Do Large Foreign Direct Investment Inflows Behave Differently From Smaller Inflows? Evidence from Developing Countries

Abstract

This article examines whether large inflows of foreign direct investment (FDI) behave differently from smaller inflows in a sample of 56 developing countries for the period 1990–2017. We use the quantile regression method to investigate whether the responsiveness of FDI inflows to various push and pull factors differs across the conditional distribution of the former. Our results show that the magnitudes of the coefficients are significantly different across quantiles of FDI inflows for a number of covariates. That is to say, the coefficients are significantly larger for the upper quantiles compared to the lower ones. The interquantile regressions, which estimate the quantile differences, confirm the finding that large FDI inflows are more responsive to their covariates than smaller inflows. Our results suggest that large inflows of FDI are indeed different, both quantitatively and qualitatively, from smaller inflows. Therefore, it is necessary to investigate the causes of large and smaller inflows separately for a better understanding of the determinants of FDI inflows to developing countries. JEL Classification: F21, F23, F41.