The Effects of Project Scale on FDI Location Choices: Evidence from Emerging Economies

We examine the interactions of project-specific scale and country-specific economic and institutional attributes in determining inward FDI location choices in emerging economies. We study a large project-level sample with over 15,000 investments originated in 20 industrialised countries and located in 25 emerging economies, between 2003 and 2014. Overall, firms show investment location preferences for emerging economies characterised by larger consumer markets, cheaper labour costs, lower corporate taxes and lower institutional distance. The effects of such country attributes on FDI location are significantly moderated by the project’s scale (measured as Capex and Employment). Larger project scale renders FDI location more sensitive to larger market size and to cheaper labour costs, but less sensitive to lower corporate taxes and to lower institutional distance. These results are consistent with the notion that project scale significantly affects firms’ locational sensitivity to country attributes when choosing between FDI target locations.