1. Foreign Direct Investment and Fixed Cost Dr. Helga Kristjánsdóttir
Deild
Titill rannsóknar
Höfundur
Foreign Direct Investment and Fixed Cost
Dr. Helga Kristjánsdóttir
Fixed costs play a crucial role in current models of foreign direct investment (FDI), yet they are almost entirely ignored in empirical treatments of FDI. We fill this gap by using a panel of FDI flows into Iceland to examine the determinants of fixed costs for multinational firms and how these influence aggregate patterns of investment. An advantage of our data is that it allows us to observe the initial entry of FDI into a developed country. Using a Heckman two step procedure, which allows us to account for fixed costs. Our additions to research in the field include usage of several natural resource variables. Taken together, we find that the standard OLS approach to the data incorrectly links the quantity of FDI to source country variables while in fact most of their role is in determining whether FDI takes place at all.