Estimating models of complex FDI: Are there third-country effects?

Badi H. Baltagi, Peter Egger, Michael Pfaffermayr

Research output: Contribution to journalArticlepeer-review

263 Scopus citations


The recent general equilibrium theory of trade and multinationals emphasizes the importance of third countries and the complex integration strategies of multinationals. Little has been done to test this theory empirically. This paper attempts to rectify this situation by considering not only bilateral determinants, but also spatially weighted third-country determinants of foreign direct investment (FDI). Since the dependency among host markets is particularly related to multinationals' trade between them, we use trade costs (distances) as spatial weights. Using panel data on U.S. industries and host countries observed over the 1989-1999 period, we estimate a "complex FDI" version of the knowledge-capital model of U.S. outward FDI by various recently developed spatial panel data generalized moments (GM) estimators. We find that third-country effects are significant, lending support to the existence of various modes of complex FDI.

Original languageEnglish (US)
Pages (from-to)260-281
Number of pages22
JournalJournal of Econometrics
Issue number1
StatePublished - Sep 2007


  • Complex FDI
  • Generalized moments (GM) estimators
  • Mutlinational firms
  • Panel econometrics
  • Spatial econometrics

ASJC Scopus subject areas

  • Economics and Econometrics


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