Relative factor endowments, foreign direct investment and tax planning of multinational firms: an empirical investigation into cross-country data

Figures & data

Table 1. Descriptive statistics of variables used in Equations (1) and (2).

Variable	Obs	Mean	Std. Dev.	Min	Max
National FDI stock	2805	199.607	624.115	0	6595.31
Matched FDI stock	2291	185.72	584.751	0	6234.34
Estimated FDI (Total)	2295	181.64	572.403	0	6628
Estimated FDI (Non-SPE)	2290	166.81	520.37	0	6628
GDP_SUM	2805	13.041	1.363	10.283	16.850
K_DIFF	2805	11.941	1.022	5.234	13.536
S_DIFF	2805	1.045	.765	−4.123	3.226
DISPij,t	2805	−1.861	1.111	−5.754	−.693
TFj,t	2805	81.236	25.796	40.2	825
TCit	2805	87.136	.71	85.8	88
ICit	2805	77.683	3.375	68.658	85

Note: Estimated FDI values are taken from Damgaard et al. (2019) database on bilateral FDI equity positions.

Source: Own estimation.

Table 2. Estimation results for the Baltic panel, reduced form regression, human capital difference. Based on national (2009–2019), matched (2009–2017), and estimated data samples (2009–2017).

	Expected sign	Dependent variable: FDI stock
		(1)	(2)	(3)	(4)	(5)	(6)
S_DIFF	+	0.290	0.297	0.355^+	0.360^+	0.328	0.295
		(0.207)	(0.207)	(0.214)	(0.212)	(0.203)	(0.207)
Sample		National	National	Matched	Matched	Damgaard et al. (2019) Estimated Total FDI	Damgaard et al. (2019) Estimated Non-SPE FDI
Zero FDI		Yes	No	Yes	No	Yes	Yes
Time effects		Yes	Yes	Yes	Yes	Yes	Yes
Partner effects		Yes	Yes	Yes	Yes	Yes	Yes
Clustering		Yes	Yes	Yes	Yes	Yes	Yes
Observations		2398	1468	1904	1206	2079	2101

Note: Significance levels: ⁺p < 0.10, **p < 0.05, ***p < 0.01.

Source: Own estimation.

Table 3. Estimation results for the Baltic panel, reduced form regression, physical capital difference. Based on national (2009–2019), matched (2009–2017), and estimated data samples (2009–2017).

	Expected sign	Dependent variable: FDI stock
		(1)	(2)	(3)	(4)	(5)	(6)
K_DIFF	+	0.103***	0.100**	0.0828**	0.0810**	0.0850**	0.0854**
		(0.0390)	(0.0391)	(0.0373)	(0.0375)	(0.0366)	(0.0386)
Sample		National	National	Matched	Matched	Damgaard et al. (2019) Estimated Total FDI	Damgaard et al. (2019) Estimated Non-SPE FDI
Zero FDI		Yes	No	Yes	No	Yes	Yes
Time effects		Yes	Yes	Yes	Yes	Yes	Yes
Partner effects		Yes	Yes	Yes	Yes	Yes	Yes
Clustering		Yes	Yes	Yes	Yes	Yes	Yes
Observations		2398	1468	1904	1206	2079	2101

Note: Significance levels: ⁺p < 0.10, **p < 0.05, ***p < 0.01.

Source: Own estimation.

Table 4. Estimation results for the Baltic panel, reduced form regression, both endowments. Based on national (2009–2019), matched (2009–2017), and estimated data samples (2009–2017).

	Expected sign	Dependent variable: FDI stock
		(1)	(2)	(3)	(4)	(5)	(6)
K_DIFF	+	0.119***	0.117***	0.100**	0.098**	0.098**	0.098**
		(0.0417)	(0.0417)	(0.040)	(0.0431)	(0.0393)	(0.0421)
S_DIFF	+	0.357^+	0.362^+	0.414^+	0.417^+	0.377^+	0.341^+
		(0.210)	(0.209)	(0.216)	(0.213)	(0.203)	(0.205)
Sample		National	National	Matched	Matched	Damgaard et al. (2019) Estimated Total FDI	Damgaard et al. (2019) Estimated Non-SPE FDI
Zero FDI		Yes	No	Yes	No	Yes	Yes
Time effects		Yes	Yes	Yes	Yes	Yes	Yes
Partner effects		Yes	Yes	Yes	Yes	Yes	Yes
Clustering		Yes	Yes	Yes	Yes	Yes	Yes
Observations		2398	1468	2398	1492	2079	2101

Note: Significance levels: ⁺p < 0.10, **p < 0.05, ***p < 0.01.

