss not to acknowledge the precision with which the authors carry out their analysis. It is apparent that the authors have combined their complementary skills, with admirable finesse, to put to rest any criticism their analysis could otherwise have encountered. Based on my assessment, the authors have completed their analysis with commendable accuracy.

In sum, based on my reading, I strongly recommend the publication of this manuscript.

Anonymous - Referee Report 2
November 13, 2012 - 10:20
The paper addresses an interesting and timely topic with substantial policy implications. In particular the paper carefully investigates whether the determinants of FDI from traditional and non-traditional source countries are different. This topic is particularly important given the increase in FDI flows from emerging markets in the recent decades. I ...[more]

... believe this is a carefully done study. It is well written, the econometric analysis is very well executed and the authors do a thorough job of anticipating and dealing with possible objections. My only comment is that the analysis would benefit from a description of FDI from non-traditional sources (summary statistics, trends over time or by region, etc).

Anonymous - Decision Letter of the Co-editor
November 14, 2012 - 09:51

The paper can be accepted with the only requested revisions being to add more discussion of the data on non-traditional sources of FDI (NTS), as suggested by referee 2. It would heighten interest in the analysis if readers knew more about the relative magnitudes of NTS flows, how these have ...[more]

... evolved over time and some indications of the pattern (host regions). For example, other than FDI to developed countries, do Latin American/Asian NTS largely invest in their own region? Is it only China and a few other (relatively large) NTS than invest in Africa? Is FDI by NTS in Africa more recent compared to FDI elsewhere? It would also be informative to return to these patterns and trends when discussing the results, in particular considering if certain NTS diverge from the general determinants identified. For example, although resource seeking FDI is not particularly prevalent for NTS it could still be important for FDI to Africa (e.g. for China and India). Essentially, what we would lik e is to add more flesh to the results.
You could consider including Herzer (2011), Journal of Development Studies (47:5, 767-785) in the literature, although his focus is on the home country effects of outward FDI by developing countries.