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Determinants of German outward FDI: variable selection using Bayesian statistical

Author

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  • Mariam Camarero

    (Jaume I University. Department of Economics, Av. de Vicent Sos Baynat s/n, E-12071 Castellón, Spain)

  • Laura Montolio

    (University of Valencia, Department of Applied Economics II, Av. dels Tarongers, s/n Eastern Department Building E-46022 Valencia, Spain)

  • Cecilio Tamarit

    (University of Valencia, INTECO Joint Research Unit. Department of Applied Economics II. PO Box 22.006 - E-46071 Valencia, Spain)

Abstract

This paper provides new evidence on the drivers of German outward foreign direct investment (FDI) stocks for the period 1996-2012. In contrast to previous empirical studies, we adopt a Bayesian model averaging (BMA) approach for a robust selection of those variables. We find evidence that determinants that are associated with horizontal FDI appear to be dominant for explaining bilateral FDI with developed countries while for the group of developing countries covariates associated with vertical FDI motives play a larger role. Within Europe, while the majority of FDI is horizontally driven in “core" countries, for peripheral ones the vertical motivation for FDI seems to prevail. Moreover, our results are compatible with more complex FDI models where vertical determinants and institutional variables are gaining prominence, in parallel with the development of global value chains (GVC). Our results can provide hints for policymakers’ strategies to attract German investment.

Suggested Citation

  • Mariam Camarero & Laura Montolio & Cecilio Tamarit, 2019. "Determinants of German outward FDI: variable selection using Bayesian statistical," Working Papers 1906, Department of Applied Economics II, Universidad de Valencia.
    • Handle: RePEc:eec:wpaper:1906
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    1. Kox, Henk L.M., 2022. "A micro-macro model of foreign direct investment: Knowledge-based gravity forces, self-selection and third-country effects," EconStor Preprints 266494, ZBW - Leibniz Information Centre for Economics.
    2. Kox, Henk L.M., 2022. "Explaining foreign direct investment patterns: a testable micro-macro gravity model for FDI," MPRA Paper 115273, University Library of Munich, Germany.

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    More about this item

    Keywords

    FDI determinants; Outward Foreign Direct Investment; Germany; Bayesian Model Averaging; Variable selection;
    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
    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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