Determinants of Foreign Direct Investment
Empirical studies of bilateral foreign direct investment (FDI) activity show substantial differences in specifications with little agreement on the set of covariates that are (or should be) included. We use Bayesian statistical techniques that allow one to select from a large set of candidates those variables most likely to be determinants of FDI activity. The variables with consistently high inclusion probabilities are traditional gravity variables, cultural distance factors, parent-country per capita GDP, relative labor endowments, and regional trade agreements. Variables with little support for inclusion are multilateral trade openness, host country business costs, host-country infrastructure (including credit markets), and host-country institutions. Of particular note, our results suggest that many covariates found significant by previous studies are not robust.
We thank Theo Eicher, Kathryn Russ, Deborah Swenson and session participants at a Western Economic Association session for helpful comments. Any errors or omissions are completely our own. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
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Bruce A. Blonigen & Jeremy Piger, 2014. "Determinants of foreign direct investment," Canadian Journal of Economics/Revue canadienne d'économique, vol 47(3), pages 775-812. citation courtesy of