FOREIGN DIRECT INVESTMENT: THE KNOWLEDGE‐CAPITAL MODEL AND A SMALL COUNTRY CASE

This research looks at how foreign direct investment (FDI) in a small open economy compares with that of larger countries. I apply several specifications of the knowledge‐capital model to unique FDI data from the isolated country of Iceland, allowing for comparison with previous analysis of larger and similarly open economies. Using this together with other techniques, I seek to explain investment determinants by geography, economic size and skilled labor availability. The results of these analysis show that popular specifications do not accurately predict the effects for a small country case.