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The pattern of EU FDI in the manufacturing industry: What role do third country effects and trade policies play?

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  • Paola Cardamone
  • Margherita Scoppola

Abstract

The aim of this paper is to assess the impact of “third country effects” and trade policies on the outward stocks of FDI of the EU. We estimate a model based on the knowledge-capital theory of the multinational enterprise over the period 1995–2008 by using a sample of five EU countries and 24 partner countries. Explanatory variables include an index of applied bilateral tariffs, a dummy to capture the presence of bilateral investment treaties (BITs) and a variable to take into account the impact of the participation of host countries to free trade agreements (FTA) with other than EU countries. The paper checks the third country effects by testing whether there is spatial lag dependence in bilateral FDI. The results show that trade costs play a key role in explaining the pattern of FDI in the manufacturing sector as a whole and in four out of six disaggregated industries. The impact of tariffs varies across industries, suggesting the predominance of horizontal FDI in some industries, and the existence of export-platform FDI in others. BITs and the participation of the host country in other FTAs positively affect the outward stock of EU FDI, while we find no empirical evidence to support the hypothesis of spatial lag dependence in bilateral FDI. Copyright Springer-Verlag Berlin Heidelberg 2015

Suggested Citation

  • Paola Cardamone & Margherita Scoppola, 2015. "The pattern of EU FDI in the manufacturing industry: What role do third country effects and trade policies play?," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 54(2), pages 511-532, March.
    • Handle: RePEc:spr:anresc:v:54:y:2015:i:2:p:511-532
    DOI: 10.1007/s00168-015-0664-2
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    Cited by:

    1. Laura Casi & Laura Resmini, 2017. "Foreign direct investment and growth: Can different regional identities shape the returns to foreign capital investments?," Environment and Planning C, , vol. 35(8), pages 1483-1508, December.
    2. Josef C. Brada & Zdenek Drabek & Ichiro Iwasaki, 2021. "Does Investor Protection Increase Foreign Direct Investment? A Meta‐Analysis," Journal of Economic Surveys, Wiley Blackwell, vol. 35(1), pages 34-70, February.
    3. Ellalee, Haider & Alali, Walid Y., 2018. "The Brexit Impact on Inward FDI in the UK," MPRA Paper 117510, University Library of Munich, Germany, revised 20 May 2018.
    4. Vishaal Baulkaran & Nathaniel C. Lupton, 2020. "U.S. FDI and Shareholder Rights Protection in Developed and Developing Economies," Multinational Finance Journal, Multinational Finance Journal, vol. 24(3-4), pages 155-182, September.
    5. Alali, Walid Y. & Ellalee, Haider, 2018. "The Brexit Impact on Inward FDI in the UK," EconStor Preprints 274655, ZBW - Leibniz Information Centre for Economics.

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    More about this item

    Keywords

    F15; F21; F23; C21;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • 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
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models

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