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Determinants of Foreign Direct Investment in Europe: Bayesian Model Averaging in the Presence of Weak Exogeneity

Radzivon Chupryhin

MPRA Paper from University Library of Munich, Germany

Abstract: This paper derives the robust determinants of Foreign Direct Investment (FDI) in Europe under model uncertainty and weak exogeneity issues. For this reason, Bayesian Averaging of Limited Information Maximum Likelihood Estimates (BALIMLE) approach was utilized. The chosen methodology allows for the estimation of a dynamic panel model with fixed effects. Also, the jointness measures were computed. The considered sample includes bilateral FDI flows between 36 European countries over the 2004 – 2017 period. The empirical evidence shows the importance of the endowment theory and the significance of output per worker and labor force variables in explaining the FDI flows. A market size theory was proposed to be augmented with a relative growth hypothesis. The calculated jointness measures indicated the complementary nature of considered regressors and theories.

Keywords: Bayesian Model Averaging; FDI; Europe; model uncertainty; weakly exogenous regressors (search for similar items in EconPapers)
JEL-codes: F2 F21 F23 F41 F62 F66 I26 O3 O33 (search for similar items in EconPapers)
Date: 2021-04-15
New Economics Papers: this item is included in nep-eec, nep-fdg and nep-int
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