On the Determinants of Euro Area FDI to the United States: The Knowledge-Capital-Tobin's Q Framework

55 Pages Posted: 23 Jun 2004

See all articles by Roberto A. De Santis

Roberto A. De Santis

European Central Bank (ECB) - Directorate General Economics

Robert Anderton

European Central Bank (ECB)

Alexander Hijzen

Organization for Economic Co-Operation and Development (OECD)

Date Written: April 2004

Abstract

The long-run determinants of euro area FDI to the United States during the period 1980-2001 are explained by employing the Tobin's Q-model of investment. By using the fixed effects panel estimator, stock market developments in the euro area countries including a measure adjusted for economic developments common to both the United States and the euro area - are found to influence euro area FDI to the United States. Moreover, the inclusion of the Tobin's Q enhances the traditional knowledge-capital framework specification. Overall, the empirical findings suggest that euro area patents (ownership advantage), various variables related to productivity in the United States (location advantage), the volume of bilateral telephone traffic to the United States relative to euro area GDP (ownership advantage), euro area stock market developments (Tobin's Q), and the real exchange rate are statistically significant determinants of euro area FDI to the United States.

Keywords: Euro area, Foreign Direct Investment, Multinational firms, Tobin's Q

JEL Classification: F21, F23

Suggested Citation

De Santis, Roberto A. and Anderton, Robert and Hijzen, Alexander, On the Determinants of Euro Area FDI to the United States: The Knowledge-Capital-Tobin's Q Framework (April 2004). ECB Working Paper No. 329. Available at SSRN: https://ssrn.com/abstract=526992

Roberto A. De Santis (Contact Author)

European Central Bank (ECB) - Directorate General Economics ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany

Robert Anderton

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
0049 69 13440 (Phone)
0044 69 1344 6000 (Fax)

Alexander Hijzen

Organization for Economic Co-Operation and Development (OECD) ( email )

2 rue Andre Pascal
Paris Cedex 16, 75775
France

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