Austrian outbound foreign direct investment in Europe: A spatial econometric study

This paper focuses on Austrian outbound foreign direct investment (FDI, measured by sales of Austrian affiliates abroad) in Europe over the period 2009 – 2013, using a spatial Durbin panel data model specification with fixed effects, and a spatial weight matrix based on the first - order contiguity relationship of the countries and normalised by its largest eigenvalue. Third - country effects essentially enter the empirical analysis in two major ways: first, by the endogenous spatial lag on FDI (measured by FDI into markets nearby the host country), and, second, by including an exogenous market potential variable that measures the size of markets nearby the FDI host country in terms of gross domestic product. The question whether the empirical result is compatible with horizontal, vertical, export - platform or complex vertical FDI then depends on the sign and significance levels of both the coefficient of the spatial lag on FDI and the direct impact estimate of the market potential variable.The paper yields robust results that provide significant empirical evidence for horizontal FDI as the main driver of Austrian outbound FDI in Europe. This result is strengthened by the indirect impact estimate of the mark et potential variable indicating that spatial spillovers do not matter. Key words: Foreign direct investment, panel econometrics, spatial econometrics, spatial Durbin model, fixed effects JEL classification: C21, F23, R12