Trade costs and the pattern of Foreign Direct Investment: evidence from five EU countries

Paola Cardamone and Margherita Scoppola

No 123993, 2012 First Congress, June 4-5, 2012, Trento, Italy from Italian Association of Agricultural and Applied Economics (AIEAA)

Abstract: 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.

Keywords: International; Relations/Trade (search for similar items in EconPapers)
Pages: 12
Date: 2012-06
New Economics Papers: this item is included in nep-eur
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://ageconsearch.umn.edu/record/123993/files/AIEAA_Cardamone_Scoppola_.pdf (application/pdf)

Related works:
Working Paper: Trade costs and the pattern of Foreign Direct Investment: evidence from five EU countries (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ags:aieacp:123993

DOI: 10.22004/ag.econ.123993

Access Statistics for this paper

More papers in 2012 First Congress, June 4-5, 2012, Trento, Italy from Italian Association of Agricultural and Applied Economics (AIEAA) Contact information at EDIRC.
Bibliographic data for series maintained by AgEcon Search ().