Testing IDP Hypothesis by Cluster Analysis: Which Countries in which Stage?

Abstract

Abstract Although there are some theories to explain foreign direct investments, an approach that everybody agree on could not be developed to explain these investments’ dynamic structure. Stages of investment development path theory emerge as a dynamic approach to Vernon's “product cycle theory” and Dunnings’ “eclectic paradigm”. Although, there exist very valuable studies to test IDP hypothesis, there is no agreed method in the literature. GDP is used as the absolute indicator of development in econometric models used by many studies. We accept that countries that have identical GDP level may not be at the same development level, it is decided that using multivariate statistical techniques will give much more rational results to test IDP hypothesis. For that purpose, emerged from oriented theoretical and empirical literature, variables are decided from the determinant of foreign direct investment researches. Those variables are studied in 4 periods of (1980-1989), (1990-1999), (2000-2005), and (1980-2005). Cluster Analysis, grouping resemble individual and objects in the same cluster, is implemented according to predetermined choice criteria. Then, the countries displaying similar features take place in the same cluster. At the same time, statistical significance of partition of sets examined by Discriminant Analysis.