Estimating Models of Complex FDI: Are There Third-Country Effects?

Badi Baltagi (), Peter H. Egger () and Michael Pfaffermayr ()

No 73, Center for Policy Research Working Papers from Center for Policy Research, Maxwell School, Syracuse University

Abstract: The recent general equilibrium theory of trade and multinationals emphasizes the importance of third countries and the complex integration strtegies of multinationals. Little has been done to test this theory empirically. This paper attempts to rectify this situation by considering not only bilateral determinants, but also spatially weighted third-country determinants of foreign direct investment (FDI). Since the dependency among host markets is paticularly related to multinationals' trade between them, we use trade costs (distances) as spatial weights. Using panel data on U.S. industries and host countries observed over the 1989-1999 period, we estimate a "complex FDI" version of the knowledge-capital model of U.S. outward FDI by various recently developed spatial panel data generalized moments (GM) estimators. We find that third-country effects are significant, lending support to the existence of various modes of complex FDI.

Keywords: multinational firms; complex FDI; panel econometrics; spatial econometrics; generalized moments (GM) estimators (search for similar items in EconPapers)
JEL-codes: C33 F14 F15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-int
Date: 2005-10
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Journal Article: Estimating models of complex FDI: Are there third-country effects? (2007)
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