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Tariffs and EU countries foreign direct investment: Evidence from a dynamic panel model


  • Paola Cardamone
  • Margherita Scoppola


According to the models of the multinational enterprise tariffs play a fundamental role in determining the pattern of foreign direct investment (FDI). The aim of this paper is to assess the impact of tariffs on the outward stocks of FDI of the European Union (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. We consider, first, manufacturing sector as a whole and, then, six manufacturing industries defined at the two-digit level of the Nomenclature statistique des activités économiques dans la Communauté européenne (NACE) classification. Explanatory variables include an index of applied bilateral tariffs and a dummy to capture the presence of bilateral investment treaties (BITs). A dynamic panel model is estimated through the generalized method of moments estimator, taking also into account the endogeneity of regressors. The results show that the pattern of EU outward FDI is a mix of vertical and horizontal FDI. BITs in force have a significant and positive impact on the outward FDI. The impact of tariffs varies across industries and countries, suggesting the predominance of horizontal FDI in some industries, and the existence of vertical FDI in others.

Suggested Citation

  • Paola Cardamone & Margherita Scoppola, 2015. "Tariffs and EU countries foreign direct investment: Evidence from a dynamic panel model," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 24(1), pages 1-23, February.
  • Handle: RePEc:taf:jitecd:v:24:y:2015:i:1:p:1-23
    DOI: 10.1080/09638199.2013.871742

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    References listed on IDEAS

    1. James R. Markusen, 2004. "Multinational Firms and the Theory of International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262633078, January.
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    Cited by:

    1. Ray Barrell & Abdulkader Nahhas, 2018. "Economic Integration and Bilateral FDI stocks: the impacts of NAFTA and the EU," Discussion Papers 1814, Centre for Macroeconomics (CFM).
    2. Curran, Louise & Lv, Ping & Spigarelli, Francesca, 2017. "Chinese investment in the EU renewable energy sector: Motives, synergies and policy implications," Energy Policy, Elsevier, vol. 101(C), pages 670-682.

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