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Explaining asymmetries in bilateral FDI flows

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  • Garrett, Jinzhuo Z.

Abstract

This paper constructs a two-stage monopolistic competition model that explains the large number of zeros and missing bilateral FDI flows, as well as positive bilateral FDI flows we observe in the data. A Heckman two-step selection procedure is used to empirically estimate the model by employing data for 101 countries from 1995 to 2002. I show that certain characteristics previously considered important to determine FDI flows in traditional OLS estimations may only matter for multinationals selecting into FDI relationships, and in some cases, they may even negatively affect FDI flows.

Suggested Citation

  • Garrett, Jinzhuo Z., 2016. "Explaining asymmetries in bilateral FDI flows," International Review of Economics & Finance, Elsevier, vol. 41(C), pages 155-171.
    • Handle: RePEc:eee:reveco:v:41:y:2016:i:c:p:155-171
    DOI: 10.1016/j.iref.2015.08.014
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    4. Federico Carril-Caccia & Juliette Milgram Baleix & Jordi Paniagua, 2019. "The foreign direct investment-institution nexus in oil-abundant countries," Working Papers 1903, Department of Applied Economics II, Universidad de Valencia.
    5. Federico Carril-Caccia & Juliette Milgram Baleix, 2023. "Impact of Environmental Regulation on Cross-Border MAs in high- and low-polluting sectors," ThE Papers 23/04, Department of Economic Theory and Economic History of the University of Granada..
    6. Yibo Bi & Zhiyi Ren & Kun Bao, 2020. "Does distance matter in foreign direct investment sub-national location choice? Evidence from China," Frontiers of Business Research in China, Springer, vol. 14(1), pages 1-19, December.
    7. Demir, Firat & Lee, Sunhyung, 2022. "Foreign direct investment, capital accumulation, and growth: The rise of the Emerging South," International Review of Economics & Finance, Elsevier, vol. 80(C), pages 779-794.
    8. Federico Carril-Caccia, 2020. "Will the Future EU-UK Free Trade Agreement Affect Foreign Direct Investment?," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 55(4), pages 266-270, July.
    9. Nguyen, Anh T.N. & Haug, Alfred A. & Owen, P. Dorian & Genç, Murat, 2020. "What drives bilateral foreign direct investment among Asian economies?," Economic Modelling, Elsevier, vol. 93(C), pages 125-141.
    10. Federico Carril-Caccia & Aitor Garmendia-Lazcano & Asier Minondo, 2022. "The border effect on mergers and acquisitions," Empirical Economics, Springer, vol. 62(3), pages 1267-1292, March.

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    More about this item

    Keywords

    Bilateral foreign direct investment; Multinationals; Intra-industry firm heterogeneity;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F1 - International Economics - - Trade

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