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The growth of Foreign Direct Investment (FDI) in developing countries over the last decade has attracted an intense academic and policy-oriented interest for its determinants. Despite the gravity model being considered a useful tool to approximate bilateral FDI flows, the literature has seen a growing debate in relation to its econometric specification, so that which is the best estimator for the gravity equation is far from conclusive. This paper examines the determinants of German outward FDI in Latin America and Asia for the period 1996-2012 by evaluating the performance of alternative Generalized Linear Model (GLM) estimators. Our findings indicate that Negative Binomial Pseudo Maximum Likelihood (NBPML) is the estimator best matched to our data, followed by Gamma Pseudo Maximum Likelihood (GPML). Furthermore, German FDI in Latin America is found to be predominantly vertical in nature, whereas that in Asia is mainly market-seeking.

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The last decades have witnessed an increasing interest in FDI and the process of production fragmentation. This has been particularly important for Germany as the core of the European Union (EU) production hub. This paper provides a comprehensive empirical evidence of the determinants of German outward FDI in the EU for the period 1996-2012. First, we extend previous BMA analysis developed by Camarero et al. ( 2019) by including country-pair-fixed effects to select the appropriate set of variables. Second, we compare several estimation methods in their multiplicative form, namely, four versions of the Generalized Linear Model (GLM). The results of the empirical application indicate that Gamma Pseudo Maximum Likelihood (GPML) is the best performing estimator. Furthermore, our results point to horizontal-ness as the primary strategy for German investment in core EU countries; while vertical-ness seems to prevail in peripheral EU countries.