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Spatial complementarity of FDI: example of transition countries

  • Oleksandr Shepotylo


    (Kyiv School of Economics, Kyiv Economics Institute)

This paper investigates spatial determinants of FDI location. In particular, FDI in neighboring countries and foreign market potential are two variables it focuses on. The sample includes a panel of 27 transition countries in 1993-2007. The spatial links are found positive and economically large. Omitting spatial FDI leads to a serious misspecication of the model and biases estimation of the coecient of the foreign market potential variable, which is found to be a non-robust determinant of FDI location. As the analysis of sub-samples of the data indicates, the FDI complementarity is stronger for the CIS countries and for earlier period. The spatial complenmentarity is stronger for disaggregated data such as bilateral FDI flows and industry level data. I nd substantial heterogeneity of spatial FDI spillovers across indus- tries. Spillovers are large and positive for services sectors and non-sighicant or even negative for manufacturing sectors.

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Paper provided by Kyiv School of Economics in its series Discussion Papers with number 29.

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Date of creation: Jun 2010
Date of revision:
Handle: RePEc:kse:dpaper:29
Note: Submitted to European Economic Review
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  1. 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.
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  4. Kelejian, Harry H. & Murrell, Peter & Shepotylo, Oleksandr, 2013. "Spatial spillovers in the development of institutions," Journal of Development Economics, Elsevier, vol. 101(C), pages 297-315.
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  7. Head, Keith & Mayer, Thierry, 2002. "Market Potential and the Location of Japanese Investment in the European Union," CEPR Discussion Papers 3455, C.E.P.R. Discussion Papers.
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  10. Kelejian, Harry H & Prucha, Ingmar R, 1998. "A Generalized Spatial Two-Stage Least Squares Procedure for Estimating a Spatial Autoregressive Model with Autoregressive Disturbances," The Journal of Real Estate Finance and Economics, Springer, vol. 17(1), pages 99-121, July.
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  14. Kai Carstensen & Farid Toubal, 2003. "Foreign Direct Investment in Central and Eastern European Countries: A Dynamic Panel Analysis," Kiel Working Papers 1143, Kiel Institute for the World Economy.
  15. International Monetary Fund, 2005. "Trade Costs and Location of Foreign Firms in China," IMF Working Papers 05/55, International Monetary Fund.
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