chapter  7
19 Pages

The determinants of FDI in Chile: A gravity model approach: Matteo Grazzi


The aim of this chapter is to analyse the determinants of FDI inflows into Chile from 1985 to 2005 through the estimation of a gravity equation. Chile is a relatively small and resource-rich country, and has been highly successful in attracting FDI. In fact, FDI has represented an important contribution to the sustained economic development of Chile in the last decades. Since 1990, when the country returned to democracy, Chile has undertaken an active foreign policy targeted to the full integration in the international arena. A main pillar of this strategy has been constituted by the signature of a high number of bilateral economic agreements, such as Bilateral Investment Treaties (BITs), Double Taxation Treaties (DTT) and Free Trade Agreements (FTAs). The validity of such treaties as instruments to raise the level of FDI into a country has been questioned by several scholars and, to date, there is still controversial empirical evidence. This work contributes to this debate. The chapter is structured as follows. The second section analyses trends and characteristics of FDI inflows into Chile, with a particular attention on the geographical origin and the sector distribution. In the third section the empirical methodology is presented. The fourth section contains data and variables description. Then, the results are presented and commented in the fifth section. Finally, some conclusions and policy implications are provided in the last section.