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

Chupryhin, Radzivon (2021): Determinants of Foreign Direct Investment in Europe: Bayesian Model Averaging in the Presence of Weak Exogeneity.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Bayesian Model Averaging, FDI, Europe, model uncertainty, weakly exogenous regressors
• Subjects: F - International Economics > F2 - International Factor Movements and International Business; F - International Economics > F2 - International Factor Movements and International Business > F21 - International Investment ; Long-Term Capital Movements; F - International Economics > F2 - International Factor Movements and International Business > F23 - Multinational Firms ; International Business; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics; F - International Economics > F6 - Economic Impacts of Globalization > F62 - Macroeconomic Impacts; F - International Economics > F6 - Economic Impacts of Globalization > F66 - Labor; I - Health, Education, and Welfare > I2 - Education and Research Institutions > I26 - Returns to Education; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O33 - Technological Change: Choices and Consequences ; Diffusion Processes

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