Estimating the Impact of Time-Invariant Variables on FDI with Fixed Effects
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Date
2007-05
Authors
Davies, Ronald B.
Ionascu, Delia
Kristjánsdóttir, Helga
Journal Title
Journal ISSN
Volume Title
Publisher
University of Oregon, Dept of Economics
Abstract
This paper applies the panel fixed effects with vector decomposition estimator
to three FDI datasets to estimate the impact of time-invariant variables on FDI while
including fixed effects. We find that the omission of fixed effects significantly biases
several of these variables, especially those proxying for trade costs and culture. After
including fixed effects, we find that many time-invariant variables indicate the
importance of vertical FDI. We also find that by eliminating these biases, the differences
across datasets largely disappear. Thus, controversies in the literature that are driven by
differences in data sets may be resolved by using this estimation technique.
Description
37 p.
Keywords
Foreign direct investment, Trade costs, Culture