Economic Affairs
Year : 2015, Volume : 60, Issue : 3
First page : ( 361) Last page : ( 365)
Print ISSN : 0424-2513. Online ISSN : 0976-4666.
Article DOI : 10.5958/0976-4666.2015.00052.2

An Efficiency based Approach to Evaluate Attractiveness of Host Countries for Foreign Direct Investment

Jayasekara S.G.S.D.*

Central Bank of Sri Lanka, 30, Janadhipathi Mawatha, Colombo, Sri Lanka

*Corresponding author: sisiradj@accamail.com

Online published on 3 December, 2015.

Abstract

This paper investigates the impact of efficiency of countries for attracting foreign direct investment. Top 20 foreign direct investment receiving countries in 2013 were used for the study for a 20-year period from 1994 to 2013. The efficiency of countries was evaluated using non-parametric data envelopment analysis and the empirical analysis was estimated using pooled estimated generalised least square model. The results suggest that inflows of foreign direct investment have a significant positive relationship with efficiency scores of countries. Fully efficient countries, nine out of the sample of 20 countries, have counted for 41.6 per cent of the global foreign direct investment in 2013. This indicates that multinational corporations operate in efficient countries in order to maximise the wealth of shareholders by reducing overall cost of operations through efficiencies.

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Keywords

Foreign direct investment, data envelopment analysis, multinational corporations, wealth of shareholders, efficiency.

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