What drives interdependence of FDI among host countries? The role of geographic proximity and similarity in public debt

Abstract

We investigate the drivers of interdependence between flows of foreign direct investment (FDI), focusing on two potential channels: interdependence between geographically close FDI destination countries, and between destination countries with similar levels of public debt. Using data on bilateral FDI flows between the 27 EU member countries in 2007, we find that in addition to geographic proximity, similarity in public debt levels drives crosscountry correlation in FDI inflows. The public debt threshold of 60% of GDP prescribed by the Maastricht Treaty is a crucial driver of interdependence between FDI inflows. FDI inflows are correlated within the group of compliant countries as well as within the group of non-compliers. This is consistent with the fact that foreign investors distinguish between countries which violate this Maastricht criterion and those that do not.

Has the crisis affected Spanish investment strategy abroad? A spatial panel data approach

“…On the contrary, Regelink and Elhorst (), by computing direct and indirect effects of FDI determinants, offer evidence of the existence of competition among European countries when attracting US FDI from 1999 to 2008. Alamá‐Sabater, Heid, Jiménez‐Fernández, and Márquez‐Ramos (2016b), focusing on bilateral FDI between the 27 EU member countries in 2007, also find positive spatial dependence across neighbouring FDI host countries. More recently, Siddiqui and Iqbal (), employing partial derivatives in line with Regelink and Elhorst (), investigate US FDI in the MENA countries over the period 2002–14.…”

Do Countries with Similar Levels of Corruption Compete to Attract Foreign Investment? Evidence Using World Panel Data

“…In other words, it could be assumed the presence of cross-country correlation of FDI flows across recipient countries nearby in levels of corruption. Following Alamá-Sabater et al [42], one could think about these cross-country correlations as interdependences, so corruption similarity could be considered as a new channel for interdependence of FDI flows.…”

“…Nevertheless, they are focused on the role played in economic growth instead of in the attractiveness of foreign investments. Empirical studies centered on non-geographic distance as channel of spatial dependence in the context of FDI location are very scarce [42,55,56] To the best of our knowledge, none of the previous researches take into account a dimension of neighborhood based on the concept of corruption similarity. This paper is then a first attempt to reveal another additional dimension of FDI interdependence (other than geographical proximity) in a multi-country framework, exploring whether corruption similarity might be a driver of the spatial interdependence of FDI flows among host countries.…”

“…To further explore whether FDI in a given host country depends on the FDI flowing in other countries sharing a similar level of corruption, a new dimension of neighborhood based on the concept of corruption similarity is considered. To capture this potential channel of FDI interdependence, according to Alamá-Sabater et al [42], the following fuzzy metric (Corruption Similarity Index − SCI ij −) related to the level of corruption between peer countries was constructed:…”

The Role of Institutional Environment in International Trade. The Case of Spanish Regions

“…Although we use these three excluded instruments, it is worth mentioning that to get valid instruments, we do not necessarily need consistent estimates of the parameters of the reduced-form equation as long as we use instruments which are correlated with our (possibly) endogenous regressor in the structural equation but not correlated with the error term (see, for example, Alamá-Sabater et al 2016). Accordingly, the chosen instruments pass the tests (see column 3 in Table 1).…”