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Robust FDI determinants: Bayesian Model Averaging in the presence of selection bias

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  • Eicher, Theo S.
  • Helfman, Lindy
  • Lenkoski, Alex

Abstract

The literature on Foreign Direct Investment (FDI) determinants is remarkably diverse in terms of competing theories and empirical results. We utilize Bayesian Model Averaging (BMA) to resolve the model uncertainty that surrounds the validity of the competing FDI theories. Since the structure of existing FDI data is well known to induce selection bias, we extend BMA theory to HeckitBMA in order to address model uncertainty in the presence of selection bias. We show that more than half of the previously suggested FDI determinants are not robust and highlight theories that do receive robust support from the data. Our selection approach allows us to identify the determinants of the margins of FDI (intensive and extensive), which are shown to differ profoundly. Our results suggest a new emphasis in FDI theories that explicitly identify the dynamics of the intensive and extensive FDI margins.

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  • Eicher, Theo S. & Helfman, Lindy & Lenkoski, Alex, 2012. "Robust FDI determinants: Bayesian Model Averaging in the presence of selection bias," Journal of Macroeconomics, Elsevier, vol. 34(3), pages 637-651.
  • Handle: RePEc:eee:jmacro:v:34:y:2012:i:3:p:637-651
    DOI: 10.1016/j.jmacro.2012.01.010
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    1. Joseph P. Daniels & Marc Ruhr, 2014. "Transportation Costs and US Manufacturing FDI," Review of International Economics, Wiley Blackwell, vol. 22(2), pages 299-309, May.
    2. Albulescu, Claudiu Tiberiu & Ionescu, Adrian Marius, 2018. "The long-run impact of monetary policy uncertainty and banking stability on inward FDI in EU countries," Research in International Business and Finance, Elsevier, vol. 45(C), pages 72-81.
    3. repec:oup:jecgeo:v:18:y:2018:i:1:p:59-86. is not listed on IDEAS
    4. Desbordes, Rodolphe & Wei, Shang-Jin, 2017. "The effects of financial development on foreign direct investment," Journal of Development Economics, Elsevier, vol. 127(C), pages 153-168.
    5. Pham, Thi Hong Hanh, 2017. "Impacts of globalization on the informal sector: Empirical evidence from developing countries," Economic Modelling, Elsevier, vol. 62(C), pages 207-218.
    6. repec:eee:ecmode:v:64:y:2017:i:c:p:40-47 is not listed on IDEAS
    7. repec:bla:worlde:v:40:y:2017:i:12:p:2771-2831 is not listed on IDEAS
    8. Crespo Cuaresma, Jesus & Grün, Bettina & Hofmarcher, Paul & Humer, Stefan & Moser, Mathias, 2015. "A Comprehensive Approach to Posterior Jointness Analysis in Bayesian Model Averaging Applications," Department of Economics Working Paper Series 4493, WU Vienna University of Economics and Business.
    9. Adrian Corcoran & Robert Gillanders, 2015. "Foreign direct investment and the ease of doing business," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 151(1), pages 103-126, February.
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    12. Markusen, James R., 2013. "Putting per-capita income back into trade theory," Journal of International Economics, Elsevier, vol. 90(2), pages 255-265.
    13. Guo, Yan, 2013. "Strategic trade policy, cost uncertainty and FDI determinants," ISU General Staff Papers 201301010800004464, Iowa State University, Department of Economics.
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    17. repec:taf:oaefxx:v:3:y:2015:i:1:p:1095851 is not listed on IDEAS
    18. repec:eee:wdevel:v:109:y:2018:i:c:p:279-294 is not listed on IDEAS
    19. Guido Baldi & Jakob Miethe, 2015. "Ausländische Direktinvestitionen und Wirtschaftswachstum," DIW Roundup: Politik im Fokus 71, DIW Berlin, German Institute for Economic Research.
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    More about this item

    Keywords

    FDI determinants; Bayesian Model Averaging (BMA); Selection bias;

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • 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

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