Spacey Parents and Spacey Hosts in FDI

Harald Badinger and Peter Egger

No 154, Department of Economics Working Paper Series from WU Vienna University of Economics and Business

Abstract: Empirical trade economists have found that shocks on foreign direct investment (FDI) of some parent country in a host country affect the same parent country´s FDI in other hosts (interdependent hosts). Independent of this, there is evidence that shocks on a parent country´s FDI in some host economy affect other parent countries´ FDI in the same host (interdependent parents). In general equilibrium, shocks on FDI between any country pair will affect all country-pairs´ FDI in the world, including anyone of the two countries in a pair as well as third countries (interdependent third countries). No attempt has been made so far to allow simultaneously for all three modes of interdependence of FDI. Using cross-sectional data on FDI among 22 OECD countries in 2000, we employ a spatial feasible generalized two-stage least squares and generalized moments estimation framework to allow for all three modes of interdependence across all parent and host countries, thereby distinguishing between market-size-related and remainder interdependence. Our results highlight the complexity of multinational enterprises´ investment strategies and the interconnectedness of the world investment system.

Keywords: Foreign direct investment; Spatial econometrics; Generalized method of moments estimation; Direktinvestition; Schock; Interdependenz; Raumwirtschaftstheorie (search for similar items in EconPapers)
Date: 2013-07
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Working Paper: Spacey Parents and Spacey Hosts in FDI (2013)
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