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Spatial Interdependencies of FDI Locations: A Lessening of the Tyranny of Distance?

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  • Stephen G. Hall

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  • Pavlos Petroulas

Abstract

Recent theoretical approaches stress the importance of complex integration strategies of multinationals and the interdependence between locations. Up till now little has been done to incorporate the potential cross-country dependencies into the empirical analysis of the determinants and the structure of foreign direct investment. By utilizing a panel data set that consists of real FDI stocks for 476 country pairs for the years 1994-2004 and a distance weighted spatial matrix, we find significant third country effects. Interestingly, the bilateral variables seem to be in concordance with the notion of horizontally motivated FDI while the spatial third country effects seem to comply with the notion of vertical FDI and production fragmentation. While bilateral variables seem to dominate location decisions the results confirm the existence and importance of international interdependence.

Suggested Citation

  • Stephen G. Hall & Pavlos Petroulas, 2008. "Spatial Interdependencies of FDI Locations: A Lessening of the Tyranny of Distance?," Discussion Papers in Economics 08/28, Department of Economics, University of Leicester.
  • Handle: RePEc:lec:leecon:08/28
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    File URL: http://www.le.ac.uk/economics/research/RePEc/lec/leecon/dp08-28.pdf
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    References listed on IDEAS

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    1. Karolina Ekholm & Rikard Forslid & James R. Markusen, 2007. "Export-Platform Foreign Direct Investment," Journal of the European Economic Association, MIT Press, vol. 5(4), pages 776-795, June.
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    Cited by:

    1. Apostolides, Alexander, 2008. "“How Similar to South-Eastern Europe were the Islands of Cyprus and Malta in terms of Agricultural Output and Credit? Evidence during the Interwar Period”," MPRA Paper 9968, University Library of Munich, Germany.
    2. Eckhardt Bode & Peter Nunnenkamp & Andreas Waldkirch, 2012. "Spatial effects of foreign direct investment in US states," Canadian Journal of Economics, Canadian Economics Association, vol. 45(1), pages 16-40, February.
    3. Roumen Avramov & Dragana Gnjatovic, 2008. "Stabilization Policies in Bulgaria and Yugoslavia During Communism's Terminal Years : 1980s Economic Visions in Retrospect," Working Papers 81, Bank of Greece.
    4. Sophia Lazaretou, 2008. "Banking and Central Banking in Pre-WWII Grecce: Money and Currency Developments," Working Papers 86, Bank of Greece.
    5. Blanc-Brude, Frédéric & Cookson, Graham & Piesse, Jenifer & Strange, Roger, 2014. "The FDI location decision: Distance and the effects of spatial dependence," International Business Review, Elsevier, vol. 23(4), pages 797-810.
    6. Milan Sojic & Ljiljana Djurdjevic, 2008. "Monetary Policy Objectives and Istruments used by the Privileged National Bank of the Kingdom of Serbia (1884 - 1914)," Working Papers 87, Bank of Greece.
    7. Chen, Yanjing, 2009. "Agglomeration and location of foreign direct investment: The case of China," China Economic Review, Elsevier, vol. 20(3), pages 549-557, September.
    8. Kelejian, Harry & Tavlas, George S. & Petroulas, Pavlos, 2012. "In the neighborhood: The trade effects of the Euro in a spatial framework," Regional Science and Urban Economics, Elsevier, vol. 42(1-2), pages 314-322.
    9. Stephan Barisitz, 2008. "Banking Transformation (1989 - 2006) in Central and Eastern Europe - With Special Reference to Balkans," Working Papers 78, Bank of Greece.
    10. Yuksel Gormez, 2008. "Banking in Turkey: History and Evolution," Working Papers 83, Bank of Greece.
    11. Peter Bernholz, 2008. "Government Bankruptcy of Balkan Nations and their Consequences for Money and Inflation before 1914: A Comparative Analysis," Working Papers 74, Bank of Greece.
    12. Zarko Lazarevic, 2008. "Banking Performance in South-Eastern Europe During the Interwar Period," Working Papers 79, Bank of Greece.

    More about this item

    Keywords

    Foreign Direct Investment; Spatial Econometrics; Panel Data;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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