Spacey Parents and Spacey Hosts in Foreign Direct Investment

Shocks on FDI of some parent country in a host affect the same parent's FDI in other hosts. Shocks on a parent's FDI in some host affect other parents' FDI in the same host. In general equilibrium, shocks on FDI between any country pair will affect all country pairs' FDI. Using cross-sectional data on FDI among 22 OECD countries in 2000, we use a spatial estimation framework to allow for all three modes of interdependence simultaneously, thereby distinguishing between market-size-related and remainder interdependence. Our results highlight the complexity of multinational enterprises' investment strategies and the interconnectedness of the world investment system.