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

Stephen Hall () and Pavlos Petroulas ()

No 08/28, Discussion Papers in Economics from Division of Economics, School of Business, University of Leicester

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.

Keywords: Foreign Direct Investment; Spatial Econometrics; Panel Data (search for similar items in EconPapers)
JEL-codes: F21 F23 C31 C33 (search for similar items in EconPapers)
Date: 2008-08
New Economics Papers: this item is included in nep-geo
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