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Do determinants of FDI to developing countries differ among OECD investors? Insights from Bayesian Model Averaging

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  • Nikolaos Antonakakis
  • Gabriele Tondl

Abstract

The main objective of this paper is to examine the determining factors of outward FDI from four major OECD investors US, Germany, France and the Netherlands to developing countries located in different world regions. Our goal is to elucidate whether the motivation for FDI differs among these investors. Rather than relying on specific theories of FDI determinants we examine them all simultaneously employing Bayesian Model Averaging (BMA) in a panel data set with 129 FDI destinations in 5 geographical regions over the period 1995-2008. This approach permits us to select the most appropriate model that governs FDI allocation and to distinguish robust FDI determinants. We find that all our investors search for destinations with whom they have established intensive trade relations and that offer a qualified labor force. However, low wages and attractive tax rates are robust investment criteria too, and a considerable share of FDI is still resource-driven. Our investors show fairly similar strategies in the main FDI destinations.

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  • Nikolaos Antonakakis & Gabriele Tondl, 2011. "Do determinants of FDI to developing countries differ among OECD investors? Insights from Bayesian Model Averaging," FIW Working Paper series 076, FIW.
    • Handle: RePEc:wsr:wpaper:y:2011:i:076
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    3. Dellis, Konstantinos & Sondermann, David & Vansteenkiste, Isabel, 2017. "Determinants of FDI inflows in advanced economies: Does the quality of economic structures matter?," Working Paper Series 2066, European Central Bank.
    4. Sondermann, David & Vansteenkiste, Isabel, 2019. "Did the euro change the nature of FDI flows among member states?," Working Paper Series 2275, European Central Bank.
    5. Kellard, Neil M. & Kontonikas, Alexandros & Lamla, Michael J. & Maiani, Stefano & Wood, Geoffrey, 2022. "Risk, financial stability and FDI," Journal of International Money and Finance, Elsevier, vol. 120(C).
    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. Abdelmounaim Lahrech & Sami Zaki Alabdulwahab & Safa Bouayach, 2020. "Nation Branding and How It Is Related to Foreign Direct Investment Inflows," International Journal of Economics and Financial Issues, Econjournals, vol. 10(2), pages 248-255.
    8. Cohle, Zachary & Ortega, Alberto, 2022. "Life of the party: The polarizing effect of foreign direct investment," European Journal of Political Economy, Elsevier, vol. 72(C).
    9. Zaneta Kubik, 2023. "The role of agricultural sector performance in attracting foreign direct investment in the food and beverages sector. Evidence from planned investments in Africa," Agribusiness, John Wiley & Sons, Ltd., vol. 39(3), pages 875-903, July.

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    More about this item

    Keywords

    FDI determinants; Bayesian Model Averaging; OECD; Developing countries; US; Germany; France; Netherlands;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • F0 - International Economics - - General
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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