Subject:
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Nijmegen Centre for Economics |
Abstract:
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Data on bilateral FDI and trade flows are clustered within parent and host countries and
parent-host combinations. Failure to take into account these forms of clustering will lead to
biased estimates of the coefficients due to an omitted variables problem and to an
underestimation of the coefficients’ standard errors. Hence coefficients are incorrectly
classified as significant. A cross-classified multilevel estimation procedure takes care of both
problems. This paper estimates the knowledge-capital model of bilateral FDI for a sample of
multiple parent and host countries by means of the cross-classified multilevel approach and
compares the estimates with other techniques.
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