Foreign Direct Investment and Consumer Finance Companies: What Are the Determinants?
DOI:
https://doi.org/10.18502/kss.v4i1.5993Abstract
In the context of the globalization of the financial sector, notably of the non-banking sector within the European Union member states of the last decades, the assets of the non-bank sector have increased in the last years considerably. Taking into account that the regulatory requirements for consumer finance companies are more permissive than for banking financial institutions and that the financials of the sector are not available for almost half of the sector this paper tries to explain the main determinants of foreign direct investments in consumer finance companies for a panel of European Union member states over the period 2006-2013. My approach is using the panel methodology but testing different panel specifications in order to choose the model that will better explain FDI – fixed effects. Findings show that the percentage of people with internet connection, the quality of the regulatory environment, the trade to GDP, the cost of business start-up procedures, the time required to start a business, the government final spending and the labour costs are the major determinants of foreign investments in consumer finance companies.
Keywords: consumer finance companies, foreign direct investment, non-bank financial sector, multinationals, panel data.
References
González A., Terasvirta T., Van Dick D., et al. (2017). Panel Smooth Transition Regression Models. Working Paper Series of Economics and Finance, no. 604.
Demirhan E. and Masca M. (2008). Determinants of foreign direct investment flows to developing countries: a cross-sectional analysis. Prague Economic Papers, Vol. 4, pp 356-369
Poelhekke S. (2016). Financial globalization and foreign direct investment. De Nederlandsche Bank. Working Paper No. 527, 33 pages
Moshirian F. (2001). International investment in financial services. Journal of Banking and Finance, Vol. 25, No. 2, 21 pages
Davies R. and N. Killeen. (2015). Location decisions of non-bank financial foreign direct investment: firm-level evidence from Europe. Review of International Economics, Vol. 26, No. 2, pp. 378-403
Faeth I. (2009). Determinants of foreign direct investment – a tale of nine theoretical models. Journal of Economic Surveys, Vol. 23, No. 1, pp. 165-196
Bevan A. and Estrin S. (2002). The determinants of foreign direct investment into European transition economies. Journal of Comparative Economics, Vol. 32, No. 4, pp. 775-787
Wheeler D. and Mody A. (1992). International investment location decisions: the case of US firms. Journal of International Economics, Vol. 33, No. 1-2, pp. 57-76
Aghion P., Bacchetta P., Ranciere R. et al. (2006). Exchange Rate Volatility and Productivity Growth: The Role of Financial Development. Journal of Monetary Economics, Elsevier, Vol. 56, No. 4, pp. 494-513
Hall S., Hondroyiannis G., Swamy P.A.V.B. et al. (2010). Exchange-rate volatility and export performance: Do emerging market economies resemble industrial countries or other developing countries. Economic Modelling, Vol. 27, No. 6, pp. 1514-1521
Asteriou D., Masatchi K., Pilbeam K. (2016). Exchange rate volatility and international trade: International evidence from the MINT countries. Economic Modelling, Vol. 58, pp. 133-140
Dunning J. (1979). Explaining changing pattern of international production: in defence of eclectic theory. Oxford Bulletin of Economics and Statistics, Vol. 41, No. 4, pp. 269-295
Belascu L., Horobet A., Popovici O. (2018). Foreign Direct Investments and Economic Growth in Central and Eastern Europe: A Panel-Based Analysis. Journal of Comparative Economics, pp. 35-46
European Central Bank. (2016). The role of euro area non-monetary financial institutions in financial intermediation. ECB Economic Bulletin, Issue 4, Article 1
Dellis K., Sondermann D. and Vansteenkiste I. (2017). Determinants of FDI inflows in advanced economies: Does the quality of economic structures matter?. ECB Working Paper 2066
Bakk-Simon K., Borgioli S., Giron C. et al. (2012). Shadow banking in the euro area: an overview. Occasional paper series, European Central Bank, No. 133
Basile R., Castellani D., Zanfei A. (2008). Location choices of multinational firms in Europe: The role of EU cohesion policy. Journal of International Economics, Vol. 74, No. 2, pp. 328-340
Blonigen B. and Piger J. (2014). Determinants of Foreign Direct Investment. Canadian Journal of Economics, Vol. 47, No. 3, pp. 775-812
Claessens S. and Latnovski L. (2014). What is shadow banking?. IMF Working Paper, No. 14/25, International Monetary Fund
Devereux M., Griffith R. (1998). Taxes and the location of production: evidence from a panel of US multinationals. Journal of Public Economics, Vol. 68, No. 3, pp. 335-367
Claessens S., Van Horen N. (2014). Location decisions of foreign banks and competitor remoteness, Journal of Money, Credit and Banking, Vol. 46, No. 1, pp. 145-170
Goldberg L. (2007). Financial sector FDI and Host Countries: new and old lessons. Economic Policy Review, Vol. 13, No. 1, pp. 1-17
Greene W. (2012). Econometric analysis. New York, USA: Pearson, seventh edition
Golub S. (2009). Openness to Foreign Direct Investment in Services: an international comparative analysis. The World Economy, Vol. 32, No.8, pp. 1245-1268
International Monetary Fund. (2014). Shadow banking around the globe: how large and how risky?. Global Financial Stability Report, World Economic and Financial Surveys
Siedschlag I., Zhang X., Smith D. (2013). What determines the location choice of multinational firms in the information and communication technologies sector. Economics of Innovation and New Technology, Vol. 22, No. 6, pp. 581-600
Yamori N. (1998). A note on the location choice of multinational banks: the case of Japanese financial institutions. Journal of Banking and Finance, Vol. 22, No. 1, pp. 109-120
Makiela K. and Ouattara B. (2018). Foreign direct investment and economic growth: Exploring the transmission channels. Economic Modelling, Vol. 72, pp. 296-305
Alvarado R., Iniguez M., Ponce P. (2017). Foreign direct investment and economic growth in Latin America. Economic Analysis and Policy, Vol. 56, pp. 176-187
Agiomirgianakis G., Asteriou D., Papathoma, K. (2003). The determinants of foreign direct investment: a panel data study for the OECD countries (03/06). Department of Economics, City University London.
Markusen J. R. and Venables A. J. (1998). Multinational firms and the new trade theory. Journal of International Economics, Elsevier, vol. 46(2), pp. 183-203
