Trade costs and the pattern of Foreign Direct Investment: evidence from five EU countries
According to the theoretical models of the multinational enterprise, trade costs play a fundamental role in determining the pattern of foreign direct investment (FDI). The aim of this paper is to assess the impact of 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 26 partner countries. We consider, first, manufacturing sector as a whole and, then, six manufacturing industries defined at the two-digit level of the NACE classification. Explanatory variables include an index of applied bilateral tariffs and a dummy to capture the presence of Bilateral Investment Treaties (BITs). From an econometric point of view, a dynamic panel model is estimated through the generalized method of moments (GMM) estimator, taking also into account the heterogeneity bias and the endogeneity of regressors. The results show that that the pattern of the 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, suggesting the predominance of horizontal in some industries and the existence of vertical FDI in others.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- James R. Markusen & Keith E. Maskus, 1999.
"Discriminating Among Alternative Theories of the Multinational Enterprise,"
NBER Working Papers
7164, National Bureau of Economic Research, Inc.
- Markusen, James R & Maskus, Keith E, 2002. "Discriminating among Alternative Theories of the Multinational Enterprise," Review of International Economics, Wiley Blackwell, vol. 10(4), pages 694-707, November.
- Head, Keith & Ries, John, 2008. "FDI as an outcome of the market for corporate control: Theory and evidence," Journal of International Economics, Elsevier, vol. 74(1), pages 2-20, January.
- Nijman, T.E. & Verbeek, M.J.C.M., 1992. "Testing for selectivity in panel data models," Other publications TiSEM 7ec34a6c-1d84-4052-971c-d, Tilburg University, School of Economics and Management.
- 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.
- Badi H. Baltagi & Peter Egger & Michael Pfaffermayr, 2005. "Estimating Models of Complex FDI: Are There Third-Country Effects?," Center for Policy Research Working Papers 73, Center for Policy Research, Maxwell School, Syracuse University.
- Braconier, Henrik & Norbäck, Pehr-Johan & Urban, Dieter, 2003.
"Reconciling the Evidence on the Knowledge Capital Model,"
Working Paper Series
590, Research Institute of Industrial Economics.
- 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, 09.
- Bouet, Antoine & Decreux, Yvan & Fontagne, Lionel & Jean, Sebastien & Laborde, David, 2005. "A Consistent Picture of Applied Protection Across the World," Working Papers 18859, TRADEAG - Agricultural Trade Agreements.
- Peter Egger & Valeria Merlo, 2007. "The Impact of Bilateral Investment Treaties on FDI Dynamics," The World Economy, Wiley Blackwell, vol. 30(10), pages 1536-1549, October.
- Baltagi, Badi H. & Egger, Peter & Pfaffermayr, Michael, 2008.
"Estimating regional trade agreement effects on FDI in an interdependent world,"
Journal of Econometrics,
Elsevier, vol. 145(1-2), pages 194-208, July.
- Badi H. Baltagi & Peter Egger & Michael Pfaffermayr, 2007. "Estimating Regional Trade Agreement Effects on FDI in an Interdependent World," Center for Policy Research Working Papers 100, Center for Policy Research, Maxwell School, Syracuse University.
- Maria Cipollina & Luca Salvatici, 2008.
"Measuring Protection: Mission Impossible?,"
Journal of Economic Surveys,
Wiley Blackwell, vol. 22(3), pages 577-616, 07.
- Peter Egger, 2001.
"European exports and outward foreign direct investment: A dynamic panel data approach,"
Review of World Economics (Weltwirtschaftliches Archiv),
Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 137(3), pages 427-449, September.
- Peter Egger, "undated". "European Exports and Outward Foreign Direct Investment. A Dynamic Panel Data Approach," WIFO Working Papers 129, WIFO.
- Verbeek, M.J.C.M. & Nijman, T.E., 1990.
"Testing for selectivity bias in panel data models,"
1990-18, Tilburg University, Center for Economic Research.
- Karolina Ekholm & Rikard Forslid & James Markusen, 2003.
"Export-Platform Foreign Direct Investment,"
NBER Working Papers
9517, National Bureau of Economic Research, Inc.
- Jim Markusen & Caroline Ekholm, Rikard Forslid, 2005. "Export-Platform Foreign Direct Investment," The Institute for International Integration Studies Discussion Paper Series iiisdp050, IIIS.
- Ekholm, Karolina & Forslid, Rikard & Markusen, James R., 2003. "Export-Platform Foreign Direct Investment," CEPR Discussion Papers 3823, C.E.P.R. Discussion Papers.
- James R. Markusen, 2004.
"Multinational Firms and the Theory of International Trade,"
MIT Press Books,
The MIT Press,
edition 1, volume 1, number 0262633078, December.
- Markusen, James R., 2002. "Multinational Firms and the Theory of International Trade," MPRA Paper 8380, University Library of Munich, Germany.
- M Arellano & O Bover, 1990.
"Another Look at the Instrumental Variable Estimation of Error-Components Models,"
CEP Discussion Papers
dp0007, Centre for Economic Performance, LSE.
- Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
- 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.
- Egger, Peter & Pfaffermayr, Michael, 2004. "The impact of bilateral investment treaties on foreign direct investment," Journal of Comparative Economics, Elsevier, vol. 32(4), pages 788-804, December.
- Mary Hallward-Driemeier, 2003. "Do bilateral investment treaties attract foreign direct investment? Only a bit - and they could bite," Policy Research Working Paper Series 3121, The World Bank.
When requesting a correction, please mention this item's handle: RePEc:ags:aieacp:123993. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (AgEcon Search)
If references are entirely missing, you can add them using this form.