International Investment in Insurance Services in the Us

Abstract

The purpose of this article is to analyze and evaluate Foreign Direct Investment (FDI) in insurance services in the US during the period from 1987 to 1998 by applying ordinary least squares method among the eight factors in the model. By looking at the previous studies of FDI in insurance services by Moshirian (1997 and 1999), the empirical results emphasize two important factors: relative wage rate of the US versus the source countries and FDI in manufacturing are significant on expansion of FDI in the US insurance services. The other six factors are insignificant. The results reflect the relative cost of capital and FDI in manufacturing encourage FDI in insurance. Others determinants show negative impacts on FDI in insurance.

1. Introduction

Under today’s economic environment, cooperation and integrations among the countries become significant in last decades. As Butlet(2008) once said: “maximizing profit is the ultimate goal of economic entities, which motivates firms to chase huge profit in the foreign markets.” Foreign direct investment (FDI) is indeed a short-cut for today’s economic entities to achieve better market success. FDI refers to capital inflows from other countries that invest in the production capacity of the economy, which facilitates the international trade and transfer of skills, knowledge and technology (Vinay, 2009). Due to entering the international market, corporations can easily get the cheaper products from the low labour cost countries such as China, Indonesia and Thailand. Meanwhile, they can also get access to new getting edge technology by connecting to other countries in the world. FDI plays a vital role in expansions of multinational corporations which can be reflected in the economic flows of the host countries. According to recent research, the largest flows of foreign investment are generally between the industrialized countries (North America, Western Europe and Japan). However, flows to less or...