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The usefulness of private and public information for foreign investment decisions

Author

Listed:
  • Mody, Ashoka
  • Yuko Kinoshita
Abstract
Using a specially designed survey of Japanese firms planning investments in Asia, the authors emphasize the importance of privately held information in making foreign investment decisions. Information on operating conditions based on direct experience in a country is likely to be the most credible information, but for investors new to a country, information inferred from observing others investing in that country may be more influential. Initially, in fact, observing the actions of competitors seems to lead to cascading investments in that country, apparently through herd behavior (as in China and Vietnam). Countries which do not draw a critical mass of investors are in danger of being bypassed for significant periods. Publicly available information is important in helping shape average perceptions about a country,leading potential investors to view particular locations favorably. Privately held information complements that pubic information, and accounts for important variations in investment plans. Subjective perceptions about policy on foreign direct investments are also important. Policy designed to attract investors -for example, special zones for foreign investors- have been successful in many instances, especially in East Asia, but have also been a waste of scarce investment resources when not appropriately planned. And such policy is of little value in attracting those already investing in a country, or those who already perceive rivals to be active there.

Suggested Citation

  • Mody, Ashoka & Yuko Kinoshita, 1997. "The usefulness of private and public information for foreign investment decisions," Policy Research Working Paper Series 1733, The World Bank.
    • Handle: RePEc:wbk:wbrwps:1733
    as

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    References listed on IDEAS

    as
    1. Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992. "A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 992-1026, October.
    2. Scharfstein, David S & Stein, Jeremy C, 1990. "Herd Behavior and Investment," American Economic Review, American Economic Association, vol. 80(3), pages 465-479, June.
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    4. Ashoka Mody & Krishna Srinivasan, 1998. "Japanese and United States Firms as Foreign Investors: Do they march to the same tune?," Canadian Journal of Economics, Canadian Economics Association, vol. 31(4), pages 778-799, November.
    5. Wheeler, David & Mody, Ashoka, 1992. "International investment location decisions : The case of U.S. firms," Journal of International Economics, Elsevier, vol. 33(1-2), pages 57-76, August.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Peter Rowland, 2004. "The Colombian Sovereign Spread and its Determinants," Borradores de Economia 315, Banco de la Republica de Colombia.
    2. Peter Rowland, 2005. "Buyback of Colombian Sovereign Debt," Borradores de Economia 331, Banco de la Republica de Colombia.
    3. Belderbos, R.A., 2000. "Foreign investment and international plant configuration : whither the product cycle?," Research Memorandum 003, Maastricht University, Netherlands Institute of Business Organization and Strategy Research (NIBOR).
    4. Barry Eichengreen & Ashoka Mody, 1998. "What Explains Changing Spreads on Emerging-Market Debt: Fundamentals or Market Sentiment?," NBER Working Papers 6408, National Bureau of Economic Research, Inc.
    5. World Bank, 2005. "Financing Information and Communication Infrastructure Needs in the Developing World : Public and Private Roles," World Bank Publications - Books, The World Bank Group, number 7491.
    6. Comino, Stefano, 2006. "Entry and exit with information externalities," Journal of Economic Behavior & Organization, Elsevier, vol. 60(1), pages 85-99, May.
    7. Ramona Jimborean & Anna Kelber, 2017. "Foreign Direct Investment Drivers and Growth in Central and Eastern Europe in the Aftermath of the 2007 Global Financial Crisis," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 59(1), pages 23-54, March.
    8. Shaoming Cheng, 2007. "Structure of Firm Location Choices: An Examination of Japanese Greenfield Investment in China," Asian Economic Journal, East Asian Economic Association, vol. 21(1), pages 47-73, March.
    9. Yuko Kinoshita, 2001. "Firm Size and Determinants of Foreign Direct Investment," Industrial Organization 0012006, University Library of Munich, Germany.
    10. Barry Eichengreen & Ashoka Mody, 2000. "What Explains Changing Spreads on Emerging Market Debt?," NBER Chapters, in: Capital Flows and the Emerging Economies: Theory, Evidence, and Controversies, pages 107-134, National Bureau of Economic Research, Inc.
    11. Nathan Yang, 2012. "Burger King and McDonald’s: Where’s the Spillover?," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 19(2), pages 255-281, July.
    12. Peter Rowland, 2004. "The Colombian Sovereign Spread And Its Determinants," Borradores de Economia 3572, Banco de la Republica.
    13. Peter Rowland, 2005. "Buyback Of Colombian Sovereign Debt," Borradores de Economia 2073, Banco de la Republica.
    14. Noorbakhsh, Farhad & Paloni, Alberto & Youssef, Ali, 2001. "Human Capital and FDI Inflows to Developing Countries: New Empirical Evidence," World Development, Elsevier, vol. 29(9), pages 1593-1610, September.

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