FDI Flows to Paraguay: What do Investors Prioritize?

Aug 2018
Paraguay is one of the fastest growing economies in Latin America and the Caribbean. Despite solid growth and sound macroeconomic fundamentals, foreign direct investment flows remain sluggish. Since 2004, FDI flows amount on average to 1.3% of GDP per year, well below regional values. A puzzling question is why a country with solid macroeconomic fundamentals like Paraguay is not attracting larger flows of FDI. We tackle this issue by implementing an experiment designed to shed light into investors behaviors regarding FDI choices. Our results indicate that institutional variables have a strong effect on FDI decisions, even when controlling for other potential drivers.