Behavioral and empirical perspectives on FDI: International capital allocation across Asia

We investigate Asia's recent experience in international capital allocation through flows of foreign direct investment. A calibrated general equilibrium model with a new capital flow modelling component is applied to highlight underlying relationships between a Heckscher-Ohlin (labor and capital) endowment perspective and such considerations as human capital, productivity, endogenous growth, and institutional behavior. Our results support the argument that all these factors played a role in Asia's recent growth, to different degrees in different countries, with complex relationships to investment incentives. In addition, new directions for further research in the FDI-growth linkages policy area are identified.