Determinants of Foreign Direct Investment: A Bayesian Model Averaging Approach From 55 Countries

Year 2023, Volume: 22 Issue: 46, 135 - 158, 25.06.2023

Erhan Çene , Filiz Karaman

https://doi.org/10.46928/iticusbe.1062993

Abstract

Purpose: This study aims to investigate the determinants of Foreign Direct Investment (FDI) for the 55 countries from 4 different continents and 3 different development levels.
Method: A panel dataset is constructed over the period of 1995-2019 with 17 candidate independent variables and Bayesian Model Averaging (BMA) is employed for each continent and for each development level to reveal the determinants of FDI.
Results: Results showed that globalization is the primary factor to attract FDI regardless of the development level and continent. But there are also other factors that affect FDI which differ based on the development level and geographic location of the country. FDI in transition economies benefits from qualified labor force which negatively affects developed countries and has no effect on developing countries. Corruption is only effective in developing countries. Secondary education is effective at European and Asian countries, tertiary education is effective on American countries. This study contributes the literature by using a BMA method in a panel data context. BMA uses weighted average of all the possible models which gives more balanced results than a single model. Applying BMA to the countries in different continents and development levels separately allows to make inferences based on region and wealth.
Originality: This study used a fairly large dataset on terms of selected time period, number of countries and selected variables which most of the studies lack of. Also, the advantage of applying BMA to a panel dataset, is obvious as both controls the cross section variation and also considers a weighted average of all possible linear regression results rather than giving only a single linear regression model result. Thus applying BMA on a panel dataset give a better insight as to which variables should be considered as determinants of FDI.

Keywords

FDI, BMA, Panel Data, Emerging Economies, Transition Economies

DOĞRUDAN YABANCI SERMAYENİN BELİRLEYİCİLERİ: 55 ÜLKE ÜZERİNE BAYESÇİ MODEL ORTALAMASI YAKLAŞIM

Abstract

Amaç: Bu çalışma 4 farklı kıta ve 3 farklı gelişmişlik düzeyine sahip olan 55 ülke için Doğrudan Yabancı Yatırım (DYY)’ı etkileyen etmenleri araştırmayı amaçlamaktadır.
Yöntem: 1995-2019 yılları arasında 17 aday bağımsız değişkenden oluşan bir panel veri seti oluşturulmuş ve doğrudan yabancı yatırımın belirleyicilerini ortaya çıkarmak için her bir kıta ve her bir gelişmişlik düzeyi için Bayesçi Model Ortalaması (BMO) yöntemi uygulanmıştır.
Bulgu: Yapılan analizler küreselleşmenin gelişmişlik düzeyi ya da ait olunan kıtadan bağımsız olarak DYY’ı etkileyen ana etmen olduğunu göstermiştir. Bununla birlikte gelişmişlik seviyesi ve bulunulan coğrafi bölgeye göre değişim gösteren etmenler de mevcuttur. Nitelikli iş gücü geçiş ekonomilerinde DYY’ı olumlu yönde etkilerken, gelişmiş ülkelerde olumsuz etkiye sahipken, gelişmekte olan ülkelerde herhangi bir etkiye sahip değildir. Yozlaşma sadece gelişmekte olan ülkelerde etkilidir. İkinci basamak eğitim Avrupa ve Asya ülkelerinde fark yaratırken, üçüncü basamak eğitim Amerika kıtasındaki ülkelerde etkilidir. Bu çalışma var olan alan yazına panel veriye BMO uygulayarak katkıda bulunmaktadır. BMO olası tüm modellerin bir ağırlıklı ortalamasını kullanarak tek bir modele göre daha dengeli sonuçlar elde edilmesini sağlar. BMO’yu farklı kıta ve gelişmişlik seviyesine sahip ülkelere ayrı ayrı uygulamak bölgeye ve gelişmişliğe göre ayrı ayrı çıkarımlar yapılmasını sağlamaktadır.
Özgünlük: Bu çalışma, seçilen zaman periyodu, ülke sayısı ve seçilmiş değişkenler açısından oldukça büyük bir veri seti kullanmıştır. Ayrıca, BMO'yu bir panel veri setine uygulamanın avantajlı olduğu, hem kesit değişimini kontrol ettiği hem de yalnızca tek bir doğrusal regresyon modeli sonucu vermek yerine tüm olası doğrusal regresyon sonuçlarının ağırlıklı ortalamasını dikkate aldığı için açıktır. Bu nedenle, BMO'yu panel veri setine uygulamak, hangi değişkenlerin DYY'nin belirleyicileri olarak değerlendirilmesi gerektiği konusunda daha iyi bir fikir verecektir.

