Murat Genc (p), Anh T. N. Nguyen, Alfred Haug, Dorian Owen

Andrés Rodríguez-Pose

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Employing a panel dataset of bilateral inward and outward foreign direct investment (FDI) for 31 Asian countries and territories over the period 2001-2012, we estimate the knowledge- capital (KK) model to find the dominant type of FDI within Asia. We consider alternative estimation methods to deal with zero values, which form the majority of the bilateral observations. Based on a series of model selection and diagnostic tests, we conclude that Lognormal Hurdle and Poisson Pseudo-Maximum-Likelihood are the most appropriate. Controlling for host and source country characteristics, our findings suggest that vertical FDI is the dominant type between Asian countries. However, we find little empirical evidence in support of the KK model’s predictions for its key variables, such as total GDP and skill difference, when country fixed effects are included. Some factors (distance, trade costs to both source and host country, the GDP difference between source and host country, and a common spoken language) are found to have statistically significant impacts on the volume of FDI between Asian countries, regardless of whether or not fixed effects are included.

Yohan Iddawela, Neil Lee , Andrés Rodríguez-Pose (p)

Murat Genc

Sub-national government has historically been highly important in much of Africa, and recent years have seen further decentralisation in much of the continent. Yet the role of sub-national government in explaining differences in economic outcomes across African regions has been largely ignored. To fully understand how institutions have shaped GDP per capita in Africa, in this paper we go beyond the traditional focus on national level institutions and consider subnational ones. We create a new index of sub-national government quality for 374 regions in 23 African countries and assess its impact on regional GDP per capita, measured using satellite data on night light density. To address causality concerns, we instrument sub-national government quality with the level of jurisdictional hierarchy of pre-colonial societies. Our results show a positive, significant and causal relationship between sub-national government quality and regional economic development. Better subnational governments are a powerful determinant of development in Africa.