British Journal of Management & Economics, ISSN: 2249 - 4413,Vol.: 1, Issue.: 2 (October-December)
Host Country Degree of Rurality and the Location Choice of Multinational Enterprises: A Panel Model Analysis
Mamit Deme1 and Kevin Zhao1* 1Department of Economics, Middle Tennessee State University, Murfreesboro, TN 37130, United States of America.
Mamit Deme1 and Kevin Zhao1*
1Department of Economics, Middle Tennessee State University, Murfreesboro, TN 37130, United States of America.
In this paper, we build up the literature by introducing host-country degree of rurality as a factor influencing Multinational Enterprises’ (MNEs) location choice measured by foreign direct investment (FDI) inflows. Based on 1999-2007 panel data of 172 countries, we show that host-country degree of rurality has a negative relationship with the location choice of multinationals. The effect is more profound in low-income host countries than in high-income host countries. We also confirm that the control variables, such as host-country market size, trade openness, labor costs, and labor skills are positively related to FDI inflows while interest rates and expected currency depreciation are negatively related. Moreover, results of pair-wise Granger causality tests show FDI has a feedback relationship with per capital GDP and exchange rate movements. Impulse response test results render key insights into FDI linkages and associated policy implications.
Keywords : Multinational enterprises' location choice; FDI; degree of rurality; granger causality; fixed effects model; panel data; impulse response;
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