Melissa chanegriha

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Melissa chanegriha

  1. 1. Introduction Problematic The Mechanics of EBA Econometric Results conclusion Economic ,Political and Geographical determinants of FDI : Robustness check  Presented by Melissa Chanegriha  Supervisors : Dr ChristopherTsoukis, Dr Christopher Stewart London Metropolitan University November 2010
  2. 2. Introduction Problematic The Mechanics of EBA Econometric Results conclusion  Issues :  Theory of FDI does not provide enough guidance regarding which variables can be kept in a model.  Several different models may all seems reasonable given the data but generate different conclusions about the parameters of interest .  Most of the existing studies report the most appealing or convenient regression.
  3. 3. Introduction Problematic The Mechanics of EBA Econometric Results conclusion Table 1 : OLS “ fixed effects” panel regressions : dependent variable=FDII Conditioning 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)
  4. 4. Introduction Problematic The Mechanics of EBA Econometric Results conclusion  Research Questions ?  What are the main determinants of FDI?  Which variables are robustly related to FDI (Model Uncertainty)?
  5. 5. Introduction Problematic The Mechanics of EBA Econometric Results conclusion  EBA is designed to study the sensitivity of coefficient estimate 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 single regression  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 from a pool of explanatory variables.  ε : error term  The process continues until the complete set of candidate I variables have been tested such that each regression contains the same core variable(X),the variable of interest (I) and changing combinations in the subset of Z variables.
  6. 6. Introduction Problematic The Mechanics of EBA Econometric Results conclusion  EBA criteria :by running a large number of regressions for each 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 of the 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 any variable to pass it .
  7. 7. Introduction Problematic The Mechanics of EBA Econometric Results conclusion  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%
  8. 8. Introduction Problematic The Mechanics of EBA Econometric Results conclusion  Data and specification :  Our data is an unbalanced data of 168 countries from 1970-2006 yielding a maximum of 6012 observations .  We are testing over 56 Economic ,Political and Geographical 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 .
  9. 9. Introduction Problematic The Mechanics of EBA Econometric Results conclusion Summary of the three testing results 1st Test 2nd Test 3rd Test core variables oppe v oppe v oppe v infl v infl v Ratios v ttrade v ttrade v GFE v GDPG v GDPPPP v CAB v I or Z Variables 42 28 56 Number of regression 447804 256256 1312024 Nature of the variables Economic Economic Economic ,Political and Geographical Nature of the test Fixed effect Fixed effect Random effect Resultsaccordingto Sala–I-Martin criteria(1997) 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 mild cgd mild wgetogdpl mild Result according to Leamer (1983) Ratiot Same sign and significant none none
  10. 10. Introduction Problematic The Mechanics of EBA Econometric Results conclusion  We believe that the main determinants of FDI are the following variables: openness ,inflation ,tax profit ,GDP ,ratios, courant account balance and Government final expenditure  Thank you for your attention !!!

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