Working Paper: NBER ID: w16704
Authors: Bruce A. Blonigen; Jeremy Piger
Abstract: 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.
Keywords: Foreign Direct Investment; Bayesian Model Averaging; Gravity Model
JEL Codes: C52; F21; F23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| traditional gravity variables (C29) | FDI (F23) |
| cultural distance factors (Z10) | FDI (F23) |
| parent-country per capita GDP (O57) | FDI (F23) |
| relative labor endowments (F16) | FDI (F23) |
| regional trade agreements (F13) | FDI (F23) |
| multilateral trade openness (F13) | FDI (F23) |
| host-country business costs (F23) | FDI (F23) |
| infrastructure (H54) | FDI (F23) |
| institutions (D02) | FDI (F23) |