Social and Behavioral Sciences Commons^™

Estimating Models Of Complex Fdi: Are There Third-Country Effects?, Badi H. Baltagi, Peter Egger, Michael Pfaffermayr

Center for Policy Research

The recent general equilibrium theory of trade and multinationals emphasizes the importance of third countries and the complex integration strategies of multinationals. Little has been done to test this theory empirically. This paper attempts to rectify this situation by considering not only bilateral determinants, but also spatially weighted third-country determinants of foreign direct investment (FDI). Since the dependency among host markets is particularly related to multinationals' trade between them, we use trade costs (distances) as spatial weights. Using panel data on U.S. industries and host countries observed over the 1989-1999 period, we estimate a "complex FDI" version of the knowledge-capital …