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THE EFFECT OF INCREASING TRANSPORTATION COST ON FOREIGN DIRECT INVESTMENT.

by Gressler, Kimberly

Abstract (Summary)
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.
Bibliographical Information:

Advisor:

School:Texas A&M University

School Location:USA - Texas

Source Type:Master's Thesis

Keywords:oli tranportation cost efficiency

ISBN:

Date of Publication:06/09/2009

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