The effects of model specification on foreign direct investment models: An application of count data models
Abbreviated Journal Title
South. Econ. J.
EXCHANGE-RATES; UNITED-STATES; UNCERTAINTY; ENTRY; FIRMS; Economics
Previous studies have drawn a theoretical and empirical connection between foreign direct investment (FDI) and exchange rates using continuous measures of FDI, However, FDI data are often in discrete count form. I take a representative study of the FDI/exchange rate relationship by Jose M. Camps (1993), and I analyze the sensitivity of the results to specification of the dependent variable. Whereas Campa uses a Tobit specification, I use a count data specification to model counts of FDI occurrences. Using data on FDI in the United States from 1982 to 1393, controlling for the traditional determinants of FDI, I find that the results are sensitive across specifications, Significance levels and the magnitude of the coefficients change when going from a continuous Tobit specification to a zero inflated Poisson (ZIP) model designed for count data. Formal statistical testing finds that the ZIP specification likely models the data most properly. Thus, I indicate that misspecification bias from modeling discrete data with continuous distributions is important.
Southern Economic Journal
"The effects of model specification on foreign direct investment models: An application of count data models" (2000). Faculty Bibliography 2000s. 2826.