Keywords

Doğrudan Yabancı Yatırım, Bayesçi Model Ortalaması, Panel Veri, Geçiş Ekonomisi, Gelişmekte Olan Ekonomiler

References

• Antonakakis, N., & Tondl, G. (2012). Do determinants of FDI to developing countries differ among OECD investors ? Insights from Bayesian Model Averaging. (1).
• Arbatli, E. (2011). Economic Policies and FDI Inflows to Emerging Market Economies. In IMF Working Papers (Vol. 11). https://doi.org/10.5089/9781462306251.001
• Asiedu, E. (2006). Foreign direct investment in Africa: The role of natural resources, market size, government policy, institutions and political instability. The World Economy, 29(1), 63–77. https://doi.org/10.1111/j.1467-9701.2006.00758.x
• Bellos, S., & Subasat, T. (2012). Governance and foreign direct investment: a panel gravity model approach. International Review of Applied Economics, 26(3), 303–328. https://doi.org/10.1080/02692171.2011.587110
• Bengoa, M., & Sanchez-Robles, B. (2003). Foreign direct investment, economic freedom and growth: New evidence from Latin America. European Journal of Political Economy, 19(3), 529–545. https://doi.org/10.1016/S0176-2680(03)00011-9
• Bilgili, F., Tülüce, N. S. H., & Doğan, İ. (2012). The determinants of FDI in Turkey: A Markov Regime-Switching approach. Economic Modelling, 29(4), 1161–1169. https://doi.org/10.1016/j.econmod.2012.04.009
• Billington, N. (1999). The Location of Foreign Direct Investment: An Empirical Analysis. Applied Economics, 31(1), 65–76. https://doi.org/10.1080/000368499324561
• Bitzenis, A. (2009). The Balkans: Foreign Direct Investment and EU Accession. Ashgate Publishing, Ltd.
• Blonigen, B. a, Piger, J. M., & National Bureau of Economic Research. (2014). Determinants of foreign direct investment. Canadian Journal of Economics, 47(3), 775–812. https://doi.org/10.1111/1467-9361.00169
• Buchanan, B. G., Le, Q. V., & Rishi, M. (2012). Foreign direct investment and institutional quality: Some empirical evidence. International Review of Financial Analysis, 21(24), 81–89. https://doi.org/10.1016/j.irfa.2011.10.001
• Buckley, P. J., & Casson, M. (1976). The future of the multinational enterprise. London: McMillan.
• Busse, M., & Hefeker, C. (2007). Political risk, institutions and foreign direct investment. European Journal of Political Economy, 23(2), 397–415. https://doi.org/10.1016/j.ejpoleco.2006.02.003
• Cavallari, L., & D’Addona, S. (2013). Business cycle determinants of US foreign direct investments. Applied Economics Letters, 20(10), 966–970. https://doi.org/10.1080/13504851.2013.767971
• Caves, R. (1971). International Corporations: The Industrial Economics of Foreign Investment. Economica, 38(149), 1–27. https://doi.org/10.2307/2551748
• Chakrabarti, A. (2001). The Determinants of Foreign Direct Investment : Sensitivity Analyses of Cross-Country Regressions. Kyklos, 54(1), 89–114. https://doi.org/10.1111/1467-6435.00142
• Cohen, S. D. (2007). Multinational corporations and foreign direct investment (Vol. 1). New York: Oxford University Press.
• Cuyvers, L., Soeng, R., Plasmans, J., & Van Den Bulcke, D. (2011). Determinants of foreign direct investment in Cambodia. Journal of Asian Economics, 22(3), 222–234. https://doi.org/10.1016/j.asieco.2011.02.002
• Daniels, J., Radebaugh, L., & Sullivan, D. (2004). International Business: Environments and Operations. Prentice-Hall.
