Gabriele Tondl University of Economics & BA, Vienna

1. DiscussionNauro Campos/ Yuko KinoshitaForeign direct investment, structural reforms, and institutional quality: Panel evidence from Eastern Europe and Latin America Gabriele Tondl University of Economics & BA, Vienna

2. Contribution • Investigate determinants of FDI in emerging markets •  results can guide policy makers what to change to become attractive for FDI • Country sample: • Latin America • Period 1989-2004 • Countries ranked 2nd (LA), 3rd (TE) among developing countries for FDI inflows • Transition, overcome macroeconomic instability, big structural reforms • Hypotheses and model specification • FDI-types: market seeking, resource seeking • Location factors : • Macro stability • Infrastructure • Institutional quality • Structural reforms: financial sector, privatization, trade liberalization

3. Contribution II • Indicators for structural reforms • Reform policies versus reform outcomes • Careful selection and construction of reform indicators: • Financial reform index 1 = development of financial market • Financial reform index 2 = efficiency of financial system • Trade liberalization:tariff rates + tariff dispersion • Privatization:receipts of government from disinvestment • Convincing results: • Robust coefficients: income level (+), inflation (-), telephone lines (+), fuel exports (+), quality of bureaucracy (+), financial efficiency, privatization

4. Comments • Motivation of sample selection? • Why Latin America and Transition countries? • What do they have in common what divides them? • Common: Macroeconomic stabilization, privatization, liberalization in both regions • Common: Weak institutions in both regions • BUT: • Different: Transition economies major experienced major drop of economic activity, major share of outdated productions creates a full range of investment opportunitiesnot the case in LA • Different: TE were completely isolated before 90s, LA not • Both LA and TE ranked below Asia for FDI inflows, why not compare them with Asia?

5. Comments II • Model for FDI determinants: • Missing factors: • Labour costs: TE served for low wage productions for EU investors, at least temporarily, Central America serves for low wage productions of US investors. • Education: literature stressed its importance for investors education is expected to differ a lot in both regions, some TE have quite high education. Maybe try alternative education indicators, e.g. share of 25 years old with English knowledge • Countries belong to different trading blocks, e.g. EU association, Andean Community, Mercosur, may have influence on investment • Not only present trade openness may be important, also years of openness

6. Comments III • Sample: Explanation why certain countries from region are missing: • only 3 Caribbean – why not have only Central and South America? • Balkan countries not included – data problems? • Estimation method system GMM: • Why use the estimator system GMM? • Which variables are considered to be endogenous? • Which are the arguments (literature) why they should be endogenous? • Which instruments are proposed in the literature • Instruments:Can the instruments used with system GMM be considered to be suitable instruments? Are lagged values valid instruments? In developing countries series show big changes. Lags of more than t-1 are often poorly correlated with variable. • Econometric problem non-stationarity: • A number of series can be considered to be non-stationary (typical in developing countries) – GDPp.c., infrastructure, trade liberalization, etc… • Explanation if system GMM is appropriate in this context

7. Comments IV • Results: • Instruments are not explained: for which series IV • What lag length was used? How was lag length of instruments determined. • Explain which options were used for estimation: e.g. one-step or 2-step estimates • Explain the test statistics