Modeling European regional FDI flows using a Bayesian spatial Poisson interaction model

TL;DR

This paper introduces a Bayesian spatial Poisson interaction model to analyze European regional FDI flows, accounting for bilateral effects and spatial dependence across different value chain stages.

Contribution

It advances regional FDI modeling by incorporating bilateral origin-destination effects and spatial dependence within a Bayesian Poisson framework.

Findings

Spatial dependence significantly influences FDI flows.

Bilateral origin and destination effects are crucial drivers.

Different value chain stages exhibit distinct FDI patterns.

Abstract

This paper presents an empirical study of spatial origin and destination effects of European regional FDI dyads. Recent regional studies primarily focus on locational determinants, but ignore bilateral origin- and intervening factors, as well as associated spatial dependence. This paper fills this gap by using observations on interregional FDI flows within a spatially augmented Poisson interaction model. We explicitly distinguish FDI activities between three different stages of the value chain. Our results provide important insights on drivers of regional FDI activities, both from origin and destination perspectives. We moreover show that spatial dependence plays a key role in both dimensions.