September 28, 2006

Bilateral FDI Stocks by sector

Although FDI is becoming more and more important in the world economy, it is not widely examined. Theories and empirics on trade are much further developed than on FDI.

Researchers have developed large-scale models to analyse trade policies. These models are based on microeconomic theory, equilibrium mechanisms, and the forward and backward linkages between various inputs and output markets. In analysing trade liberalisation policies, the role of foreign direct investment becomes increasingly more important. Lejour and Rojas-Romagosa survey the attempts modelling FDI in CGE models and Lejour et al. (2006) describe the modelling of FDI in CPB’s AGE model WorldScan.

For modelling FDI we need a consistent set of data for bilateral FDI stocks by sector of economic activity. This paper describes the procedure to obtain this consistent data set for 23 countries / regions and 10 sectors in 2001.

Our point of departure are the reported inwards FDI stocks by partner country of the OECD. Then a data set of total outward- en inward stocks by country are constructed by using observations or estimations. Assumptions are made to determine to the total outward en inward stock per sector and country to and from the world, where after the rest of world by sector is determined as a residual. Given these targets an estimation procedure has been developed to calculate the bilateral stocks per sector between the countries / regions.