THE EFFECT OF INCREASING TRANSPORTATION COST ON FOREIGN DIRECT INVESTMENT.
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Date
2009-06-09
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Abstract
This study showed that certain influences in the global environment may have an impact
on FDI’s regional or country choice of investment. The following research questions
were explored. Are changes in FDI location choices due to elevated transportation costs?
Has the emphasis on market changed to a stauncher stance toward efficiency factors due
to current oil pricing?
The data was tested by applying multiple linear regressions using archival data from Dun
and Bradstreet, the World Bank, and the Bureau of Economic Analysis (BEA). This
study looked at data in snapshots of two years of a decade beginning with 1997 and
ending with 2007. A broader dataset which has already been developed will be expanded
to include the dramatic changes in oil prices pre Y2K and post Y2K.
It was hypothesized that results will reflect that the cost of transportation will drive
investment closer, rather than further, from the origin of investment. Due to the nature of
FDI immobility, it is further hypothesized that emphasis will be placed on efficiency
factors rather than market because of concern about transportation costs.
The purpose will be to explore the features that affect the location of the foreign direct
investment, and to address the differences in emphasis, if any, by decision-makers upon
locations chosen because of the present transport costs.
The findings of the tests were theoretically along the same lines as the hypothesis
predicted. In 1997 market factors were dominant instead of efficiency factors. This was
seen through the significance of GDP growth and the amount of roads paved. In 2007
exchange rates and distance showed significance, moving factors to a stauncher stance
toward efficiency. A pooled regression showed the results of the effect of transportation
cost over all. When looking at the variances at the 0.1 p level a rise in the level of FDI
investment was found, concluding that the hypothesis and transportation cost results
were counter intuitive.
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OLI Tranportation Cost Efficiency