Fdi Insurance Services Us

ABSTRACT

The purpose of this paper is to analyse and discuss the predictive power of the factors proposed by Moshirian (1997, “Foreign direct investment in insurance services in the United States”) to measure the foreign direct investment (FDI) in insurance services in the United States. The paper focuses on the 12 year period from late 1986 to the end of 1998. Eight factors are analysed to determine FDI in US insurance services: national income of the US, relative cost of capital between the US and source countries, the relative wage rate between the US and source countries, total trade in insurance services in the US, exchange rate volatility, the stock of FDI in banking in the US, source countries’ average insurance earnings, and the stock of FDI in manufacturing in the US. Our empirical findings show that only FDI to manufacturing, relative cost of capital and relative wages are significant, the first two showing a positive relationship and the latter one being negatively correlated. The empirical results of this paper indicate that some of the indicators have significantly different reliability in the period and raise the question of how replicable the results are over different time periods.

I. INTRODUCTION

According to the World Bank, Foreign Direct Investment (FDI) measures the net capital inflows from investments with a lasting management interest (10 percent or more of voting stock of a company) in a foreign economy. Since FDI is subject to a long term scope as opposed to speculative, short term investments, boosting its growth has always been a priority for economic policy makers in a specific country. Therefore, FDI makes a significant contribution to economic productivity and its sustainable growth on the one hand and represents a strategic choice in the development of Multinational Corporations (MNC) around the world on the other hand (Tong and Youxin Hu, 2003).

Between the most important categories of FDI there is certainly FDI in the...