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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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    Cited by:

    1. Claudiu Albulescu & Adrian Ionescu, 2017. "The long-run impact of monetary policy uncertainty and banking stability on inward FDI in EU countries," Working Papers hal-01503950, HAL.
    2. Jesus Crespo Cuaresma & Bettina Grün & Paul Hofmarcher & Stefan Humer & Mathias Moser, 2015. "A Comprehensive Approach to Posterior Jointness Analysis in Bayesian Model Averaging Applications," Department of Economics Working Papers wuwp193, Vienna University of Economics and Business, Department of Economics.
    3. Guo, Yan, 2013. "Strategic trade policy, cost uncertainty and FDI determinants," ISU General Staff Papers 201301010800004464, Iowa State University, Department of Economics.
    4. Tomohara, Akinori, 2016. "Japan's tourism-led foreign direct investment inflows: An empirical study," Economic Modelling, Elsevier, vol. 52(PB), pages 435-441.
    5. Markusen, James R., 2013. "Putting per-capita income back into trade theory," Journal of International Economics, Elsevier, pages 255-265.
    6. Michael Jetter & Christopher F. Parmeter, 2016. "Uncovering the determinants of corruption," Working Papers 2016-02, University of Miami, Department of Economics.
    7. Desbordes, Rodolphe & Wei, Shang-Jin, 2017. "The effects of financial development on foreign direct investment," Journal of Development Economics, Elsevier, pages 153-168.
    8. 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.
    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.
    10. TOMOHARA Akinori, 2015. "Effectively Opening Labor and Capital Markets: The interplay among foreign direct investment, trade, and immigration," Discussion papers 15079, Research Institute of Economy, Trade and Industry (RIETI).
    11. repec:eee:ecmode:v:64:y:2017:i:c:p:40-47 is not listed on IDEAS
    12. PHAM Thi Hong Hanh, 2011. "Globalisation versus Informality: Evidence from developing countries," FIW Working Paper series 074, FIW.
    13. Guido Baldi & Jakob Miethe, 2015. "Ausländische Direktinvestitionen und Wirtschaftswachstum," DIW Roundup: Politik im Fokus 71, DIW Berlin, German Institute for Economic Research.
    14. Larch, Mario & Anderson, James E. & Yotov, Yoto V., 2017. "Trade Liberalization, Growth, and FDI: A Structural Estimation Framework," Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168071, Verein für Socialpolitik / German Economic Association.
    15. Donaubauer, Julian & Neumayer, Eric & Nunnenkamp, Peter, 2016. "Financial market development in host and source countries and its effects on bilateral FDI," Kiel Working Papers 2029, Kiel Institute for the World Economy (IfW).

    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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