• de Luca, G., & Magnus, J. R. (2011). Bayesian model averaging and weighted-average least squares: Equivariance, stability, and numerical issues. Stata Journal, 11(4), 518–544. https://doi.org/10.2139/ssrn.1894610
• Dunning, J. H. (1981). Trade, location of economic activity and multinational enterprises. In International Production and the Multinational Corporation.
• Dunning, J. H. (1999). Trade, Location of Economic Activity and the MNE: A Search for an Eclectic Approach. In G. Allen&Unwin (Ed.), The internationalization of the firm (pp. 61–79).
• Economou, F., Hassapis, C., Philippas, N., & Tsionas, M. (2017). Foreign Direct Investment Determinants in OECD and Developing Countries. Review of Development Economics, 21(3), 527–542. https://doi.org/10.1111/rode.12269
• Eicher, T. S., Helfman, L., & Lenkoski, A. (2012). Robust FDI determinants: Bayesian Model Averaging in the presence of selection bias. Journal of Macroeconomics, 34(3), 637–651. https://doi.org/10.1016/j.jmacro.2012.01.010
• Eicher, T. S., Papageorgiou, C., & Raftery, A. E. (2007). Determining Growth Determinants: Default Priors and Predictive Performance in Bayesian Model Averaging (No. 76). Washington.
• Eicher, T. S., Papageorgiou, C., & Raftery, A. E. (2011). Default priors and predictive performance in bayesian model averaging, with application to growth determinants. Journal of Applied Econometrics, 26, 30–55. https://doi.org/10.1002/jae
• Faeth, I. (2009). Determinants of foreign direct investment - A tale of nine theoretical models. Journal of Economic Surveys, 23(1), 165–196. https://doi.org/10.1111/j.1467-6419.2008.00560.x
• Fernández, C., Ley, E., & Steel, M. F. J. (2001). Benchmark priors for Bayesian model averaging. Journal of Econometrics, 100(2), 381–427. https://doi.org/10.1016/S0304-4076(00)00076-2
• Habib, M., & Leon, Z. (2002). Corruption and Foreign Direct Investment. Journal of International Business Studies, 33(2), 291–307. https://doi.org/10.2307/3069545
• Hoeting, J. a, Madigan, D., Raftery, a E., & Volinsky, C. T. (1999). Bayesian model averaging: A tutorial. Statistical Science, 14(4), 382–401. https://doi.org/10.2307/2676803
• Hymer, S. H. (1976). The international operations of national firms: A study of direct foreign investment. In MIT Press. Janicki, H. P., & Wunnava, P. V. (2004). Determinants of foreign direct investment: empirical evidence from EU accession candidates. Applied Economics, 36(5), 505–509. https://doi.org/10.1080/00036840410001682214
• Jones, J., & Wren, C. (2006). Foreign Direct Investment and the Regional Economy. Hampshire: Ashgate Publishing, Ltd..
• Kinda, T. (2012a). Foreign ownership, sales to multinationals and firm efficiency: the case of Brazil, Morocco, Pakistan, South Africa and Vietnam. Applied Economics Letters, 19(6), 551–555. https://doi.org/10.1080/13504851.2011.587765
• Kinda, T. (2012b). On the Drivers of FDI and Portfolio Investment: A Simultaneous Equations Approach. International Economic Journal, 26(February 2015), 1–22. https://doi.org/10.1080/10168737.2010.538428
• Kok, R., & Ersoy, B. A. (2009). Analyses of FDI determinants in developing countries. International Journal of Social Economics, 36(1/2), 105–123. https://doi.org/10.1108/03068290910921226
• Kolstad, I., & Wiig, A. (2012). What determines Chinese outward FDI? Journal of World Business, 47(1), 26–34. https://doi.org/10.1016/j.jwb.2010.10.017
• Koop, G. (2003). Bayesian Econometrics (Vol. 33).
