Measuring the "threshold effect" of terms of trade on FDI inflows: the role of the dependency ratio

Vila-real - Alicante

Congreso; Arnoldshain Seminar XVII and X Meeting on International Economics; 2022

Universities of Alicante, Valencia and Jaume I

Based on Davies and Reed (2006) and Broner and Ventura (2016) weassume that the institutional quality variable is related to the dependency ratio. The hypothesis is that countries with high domestic saving rates (low dependency rates) are more likely to keep their tax and legal rules stable, and to receive higher FDI flows, when they are benefited by a term of trade (TOT) shock. The sample includes developed and developing countries for the period 2002-2019. The coefficients obtained after applying the Hansen (1999) methodology using the dependency rate variable to obtain thresholds are compared with those obtained using the institutional quality variable. The results obtained corroborate the hypothesis raised.