Working Paper: NBER ID: w29432
Authors: Sara B. Holland; Sergei Sarkissian; Michael Schill; Francis E. Warnock
Abstract: Nonlinearities can arise in international investment factors because of a pecking order in barriers. When direct barriers are severe, improvements in governance factors such as rule of law and expropriation risk can increase investment. Only when severe barriers are ameliorated can factors such as firm-specific information, transaction costs and hedging motives become more important. Evidence from unconditional quantile regressions provides support for a pecking order hypothesis, as we find that investment factors vary across the distribution. Specifically, our empirical results indicate that access to basic information is important everywhere, governance and familiarity matter where barriers are high, roles for information and hedging motives become more apparent where barriers are moderate, and where there are no barriers small improvements in governance have little effect on investment. Going forward, analysis should incorporate nonlinearities inherent in cross-border barriers and investment.
Keywords: No keywords provided
JEL Codes: F15; F21; F3; G15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| severe direct barriers (F55) | relevance of indirect barriers (F55) |
| improvements in governance factors (G38) | investment (G31) |
| familiarity and information (D83) | investment (G31) |
| hedging motives (G41) | investment (G31) |
| high levels of investment (E22) | role of governance (G38) |
| information proxies (D83) | investment (G31) |