• Ley, E., & Steel, M. F. J. (2009). On the effect of prior assumptions in Bayesian model averaging with applications to growth regression. Journal of Applied Econometrics, 24(4), 651–674. https://doi.org/10.1002/jae.1057
• Ley, E., & Steel, M. F. J. (2012). Mixtures of g-priors for Bayesian model averaging with economic applications. Journal of Econometrics, 171(2), 251–266. https://doi.org/10.1016/j.jeconom.2012.06.009
• Magnus, J. R., Powell, O., & Prufer, P. (2010). A comparison of two model averaging techniques with an application to growth empirics. Journal of Econometrics, 154(2), 139–153. https://doi.org/10.1016/j.jeconom.2009.07.004
• Masron, T. A., & Nor, E. (2013). FDI in ASEAN-8: Does institutional quality matter? Applied Economics Letters, 20(2), 186–189. https://doi.org/10.1080/13504851.2012.687090
• Mathur, A., & Singh, K. (2013). Foreign direct investment, corruption and democracy. Applied Economics, 45(8), 991–1002. https://doi.org/10.1080/00036846.2011.613786
• Moosa, I. A. (2002). FDI Theory, Evidence and Practice. Palgrave Macmillan.
• OECD. (2008). OECD Benchmark Definition of Foreign Direct Investment’ (Fourth Edi). Paris: OECD Publishing.
• Okafor, G., & Webster, A. (2015). Foreign Direct Investment in Transition Economies of Europe and the Former Soviet Union. In J. Hölscher & H. Tomann (Eds.), Palgrave Dictionary of Emerging Markets and Transition Economics (1st edition, Vol. 53, pp. 133–152). London: Palgrave Macmillan. https://doi.org/10.1007/978-1-137-37138-6_8
• Páez, L. (2011). Liberalizing Financial Services and Foreign Direct Investment: Developing Framework for Commercial Banking FDI. Palgrave Macmillan.
• Raftery, A. E., Madigan, D., & Hoeting, J. (1997). Bayesian model averaging for linear regression models. Jasa, Vol. 92, pp. 179–191. https://doi.org/10.1080/01621459.1997.10473615
• Sánchez-Martín, M. E., De Arce, R., & Escribano, G. (2014). Do changes in the rules of the game affect FDI flows in Latin America? A look at the macroeconomic, institutional and regional integration determinants of FDI. European Journal of Political Economy, 34, 279–299. https://doi.org/10.1016/j.ejpoleco.2014.02.001
• Sethi, D., Guisinger, S. E., Phelan, S. E., & Berg, D. M. (2003). Trends in foreign direct investment flows: a theoretical and empirical analysis. Journal of International Business Studies, 34(4), 315–326. https://doi.org/10.1057/palgrave.jibs.8400034
• Solomon, B., & Ruiz, I. (2012). Political Risk, Macroeconomic Uncertainty, and the Patterns of Foreign Direct Investment. The International Trade Journal, 26(2), 181–198. https://doi.org/10.1080/08853908.2012.657592
• UNCTAD. (2009). UNCTAD training manual on statistics for FDI and the operations of TNCs - volume 1. In New York.
• UNCTAD. (2018). World investment report 2018: Investment and new industrial policies. Geneva: United Nations Publication. Retrieved from http://unctad.org/en/PublicationsLibrary/wir2018_en.pdf
• United Nations. (2018). World Economic Situation and Prospects 2018. New York: United Nations Publication. Retrieved from https://www.un.org/development/desa/dpad/wp-content/uploads/sites/45/publication/WESP2018_Full_Web-1.pdf
• Vernon, R. (1966). International Investment and International Trade in the Product Cycle. The Quarterly Journal of Economics, 80(2), 190–207.
• Vijayakumar, N., Sridharan, P., & Rao, K. C. S. (2010). Determinants of FDI in BRICS countries: A panel analysis. International Journal of Business Science and Applied Management, 5(3), 1–13.