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Estimating the Impact of Time-Invariant Variables on FDI with Fixed Effects

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  • Ronald B. Davies

    ()

  • Delia Ionascu
  • Helga Kristjánsdóttir

Abstract

This paper applies the panel fixed effects with vector decomposition estimator to three FDI datasets to estimate the impact of time-invariant variables on FDI while including fixed effects. We find that the omission of fixed effects significantly biases several of these variables, especially those proxying for trade costs and culture. After including fixed effects, we find that many time-invariant variables indicate the importance of vertical FDI. We also find that by eliminating these biases, the differences across datasets largely disappear. Thus, controversies in the literature that are driven by differences in data sets may be resolved by using this estimation technique. JEL Classification: F14, F23 Key Words: Foreign Direct Investment, Trade Costs, Culture

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File URL: http://hdl.handle.net/10.1007/s10290-008-0153-0
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Bibliographic Info

Article provided by Springer in its journal Review of World Economics.

Volume (Year): 144 (2008)
Issue (Month): 3 (October)
Pages: 381-407

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Handle: RePEc:spr:weltar:v:144:y:2008:i:3:p:381-407

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Related research

Keywords: Foreign direct investment; trade costs; culture;

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References

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  1. Helpman, Elhanan, 1984. "A Simple Theory of International Trade with Multinational Corporations," Scholarly Articles 3445092, Harvard University Department of Economics.
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Citations

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Cited by:
  1. Thomas O'Connor, 2014. "Legal bonding, investor recognition, and cross-listing premia in emerging markets," International Journal of Accounting and Finance, Inderscience Enterprises Ltd, vol. 4(3), pages 209-239.
  2. Céline Azémar & Rodolphe Desbordes, 2010. "Short-run Strategies for Attracting Foreign Direct Investment," The World Economy, Wiley Blackwell, vol. 33(7), pages 928-957, 07.
  3. Thomas O'Connor, 2012. "Investability, Corporate Governance and Firm Value," Economics, Finance and Accounting Department Working Paper Series n223-12.pdf, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
  4. Jungmittag, Andre, 2014. "Der Trade-off zwischen deutschen Direktinvestitionen und Exporten: Wie wichtig sind die verschiedenen Dimensionen der Distanz?," Working Paper Series: Business and Law 04, Frankfurt University of Applied Sciences, Faculty of Business and Law.
  5. Markusen, James R., 2010. "Putting Per-Capita Income back into Trade Theory," CEPR Discussion Papers 7790, C.E.P.R. Discussion Papers.
  6. Wacker, Konstantin M., 2013. "On the measurement of foreign direct investment and its relationship to activities of multinational corporations," Working Paper Series 1614, European Central Bank.
  7. Thomas O'Connor & Thomas Flavin, 2013. "The Effects of Ownership Structure on Corporate Financing Decisions: Evidence from Stock Market Liberalization," International Review of Finance, International Review of Finance Ltd., vol. 13(3), pages 383-405, 09.

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