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Determinants of foreign direct investment

Author

Listed:
  • Bruce A. Blonigen
  • Jeremy Piger

Abstract

Empirical studies of bilateral foreign direct investment (FDI) activity show substantial differences in specifications with little agreement on the set of included covariates. We use Bayesian statistical techniques that allow one to select from a large set of candidates those variables most likely to be determinants of FDI activity. The variables with consistently high inclusion probabilities include traditional gravity variables, cultural distance factors, relative labour endowments and trade agreements. There is little support for multilateral trade openness, most hostcountry business costs, hostcountry infrastructure and hostcountry institutions. Our results suggest that many covariates found significant by previous studies are not robust.

Suggested Citation

  • Bruce A. Blonigen & Jeremy Piger, 2014. "Determinants of foreign direct investment," Canadian Journal of Economics, Canadian Economics Association, vol. 47(3), pages 775-812, August.
    • Handle: RePEc:cje:issued:v:47:y:2014:i:3:p:775-812
    DOI: 10.1111/caje.12091
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    More about this item

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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