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Estimating Models of Complex FDI: Are There Third-Country Effects?

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Author Info
Badi H. Baltagi () (Center for Policy Research, Maxwell School, Syracuse University)
Peter Egger () (IFO Institute for Economic Research and University of Munich, Poschingerstrasse 5, D-81679 Munich, Germany)
Michael Pfaffermayr () (Department of Economics, University of Innsbruck, Universitaetsstrasse 15, 6020 Innsbruck, Austria; and Austrian Institute of Economic Research, P.O. Box 91, A-1103, Vienna, Austria)

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Abstract

The recent general equilibrium theory of trade and multinationals emphasizes the importance of third countries and the complex integration strtegies of multinationals. Little has been done to test this theory empirically. This paper attempts to rectify this situation by considering not only bilateral determinants, but also spatially weighted third-country determinants of foreign direct investment (FDI). Since the dependency among host markets is paticularly related to multinationals' trade between them, we use trade costs (distances) as spatial weights. Using panel data on U.S. industries and host countries observed over the 1989-1999 period, we estimate a "complex FDI" version of the knowledge-capital model of U.S. outward FDI by various recently developed spatial panel data generalized moments (GM) estimators. We find that third-country effects are significant, lending support to the existence of various modes of complex FDI.

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Paper provided by Center for Policy Research, Maxwell School, Syracuse University in its series Center for Policy Research Working Papers with number 73.

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Length: 36 pages
Date of creation: Oct 2005
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Handle: RePEc:max:cprwps:73

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Related research
Keywords: multinational firms; complex FDI; panel econometrics; spatial econometrics; generalized moments (GM) estimators;

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Find related papers by JEL classification:
C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data
F14 - International Economics - - Trade - - - Country and Industry Studies of Trade
F15 - International Economics - - Trade - - - Economic Integration

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