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Determinants of German outward FDI: variable selection using Bayesian statistical

Mariam Camarero, Laura Montolio and Cecilio Tamarit
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Mariam Camarero: Jaume I University. Department of Economics, Av. de Vicent Sos Baynat s/n, E-12071 Castellón, Spain
Laura Montolio: University of Valencia, Department of Applied Economics II, Av. dels Tarongers, s/n Eastern Department Building E-46022 Valencia, Spain

No 1906, Working Papers from Department of Applied Economics II, Universidad de Valencia

Abstract: This paper provides new evidence on the drivers of German outward foreign direct investment (FDI) stocks for the period 1996-2012. In contrast to previous empirical studies, we adopt a Bayesian model averaging (BMA) approach for a robust selection of those variables. We find evidence that determinants that are associated with horizontal FDI appear to be dominant for explaining bilateral FDI with developed countries while for the group of developing countries covariates associated with vertical FDI motives play a larger role. Within Europe, while the majority of FDI is horizontally driven in “core" countries, for peripheral ones the vertical motivation for FDI seems to prevail. Moreover, our results are compatible with more complex FDI models where vertical determinants and institutional variables are gaining prominence, in parallel with the development of global value chains (GVC). Our results can provide hints for policymakers’ strategies to attract German investment.

Keywords: FDI determinants; Outward Foreign Direct Investment; Germany; Bayesian Model Averaging; Variable selection (search for similar items in EconPapers)
JEL-codes: F21 F23 C11 C52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec and nep-int
Date: 2019-09
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