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Determinants of Foreign Direct Investment

In: Foreign Direct Investment

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Listed:
  • Bruce A. Blonigen
  • Jeremy Piger

Abstract

Empirical studies of bilateral foreign direct investment (FDI) activity show substantial differences in specifications with little agreement on the set of included covariates. We use Bayesian statistical techniques that allow one to select from a large set of candidates those variables most likely to be determinants of FDI activity. The variables with consistently high inclusion probabilities include traditional gravity variables, cultural distance factors, relative labour endowments and trade agreements. There is little support for multilateral trade openness, most host-country business costs, host-country infrastructure and host-country institutions. Our results suggest that many covariates found significant by previous studies are not robust.Les déterminants de l’investissement direct à l’étranger. Les études empiriques des déterminants des activités d’investissement direct bilatéral à l’étranger ont des spécifications substantiellement différentes et peu d’accord sur les variables co-reliées incluses. On utilise des techniques statistiques bayesiennes qui permettent de balayer un vaste ensemble de variables à la recherche de celles qui sont davantage susceptibles d’être des déterminants des activités d’investissement direct à l’étranger. Les variables qui se retrouvent de manière régulière dans la liste de haute probabilité d’impact sont les variables reliées à la gravité, les facteurs liés à la distance culturelle, les dotations relatives en facteur travail, et les accords commerciaux. Il y a peu de support pour des variables comme l’ouverture au commerce multilatéral, la plupart des coûts d’affaires, les infrastructures et les institutions dans les pays hôtes. Ces résultats suggèrent que plusieurs co-variations qu’on a jugées significatives dans les études antérieures ne sont pas robustes.

Suggested Citation

  • Bruce A. Blonigen & Jeremy Piger, 2019. "Determinants of Foreign Direct Investment," World Scientific Book Chapters,in: Foreign Direct Investment, chapter 1, pages 3-54 World Scientific Publishing Co. Pte. Ltd..
  • Handle: RePEc:wsi:wschap:9789813277014_0001
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    References listed on IDEAS

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    1. Bruce A. Blonigen & Ronald B. Davies & Keith Head, 2003. "Estimating the Knowledge-Capital Model of the Multinational Enterprise: Comment," American Economic Review, American Economic Association, vol. 93(3), pages 980-994, June.
    2. Bruce A. Blonigen & Miao Wang, 2004. "Inappropriate Pooling of Wealthy and Poor Countries in Empirical FDI Studies," NBER Working Papers 10378, National Bureau of Economic Research, Inc.
    3. Baltagi, Badi H. & Egger, Peter & Pfaffermayr, Michael, 2007. "Estimating models of complex FDI: Are there third-country effects?," Journal of Econometrics, Elsevier, vol. 140(1), pages 260-281, September.
    4. Henrik Braconier & Pehr-Johan Norbäck & Dieter Urban, 2005. "Reconciling the Evidence on the Knowledge-capital Model," Review of International Economics, Wiley Blackwell, vol. 13(4), pages 770-786, September.
    5. Stein, Ernesto & Daude, Christian, 2007. "Longitude matters: Time zones and the location of foreign direct investment," Journal of International Economics, Elsevier, vol. 71(1), pages 96-112, March.
    6. David L. Carr & James R. Markusen & Keith E. Maskus, 2001. "Estimating the Knowledge-Capital Model of the Multinational Enterprise," American Economic Review, American Economic Association, vol. 91(3), pages 693-708, June.
    7. di Giovanni, Julian, 2005. "What drives capital flows? The case of cross-border M&A activity and financial deepening," Journal of International Economics, Elsevier, vol. 65(1), pages 127-149, January.
    8. Chakrabarti, Avik, 2001. "The Determinants of Foreign Direct Investment: Sensitivity Analyses of Cross-Country Regressions," Kyklos, Wiley Blackwell, vol. 54(1), pages 89-113.
    9. Bruce A. Blonigen & Ronald B. Davies, 2004. "The Effects of Bilateral Tax Treaties on U.S. FDI Activity," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 11(5), pages 601-622, September.
    10. repec:wsi:wschap:9789813277014_0002 is not listed on IDEAS
    11. Theodore H. Moran & Edward M. Graham & Magnus Blomstrom, 2005. "Does Foreign Direct Investment Promote Development?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 3810.
    12. Bergstrand, Jeffrey H. & Egger, Peter, 2007. "A knowledge-and-physical-capital model of international trade flows, foreign direct investment, and multinational enterprises," Journal of International Economics, Elsevier, vol. 73(2), pages 278-308, November.
    13. Bruce A. Blonigen & Ronald B. Davies & Glen R. Waddell & Helen T. Naughton, 2019. "FDI in Space: Spatial Autoregressive Relationships in Foreign Direct Investment," World Scientific Book Chapters,in: Foreign Direct Investment, chapter 2, pages 55-88 World Scientific Publishing Co. Pte. Ltd..
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    Keywords

    Foreign Direct Investment; Multinational Enterprises; Mergers and Acquisitions; Greenfield; Trade Policy; Taxation; Spillovers; Offshoring; Wage Inequality; Firm-Specific Assets; Antidumping; Tariff-jumping; Industrial Organization; Ownership-Location-Internalization Theory;

    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F6 - International Economics - - Economic Impacts of Globalization

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