Applying sample selection methods for panel data to analyse determinants of foreign direct divestment

Abstract

ABSTRACT This is the first empirical study to examine determinants of both the probability and the volume of foreign direct divestment (FDD) between countries, applying sample selection methods for panel data. The data cover 137 host countries and 169 source countries, from 2004 to 2012. Empirical evidence shows that market size and GDP growth of both host and source countries, as well as a bilateral investment treaty, discourage divestment. By contrast, sharing a common currency has a positive impact on divestment. Distance negatively affects the divestment amount but does not show any statistically significant impact on the probability of divestment. Neither do political stability, colonial relationship, common language, or common religion play an important role in FDD. This study opens up an area for future research in terms of both theory and empirics since FDD is still a neglected area in international economics.