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For this coursework, you will investigate which country characteristics determine outward Foreign Direct Investment (FDI) flows


1 Introduction

A very important topic within the field of international economics and international business is the analysis of international investment flows. For this coursework, you will investigate which country characteristics determine outward Foreign Direct Investment (FDI) flows. FDI is a special type of cross-border investment flow: they are investment with lasting interest1, e.g. US firm Mondelez acquiring UK firm Cadbury to obtain control over their management. This is in contrast to portfolio investment, where the investor does not want to influence the decision making process of a business, e.g. Jon buying Cadbury shares for £100.

In the empirical literature, many different variables are used to model FDI flows; for this coursework, you will apply a simplified model with a limited number of covariates. You will have to investigate which of the given variables are significant in explaining what attracts FDI. Using R, you will (i) produce descriptive statistics and plots to analyse the data, (ii) run several econometric models and interpret the coefficients, and (iii) explain strengths and weaknesses of the models by making references to statistical tests and theory.

A brief overview about FDI can be found in chapter 8 section ‘Multinationals and Out- sourcing’ in Krugman, P. R., Obstfeld, M., and Melitz, M. J. (2017). International Economics: Theory and Policy, Global Edition, Pearson, pp. 225 - 236. The ebook version of the book can be accessed via Aston Library.

Forthosewho wantto readmore onFDI,I canrecommendthe followingpaper: Dunning,

J. H. (1998). Location and the multinational enterprise: a neglected factor?. Journal of


1The official definition from IMF’s Balance of Payments Manual is: “Direct investment is a category of cross-border investment associated with a resident in one economy having control or a significant degree of influence on the management of an enterprise that is resident in another economy.” See https://www.imf.org/external/pubs/ft/bop/2007/pdf/bpm6.pdf,page100.


International Business Studies, 29(1), 45-66.2

Module Learning Outcomes Assessed:

1. Demonstrate an understanding of important introductory statistical and econo- metric concepts.

2. Demonstrate an awareness of the limitations of these models and the assumptions that underpin them.

3. Apply econometric techniques using real world data.

4. Communicate in clear and concise language the econometric concepts discussed in the course.

Assessment Weighting for the Module:

90 per cent of the overall module mark

Assessment Criteria:

See Assessment Matrix on Blackboard


2 Information about report submission:


The assignment should be uploaded onto Turnitin before the deadline specified. The submission deadline is TBC at midday (noon, 12pm). A hard copy does not have to be submitted. You will need to produce your work in a single document. This will mean that any data and charts you produce in R will need to be imported (copied) into your document. Note that students who attempt to submit more than one file will only get a mark for the part they have uploaded. I recommend to upload a pdf version of your report onto Turnitin to ensure that all graphs and tables are correctly displayed. Furthermore, Turnitin only accepts pdf or word (.doc/.docx) documents. Any other formats cannot be opened and will receive a mark of 0.

2J.H. Dunning is one of the big names in the field of FDI. He published many articles on the determi- nants and consequences of FDI. He is famous for two popular concepts: the OLI paradigm and the Investment Development Path.


3 Preparing the report


3.1 Data descriptor

You are asked to prepare a statistical brief about outward FDI flows. You will use country-level outward FDI data for the year 2017.

I have already downloaded the data for you from from Worldbank’s World Development Indicator Database3. On Blackboard, you can find the prepared dataset oFDI2122.xls that you will use for your analysis.


Variable Variable descriptor


country Home country name

oFDI Foreign direct investment, net outflows (from Balance of Payments, in million US Dollars, current prices).

GDP Home country GDP (in billion US Dollars, current prices). This variable measures the economic size of a country.

RnD Research and development expenditure (% of GDP). This variable measures the R%D intensity of a country.

Trade Trade (% of GDP). It is calculated as the sum of exports plus imports, then divided by GDP. This measure is often referred to as Trade Openness.

LaLo 1 if country is landlocked (no sea access), 0 otherwise.

Table 1:Variable description



3.2 Descriptive Statistics


Complete the following tasks:

Generate a descriptive statistics table to summarise yoursample.

Plot the relationship between (i) oFDI and RnD, (ii) oFDIand GDP, and (iii) oFDI and Trade.

Calculate the correlation coefficients for (i) oFDIand RnD, (ii) oFDIand GDP, and

(iii) oFDI and Trade.


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