minimizing the J-statistic. The optimal results for the GMM procedure are reported in Table 1. The high value for the adjusted R
2
and the low value of the J-statistics indicated that the model is well specified. Therefore, the following interpretation of
the results is justified.
6. Empirical results for US FDI in real estate
The US financial wealth variable W is statistically significant with a positive sign. This result is consistent with the expectation that financial wealth is a
contributor to the US investors’ decisions to invest in real estate abroad. This result is also consistent with the study by Russekh and Ruffin 1986 who showed that US
financial wealth contributes to the expansion of FDI abroad.
Returns from the US stock market S is statistically significant with a negative sign. This result indicates that US investors respond to falls in returns from the US
stock market by investing in real estate abroad. Indeed, data on US FDI in real estate indicate that after the share market crash of 1987, the capital outflows in the
form of real estate in the first quarter of 1988 for the US were the highest over the sample period of this study.
US FDI in real estate is found to be positi6ely correlated with US FDI in manufacturing and banking M. The positive sign of the M variable implies that
expansion of US investment in the form of manufacturing and banking contributes to her investment in real estate abroad. This result also extends the findings of
Table 1 Regression results for US FDI in real estate, 1985:I–1995:IV
a
GMM, NMA = 10, Parzen IV
OLS PRIVATE
− 2127 −5.5
a −
2181 −5.1 −
2175 −18.1 0.15E−02 8.4
0.15E−02 1.1 0.15E02 2.2
W −
2.3 3.3 −
2.3 −0.75 −
2.2 −0.75 S
0.40E02 3.5 0.40E02 2.8
M 0.42E02 1.3
0.25E08 0.57 0.25E08 3.7
0.26E08 0.49 A
T 0.11 10.9
0.11 1.6 0.11 1.5
11.1 1.2 11.0 1.4
11.1 1.3 G
R
2
1 0.90
0.89 DW
WHET 36.9
JB
b
0.16 0.43 J-statistics
0.38 0.39
a
OLS, ordinary least square; IV, instrumental variable; GMM, generalised methods of moments; WHET, White test for heteroskedasticity.
b
Jacque–Bera test statistic for normality; P-value in parenthesis. Estimate is significantly different from zero at the 5 level. Student t-statistics are shown in
parentheses. Estimate is significantly different from zero at the 1 level Student t-statistics are shown in
parentheses.
previous studies such as Goldberg and Johnson 1990 who found that FDI in banking and manufacturing are complementary.
US foreign financial liabilities A are statistically significant with a positive sign. This result indicates that for the US, capital outflows and capital inflows are positively
related to each other. As US foreign financial liabilities increase, there is an accompanying increase in her FDI in real estate. Therefore, an increase in US foreign
financial liabilities can be interpreted as a greater capacity for the US to engage in foreign investment activities. This result is consistent with the study by Russekh and
Ruffin 1986 who showed that US FDI abroad is a substitute for US financial assets.
The bilateral trade variable T is statistically significant with a positive sign indicating that trade activities between the US and her trading partners contribute
to the expansion of US FDI in real estate in these counties. This result is also consistent with studies of FDI in manufacturing and banking where the trade variable
was shown to be an important determinant of foreign investment. The relative economic growth variable is not statistically significant at the 5 level, indicating that
the bilateral trade and the FDI in manufacturing and banking variables are more influential in determining the amount of FDI in real estate.
7. Conclusion
