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Spacey Parents and Spacey Hosts in Foreign Direct Investment


Economica / NEW SERIES

Published online on


Shocks on FDI of some parent country in a host affect the same parent's FDI in other hosts. Shocks on a parent's FDI in some host affect other parents' FDI in the same host. In general equilibrium, shocks on FDI between any country pair will affect all country pairs' FDI. Using cross‐sectional data on FDI among 22 OECD countries in 2000, we use a spatial estimation framework to allow for all three modes of interdependence simultaneously, thereby distinguishing between market‐size‐related and remainder interdependence. Our results highlight the complexity of multinational enterprises' investment strategies and the interconnectedness of the world investment system.