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. 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. 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. 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. 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. 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. 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. 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. 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. 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 !!!