Source: Own estimation.

Table 5. Reduced form regression – robustness. Based on national (2009–2019), matched (2009–2017), and estimated data samples (2009–2017).

	Expected sign	Dependent variable: FDI stock
		(1)	(2)	(3)	(4)
K_DIFF	+	0.168***	0.162***	0.134**	0.134**
		(0.0612)	(0.0586)	(0.0554)	(0.0587)
S_DIFF	+	0.824^+	0.754^+	0.851^+	0.789^+
		(0.437)	(0.396)	(0.456)	(0.458)
Sample		National	National	Damgaard et al. (2019)	Damgaard et al. (2019)
Offshore assumption		Offshore partners removed	Offshore partners have equity reduced to 5%	Estimated Total FDI	Estimated Non-SPE FDI
Offshore partners		Removed	Present	Removed	Removed
Zero FDI		Yes	Yes	Yes	Yes
Time effects		Yes	Yes	Yes	Yes
Partner effects		Yes	Yes	Yes	Yes
Clustering		Yes	Yes	Yes	Yes
Observations		2101	2398	1836	1862

Note: Significance levels: ⁺p < 0.10, **p < 0.05, ***p < 0.01.

Source: Own estimation.

Table 6. Estimation results for the Baltic panel, results for complete model. Based on national (2009–2019), matched (2009–2017), and estimated data samples (2009–2017).

	Expected sign	Dependent variable: FDI stock
		(1)	(2)	(3)	(4)	(5)	(6)
GDP_SUM	+	0.134	0.117	0.0587	0.0377	−0.431	−0.543
		(0.165)	(0.167)	(0.147)	(0.148)	(0.386)	(0.386)
K_DIFF	+	0.135***	0.134***	0.134***	0.132***	0.102**	0.0988**
		(0.0473)	(0.0474)	(0.050)	(0.050)	(0.0449)	(0.0483)
S_DIFF	+	0.636^+	0.658^+	0.772**	0.788**	0.816**	0.795**
		(0.355)	(0.348)	(0.375)	(0.374)	(0.346)	(0.363)
DISP	+	0.966^+	1.031^+	0.865^+	0.875^+	0.788	0.733
		(0.567)	(0.574)	(0.507)	(0.509)	(0.528)	(0.523)
TFHOME	+	0.0123	0.0140	0.00660	0.00839	0.0142	0.0119
		(0.0137)	(0.0136)	(0.0136)	(0.0135)	(0.0129)	(0.0131)
TCHOST	+	0.355^+	0.404**	0.0350	0.0348	0	0
		(0.197)	(0.195)	(0.0423)	(0.0426)	(.)	(.)
ICHOST	+	0.00486	0.00324	0.00824	0.00770	0.00203	−0.000931
		(0.0100)	(0.00998)	(0.00881)	(0.00880)	(0.00721)	(0.00733)
Sample		National	National	Matched	Matched	Damgaard et al. (2019) Estimated Total FDI	Damgaard et al. (2019) Estimated Non-SPE FDI
Zero FDI		Yes	No	Yes	No	Yes	Yes
Time effects		Yes	Yes	Yes	Yes	Yes	Yes
Partner effects		Yes	Yes	Yes	Yes	Yes	Yes
Clustering		Yes	Yes	Yes	Yes	Yes	Yes
Observations		2375	1468	2317	1448	2079	2101

Note: Significance levels: ⁺p < 0.10, **p < 0.05, ***p < 0.01.

Source: Own estimation.

Figure A1. Level of human capital between offshore origin countries, 2019. Source: Penn World Table 10.0.

Note: Red solid line represents average level among the presented countries.

Figure A2. Level of human capital between real investor origin countries, 2019. Source: Penn World Table 10.0.

Note: Red solid line represents average level among the presented countries.

Figure A3. Level of physical capital between offshore origin countries, 2019. Source: Penn World Table 10.0.

Note: Red solid line represents average level among the presented countries.

Figure A4. Level of physical capital between real investor origin countries, 2019. Source: Penn World Table 10.0.

Note: Red solid line represents average level among the presented countries.

Figure A5. Cross-comparison between various types of inward FDI across the Baltic economies of Estonia, Latvia, and Lithuania, 2009–2017. Source: Bank of Estonia (2021), Bank of Latvia (2021), Bank of Lithuania (2021), Damgaard et al. (2019).

