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Foreign direct investment, trade integration and the home bias: evidence from the European Union

Author

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  • Valeriano Martínez-San Román

    () (University of Cantabria)

  • Marta Bengoa

    () (City University of New York at City College)

  • Blanca Sánchez-Robles

    () (University of Cantabria)

Abstract

Abstract This paper combines two fields in the economic literature by examining empirically the pattern of foreign direct investment (FDI) flows within the European Union (EU) and the relevance of trade integration as an influence upon investment flows over the period 1995–2009. We capture trade integration primarily by means of the home bias, rather than by using other indicators such as tariffs and non-tariff barriers. In turn, the home bias is computed for the countries in our sample by a standard gravity model. Our results find a positive and robust correlation between trade integration and FDI activity for the countries in our sample. For the particular case of the EU, it is not possible to strictly discriminate between horizontal or vertical FDI. FDI flows seem to be more consistent with a knowledge-capital hybrid model, where considerations about the market size of the partners and their relative endowment of skilled labour are relevant.

Suggested Citation

  • Valeriano Martínez-San Román & Marta Bengoa & Blanca Sánchez-Robles, 2016. "Foreign direct investment, trade integration and the home bias: evidence from the European Union," Empirical Economics, Springer, vol. 50(1), pages 197-229, February.
  • Handle: RePEc:spr:empeco:v:50:y:2016:i:1:d:10.1007_s00181-015-0942-y
    DOI: 10.1007/s00181-015-0942-y
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    Cited by:

    1. Martínez-San Román, Valeriano & Mateo-Mantecón, Ingrid & Sainz-González, Rubén, 2017. "Intra-national home bias: New evidence from the United States commodity flow survey," Economics Letters, Elsevier, vol. 151(C), pages 4-9.
    2. repec:gam:jsusta:v:10:y:2018:i:4:p:1251-:d:142012 is not listed on IDEAS

    More about this item

    Keywords

    International trade; FDI; Gravity model; Home bias; European Union; Knowledge capital;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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