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FDI and the Relevance of Spatial Linkages: do third country effects matter for Dutch FDI?

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Author Info
Harry Garretsen
Jolanda Peeters
Abstract

The aim of this paper is to test for the relevance of spatial linkages for Dutch (outbound) FDI. To do so, and based on recent FDI theories, we estimate a spatial lag model to assess the importance of spatial linkages for Dutch FDI to 18 host countries. As a determinant of FDI, space or geography also enters our empirical analysis through the market size and a corporate income tax variable. Our paper is among the few to date to take spatial linkages with respect to FDI into account. The Dutch case is also interesting because Dutch firms account for alarge part of global FDI and related research has so far focused mainly on US FDI. After controlling for fixed effects, we find for our sample period 1984-2004 that third country effects matter, but the results are somewhat sensitive to sample and model selection. Apart from our benchmark spatial lag model, we discuss and estimate various alternative models notably by looking at European host FDI countries only, by dividing FDI into industry and services FDI and by estimating a spatial error model as well.

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Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 162.

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Date of creation: Dec 2007
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Handle: RePEc:dnb:dnbwpp:162

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  2. Ekholm, Karolina & Forslid, Rikard, 2001. " Trade and Location with Horizontal and Vertical Multi-region Firms," Scandinavian Journal of Economics, Blackwell Publishing, vol. 103(1), pages 101-18, March. [Downloadable!] (restricted)
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  5. Richard E. Baldwin & Toshihiro Okubo, 2006. "Heterogeneous firms, agglomeration and economic geography: spatial selection and sorting," Journal of Economic Geography, Oxford University Press, vol. 6(3), pages 323-346, June. [Downloadable!] (restricted)
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  6. Head, Keith & Ries, John & Swenson, Deborah, 1995. "Agglomeration benefits and location choice: Evidence from Japanese manufacturing investments in the United States," Journal of International Economics, Elsevier, vol. 38(3-4), pages 223-247, May. [Downloadable!] (restricted)
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  7. Peter Egger & Michael Pfaffermayr, 2001. "Distance, Trade and FDI: A Hausman-Taylor SUR Approach," WIFO Working Papers 164, WIFO. [Downloadable!]
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  8. Keith Head & Thierry Mayer, 2004. "Market Potential and the Location of Japanese Investment in the European Union," The Review of Economics and Statistics, MIT Press, vol. 86(4), pages 959-972, 01. [Downloadable!] (restricted)
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  10. Feenstra, Robert C, 2002. "Border Effects and the Gravity Equation: Consistent Methods for Estimation," Scottish Journal of Political Economy, Scottish Economic Society, vol. 49(5), pages 491-506, December. [Downloadable!] (restricted)
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  13. Bernard Fingleton & Enrique López-Bazo, 2006. "Empirical growth models with spatial effects," Papers in Regional Science, Blackwell Publishing, vol. 85(2), pages 177-198, 06. [Downloadable!] (restricted)
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  16. Baltagi, Badi H. & Egger, Peter & Pfaffermayr, Michael, 2007. "Estimating models of complex FDI: Are there third-country effects?," Journal of Econometrics, Elsevier, vol. 140(1), pages 260-281, September. [Downloadable!] (restricted)
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