Note: Red dotted line denotes availability of real and SPE-FDI data.

Figure A6. Comparison between reported and estimated data for Estonia, 2009–2017. Source: Bank of Estonia (2021), Damgaard et al. (2019).

Note: Inward FDI stocks from Sweden to Estonia, USD million.

Figure A7. Comparison between reported and estimated data for Latvia, 2009–2017. Source: Bank of Latvia (2021), Damgaard et al. (2019).

Note: Inward FDI stocks from Sweden to Latvia, USD million.

Figure A8. Comparison between national reported and estimated data for Lithuania, 2009–2017. Source: Bank of Lithuania (2021), Damgaard et al. (2019).

Note: Inward FDI stocks from Sweden to Lithuania, USD million.

Table A1. Sample of partners used in the empirical analysis.

Full sample (balanced panel)	Albania, Algeria, Argentina, Armenia, Australia, Austria, Bangladesh, Belgium, Belize, Brazil, Bulgaria, Canada, Chile, China (Mainland), Costa Rica, Croatia, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Finland, France, Germany, Ghana, Greece, Honduras, Hong Kong, Hungary, Iceland, India, Indonesia, Ireland, Israel, Italy, Japan, Jordan, Kazakhstan, Korea (Rep of), Kuwait, Kyrgyzstan, Latvia, Lithuania, Luxembourg, Malaysia, Malta, Mauritius, Mexico, Moldova, Mongolia, Nepal, Netherlands, New Zealand, Niger, Nigeria, Norway, Pakistan, Panama, Philippines, Poland, Portugal, Qatar, Romania, Russia, Saudi Arabia, Singapore, Slovakia, Slovenia, South Africa, Spain, Sri Lanka, Sweden, Switzerland, Syria, Taiwan, Tajikistan, Tanzania, Thailand, Tunisia, Turkey, Ukraine, United Kingdom, United States, Uruguay, Vietnam, Zambia
Non-zero FDI partners (unbalanced panel)	Albania, Algeria, Argentina, Armenia, Austria, Belgium, Bangladesh, Belize, Brazil, Bulgaria, Canada, China, Chile, Croatia, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Finland, France, Germany, Greece, Honduras, Hong Kong, Hungary, Iceland, India, Indonesia, Ireland, Israel, Italy, Japan, Jordan, Kazakhstan, Korea (Rep of), Kyrgyzstan, Latvia, Lithuania, Luxembourg, Malta, Malaysia, Mauritius, Mexico, Moldova, Netherlands, New Zealand, Norway, Pakistan, Panama, Philippines, Poland, Portugal, Romania, Russia, Saudi Arabia, Singapore, Slovakia, Slovenia, South Africa, Spain, Sweden, Switzerland, Syria, Tajikistan, Thailand, Tunisia, Turkey, Ukraine, United Kingdom, United States, Vietnam
Zero FDI partners	Albania, Algeria, Argentina, Armenia, Australia, Bangladesh, Belize, Brazil, Bulgaria, China, Chile, Costa Rica, Croatia, Egypt, Ghana, Greece, Honduras, Hungary, India, Indonesia, Ireland, Israel, Japan, Jordan, Kazakhstan, Korea (Rep of), Kuwait, Kyrgyzstan, Malaysia, Mauritius, Mexico, Moldova, Mongolia, Nepal, New Zealand, Niger, Nigeria, Pakistan, Panama, Philippines, Poland, Portugal, Qatar, Romania, Saudi Arabia, Slovakia, Slovenia, South Africa, Sri Lanka, Syria, Taiwan, Tajikistan, Tanzania, Thailand, Tunisia, United Kingdom*, Uruguay, Vietnam, Zambia
Offshore sample	Belize, Cyprus, Hong Kong, Luxembourg, Malaysia, Mauritius, Netherlands, Panama, Singapore

* United Kingdom is present in zero FDI partners due to disinvestments in Lithuania between 2018 and 2019.

Source: own summary.

Table A2. Definitions and sources of independent variables.

