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Testing the knowledge-capital model of foreign direct investment: New evidence

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  • Kox, Henk L.M.

Abstract

The knowledge-capital (KC) model of FDI explains the international distribution of FDI, assuming that firms own proprietary knowledge assets that can at low costs also be exploited in foreign subsidiaries. The model's implication is that countries with much outward FDI should have a relative abundance of proprietary knowledge assets, which has up to now not been adequately tested, partly due to a lack of data. This paper extends the KC model by a module that formalises the encapsulation of public national knowledge assets into proprietary firm-level assets. It provides a way to test the basic tenet of the KC model. We exploit a new dataset (80 indicators, 209 countries, period 2000-2020) to identify the impact and statistical significance of national knowledge assets for explaining outward FDI. Our test confirms the validity of the KC model for explaining patterns of outward FDI. Several robustness tests confirm the stability of our findings.

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  • Kox, Henk L.M., 2022. "Testing the knowledge-capital model of foreign direct investment: New evidence," MPRA Paper 114177, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:114177
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    1. Kox, Henk L.M., 2022. "A micro-macro model of foreign direct investment: Knowledge-based gravity forces, self-selection and third-country effects," EconStor Preprints 266494, ZBW - Leibniz Information Centre for Economics.

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    More about this item

    Keywords

    foreign direct investment; knowledge-capital model; empirical testing; 2000-2020; 209 countries;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • 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

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