Institutions, sectorial dynamics and foreign direct investment in Latin America: a new emerging reality

Despite uncertainties in the global economy, Latin American countries have attracted a significant amount of Foreign Direct Investment (FDI) in recent years. Investing in Latin America is now a central pillar of many international corporations’ and developed countries’ economic strategies. North American, Asian, and European firms have stakes in Latin America’s natural resources, telecommunications, and financial sectors. Analyzing data of FDI in 19 Latin American countries from 1995 to 2011, using a panel model, this paper investigates the link between the improving performance of specific sectors of the economy and the attraction of FDI. It focuses on sectorial dynamics, such as the growth of non-tradable sectors as well as the growth of natural resources based sectors, and explores the connection with both international and domestic institutions.