Variable	Description	Data source
FDI	Bilateral direct investment equity stock data from non-resident entities, includes investment by a direct investor in its direct investment enterprise (immediate or not), retail funds, real estate investment (including investment properties and vacation homes), pass-through transactions, transactions that reach or surpass the threshold of 10% or more voting power, reverse investment by a direct investment enterprise in its own immediate or indirect investor. Originally reported in current EUR million, then, converted to current USD using annual average exchange rates (Antweiler, 2021; IMF, 2019).	Bank of Estonia Bank of Latvia Bank of Lithuania Damgaard et al. (2019)
S_DIFF	Human capital difference, adjusted for the number of employed population, log. $\ln \left[\left|\frac{S_{i,t}}{L_{i,t}}\text{–}\frac{S_{j,t}}{L_{j,t}}\right|\right]$	Penn World Table
K_DIFF	Physical capital difference, adjusted for the number of employed population (USD million), log. $\ln \left[\left|\frac{K_{i,t}}{L_{i,t}}\text{–}\frac{K_{j,t}}{L_{j,t}}\right|\right]$
GDP_SUM	Sum of GDPs (USD million), log. $\ln [(Y_{i,t}+Y_{j,t})]$
DISP	Helpman’s (1987) similarity index (USD million), log. $\ln [(1-s_{i,t}^2-s_{j,t}^2)]$
TFHOME	Trade freedom index for MNEs' home country.	Heritage Foundation
TCHOST	Trade freedom index for MNEs' host country.
ICHOST	Investment freedom index for MNEs' host country.

Source: own summary.

Table B1. Estimation results for the Baltic panel with distance. Based on national (2009–2019), matched (2009–2017), and estimated data samples (2009–2017).

	Expected sign	Dependent variable: FDI stocks
		(1)	(2)	(3)	(4)	(5)	(6)
GDP_SUM	+	0.493***	0.503***	0.487***	0.498***	0.476^+	0.442
		(0.157)	(0.156)	(0.156)	(0.155)	(0.261)	(0.277)
K_DIFF	+	0.0772***	0.0781***	0.0763***	0.0770***	0.0481**	0.0509**
		(0.0215)	(0.0214)	(0.0220)	(0.0219)	(0.0220)	(0.0219)
HC_DIFF	+	0.122	0.151	0.152	0.171^+	0.179**	0.116
		(0.0916)	(0.0932)	(0.0925)	(0.0938)	(0.0895)	(0.0903)
DISP	+	0.437***	0.489***	0.481***	0.512***	0.653***	0.591***
		(0.151)	(0.153)	(0.151)	(0.152)	(0.218)	(0.224)
DIST	−	−1.030***	−1.009***	−1.034***	−1.015***	−1.055***	−1.069***
		(0.0504)	(0.0501)	(0.0500)	(0.0497)	(0.0623)	(0.0634)
TFHOME	+	0.0127	0.0143	0.0122	0.0139	0.0131	0.0111
		(0.0105)	(0.0104)	(0.0105)	(0.0103)	(0.00918)	(0.00897)
TCHOST	+	0.288**	0.333**	0.268^+	0.307**	0	0
		(0.137)	(0.135)	(0.138)	(0.135)	(.)	(.)
ICHOST	+	0.00585	0.00435	0.00630	0.00506	0.00323	0.000115
		(0.00808)	(0.00799)	(0.00801)	(0.00792)	(0.00918)	(0.00902)
Sample		National	National	Baseline Matched	Baseline Matched	Damgaard et al. (2019) Estimated Total FDI	Damgaard et al. (2019) Estimated Non-SPE FDI
Zero FDI		Yes	No	Yes	No	Yes	Yes
Time effects		Yes	Yes	Yes	Yes	Yes	Yes
Partner effects		No	No	No	No	No	No
Clustering		No	No	No	No	No	No
Observations		2398	1468	2398	1492	1907	2101

Note: Robust standard errors in parenthesis, significance levels: ⁺p < 0.10, **p < 0.05, ***p < 0.01.

Table B2. Estimation results for the Baltic panel, single endowment case. Based on national (2009–2019), matched (2009–2017), and estimated data samples (2009–2017).

Dependent variable: FDI stocks	(1)	(2)	(3)
S_DIFF	0.564	0.766**	0.750^+
	(0.358)	(0.369)	(0.384)
Sample	National	Damgaard et al. (2019) Estimated Total FDI	Damgaard et al. (2019) Estimated Non-SPE FDI
Model controls	Yes	Yes	Yes
Zero FDI	Yes	Yes	Yes
Time effects	Yes	Yes	Yes
Partner effects	Yes	Yes	Yes
Clustering	Yes	Yes	Yes
N	2376	2079	2101

Note: Significance levels: ⁺p < 0.10, **p < 0.05, ***p < 0.01.

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