The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
Since the beginning of the 1990s, foreign direct investment (FDI) in developing countries has increased dramatically. The distribution of FDI flows across these countries, however, is highly uneven; only a small number attract comparatively large amounts of foreign capital. This paper investigates whether the pattern of FDI flows can be explained by the standard neoclassical model or by modified versions of this model that allow for differences in production technologies across countries. The results suggest that the standard neoclassical approach is not particularly useful if we want to understand FDI flows to developing countries.