On the basis of previous studies of foreign direct investment (FDI) in insurance services industries by Moshirian (1997 and 1999), this study applies the similar model and variable with those previous studies to present analysis and discussion about FDI in insurance services industries in America from 1987 to 1998. As the extension on prior studies, this study found that the relative wage rate of the US versus the source countries, and FDI in manufacturing industries both are highly important determinants of FDI in insurance services industries in America in statistic. However, this result is different from Moshirian’s (1997), due to majority of factors which are valued important in his study are unimportant in this study. The disparity between different results indicates that along with the changes of political environment, economic climate, investors’ behaviors and methodological limitation, there are disparate determinants in different periods. As a result, it is necessary to testify it in further investigations.
Due to globalization, multinational insurance companies could more convenient than before to develop their insurance services in the US. Busse (2003) points out that foreign direct investments(FDI) have a dramatically growth in 1980s and the total outflow increase to $225 billion in 1990s. The average growth rate of the foreign direct investment is recorded in 34% between 1980s and 1990s. Actually, Moshirian(1997) explains that the growth rate of FDI in insurance services industry is one of the rapidest growing industries in the US. There is almost 5 times growing during 1980 – 1992. Li and Moshirian(2002) describe that at 1980s in the US there are several countries such as United Kingdom, Netherlands, Switzerland, Germany and France are the significant sources of FDI in insurance service. Also, United Kingdom is the largest FDI in insurance service sources which contains 30% of the market shares between 1980s to 1990s. Globalization is not the only reason responses for the sharp growing rate of FDI in insurance service. According to Lederman etc al. (2003), North American Free Trade Agreement (NAFTA) is one of the main reason encouraging the FDI in insurance service growth rate. NAFTA is the agreement that eliminate barriers of trade and investment between the US, Canada and Mexico. This agreement allows foreign direct investor in insurance service company could establish headquarter in the US and prepare to penetrate the North American Market. Therefore, a huge amount of FDI in insurance service inflow to the US. On the other hand, the weak monetary policy of the US in the 1980s and relatively stable economics and political situation also strongly contribute the amount of FDI in insurance service. Moreover, Barrell and Pain (1997) point out that the European insurance companies in 1994 are interested to invest in the US, due to the new single license policy which allow the investment from European could invest the US market freely. As a result of that, plenty of European insurance companies enter to the US market which is relatively less violent competition than their local market. The study made from Moshirian(1997) discovers that relative rate of returns, exchange rate and the demand of the US insurance services are the significant components of FDI in insurance services. Furthermore, he use the FDI in insurance services data between 1982 and 1995 to analysts the US FDI in insurance services. His study suggests that the different of the national income and cost of capital between host countries and home country could be utilized to determine the FDI in insurance services. The purpose of this study is aiming to analyze and investigate FDI in insurance service in the US over the period from 1987 to 1998 by measuring the significant components of the US FDI insurance services with a time series analysis. First of all, this paper would begin with reviewing the relevant literature in...
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