Be Gracious to All, But Choose the Best to Be Your Partners: A Social Network Analysis Approach to the Determinates of FDI

Since World War II there have been considerable increases in capital flows between countries, with dramatic increases over the last two decades. Historically, foreign direct investment (FDI) flowed chiefly among the wealthy member nations of the Organization for Economic Cooperation and Development (OECD). Today, FDI flows from OECD to developing countries and, even more surprisingly, from developing countries to OECD states. These significant capital flows remain poorly understood. The bulk of the research on FDI flows focuses on country level attributes as the primary independent variables, although findings are relatively weak. This study contributes to the literature by accounting for structural position of countries in relational networks, as FDI exchange is primarily a relational activity. This study employs social network analysis (SNA) to develop and measure a country's structural position within three relational networks including trade, intergovernmental organization membership, and defense treaty networks. This study finds that structural position increases FDI to developed countries, while attributes best explain capital flows to developing countries. This study argues that this difference in FDI drivers between developed and developing countries should direct policy for countries seeking international capital flows.