THE KNOWLEDGE-CAPITAL MODEL OF FDI: A TIME VARYING COEFFICIENTS APPROACH

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ABSTRACT

The present article reexamines some of the issues regarding the Knowledge-Capital Model that encompasses both horizontal and vertical Foreign Direct Investment. The empirical support for this model is however mixed. This article proposes a new way of estimating coefficients by allowing them to vary over time. The estimation results obtained using data from 30 OECD countries for the period from 1982 to 2003 confirm that these coefficients cannot be considered as constant over time and that the vertical component of the Knowledge-Capital Model is relevant.

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