Melissa chanegriha

IntroductionProblematicThe Mechanics of EBAEconometric Resultsconclusion

Economic ,Political and Geographicaldeterminants of FDI : Robustness check

Presented by Melissa Chanegriha

Supervisors : Dr ChristopherTsoukis,

Dr Christopher Stewart

London Metropolitan University

November 2010


Issues :

Theory of FDI does not provide enough guidance regardingwhich variables can be kept in a model.

Several different models may all seems reasonable giventhe data but generate different conclusions about theparameters of interest .

Most of the existing studies report the most appealing orconvenient regression.


Table 1 : OLS “ fixed effects” panel regressions : dependent variable=FDIIConditioning information set 01

Model

02

Model

03

Model

04

Model

05

Model

Constant -1.429

(0.153)

0.813

(0.416)

-7.7432

(0.000)

-0.716

(0.474)

1.190

(0.235)

openness 4.6358

(0.000)***

2.7844

(0.005)***

9.8102

(0.000)***

4.700

(0.000)***

1.779

(0.076)*

Inflation -2.0491

(0.040)**

-2.3272

(0.020)**

-1.4808

(0.138)

-2.509

(0.012)**

-2.700

(0.007)***

GDP ppp 1.7516

(0.080)*

2.5942

(0.000)***

5.4996

(0.000)***

1.633

(0.102)

GDP growth 2.5707

(0.010)

2.8722

(0.004)***

3.6636

(0.000)***

2.016

(0.044)**

Courant account balance -11.872

(0.000)***

-10.240

(0.000)***

-15.492

(0.000)***

-10.399

(0.000)***

-3.394

(0.000)***

Tax trade -2.8124

(0.005)***

-2.8484

(0.004)***

-3.029

(0.002)***

1.841

(0.067)*

Wage to GDP 1.770

(0.077)*

2.536

(0.012)**

Government final expenditure -2.508

(0.012)**

Telephone 3.404

(0.008)***

School tertiary -1.938

(0.054)*

Liquid -1.8330

(0.067)*

-2.201

(0.028)**

Real interest rates -1.351

(0.177)


Research Questions ?

What are the main determinants of FDI?

Which variables are robustly related to FDI (ModelUncertainty)?


EBA is designed to study the sensitivity of coefficientestimate across different regression specifications.

( FDI/ GDP)it =αi +βjΧit + γjkIkit + δJZjit + εjit

(Where ( FDI/ GDP)it : dependent variable

X :denotes the n standard core explanatory variable ,included in every singleregression

I : is the variable of interest in each EBA whose robustness we are testing

Z : is a vector of up to 3 possible additional explanatory variables chosen froma pool of explanatory variables.

ε : error term

The process continues until the complete set of candidate I variables have beentested such that each regression contains the same core variable(X),the variableof interest (I) and changing combinations in the subset of Z variables.


EBA criteria :by running a large number of regressions foreach variable of interest ,according to :

• Leamer (1983): we identify the highest and lowest values of γjk. Which are

denoted γk max and γk min .

We compute the extreme bounds for I were :

(LEB = γk min - 2 (σ k (γk min ))

(UEB = γk max +2 (σ k (γk max ))

If the extreme values remain significant and the extreme bounds are ofthe same sign then the I k will be robust determinants of FDI.

Otherwise ,the variable is considered fragile .

Levine and Renelt (1992) Critics : this test is too restrictive for anyvariable to pass it .


Sala -I- Martin (1997)EBA alternative :

Determine robustness based on Cumulative Density Function(CDF)

Of the estimated coefficient IK that is lying between 0.50 and 1

we assign the degree of robustness and identify variables as :

*** Robust at the 1%level when the unweighted CDF is ≥ 99%

** Robust at the 5%level when the unweighted CDF is ≥ 95%

* Robust at the 10%level when the unweighted CDF is ≥ 90%

Being a Mild determinant when the unweighted CDF is 80%-0.89%

Being a Fragile determinant when the unweighted CDF is 0.50%-79%


Data and specification :

Our data is an unbalanced data of 168 countries from1970-2006 yielding a maximum of 6012 observations .

We are testing over 56 Economic ,Political andGeographical Variables.

Contain time variant and invariant variables .

We use Eviews software to write and run the program,within the three tests we run over 2 Million regressions .


Summary of the three testing results

1st Test 2nd Test 3rd Test

core

var

iab

les

oppe v oppe v oppe vinfl v infl v Ratios vttrade v ttrade v GFE vGDPG vGDPPPP vCAB v

I or Z Variables 42 28 56Number of regression 447804 256256 1312024Nature of the variables Economic Economic Economic ,Political and

GeographicalNature of the test Fixed

effectFixed effect Random effect

Resu

lts

acc

ordin

gto

Sa

la–I-

Mart

in

crit

eri

a(1

99

7)

variable CDF variable CDF variable CDF

FDIO Robust *** FDIO Robust *** infl Robust ***GFE Robust ** hmtaxcor Robust *** unem Robust ***ratiot Robust ** gdpg Robust* wgetogdp Robust ***tel Robust** ratios Robust* cab Robust*lf mild gdpppp mild spn Robust**taxproft mild taxproft mildcgd mild wgetogdpl mild

Result according toLeamer (1983)

Ratiot Same sign andsignificant

none none


We believe that the main determinants of FDI are thefollowing variables: openness ,inflation ,tax profit ,GDP,ratios, courant account balance and Government finalexpenditure

Thank you for your attention !!!

Melissa chanegriha

Technology

Transcript of Melissa chanegriha