and data purchased from market research and publication companies. Each project is cross-referenced against multiple sources, with the main focus on direct company sources. _fDi Markets_ is the primary source of greenfield FDI data for various international organizations (UNCTAD, World Banks), consultancies (the Economist Intelligence Unit), major corporations and over 100 governments.

Crucially for our study, the _fDi Markets_ database does not make a distinction between the different sources of foreign affiliate financing, which can be internal or external to the MNE.<sup>32</sup> Given that we are interested in the impact of both SFD and DFD on bilateral FDI flows, the absence of a distinction between internal and external financing makes the data provided by _fDi Markets_ database a much better measure of FDI flows than BOP data, which do not take into account, among other things, that a proportion of the financing for a newlyestablished foreign affiliate can originate from unrelated parties in the destination country.<sup>33</sup> Furthermore, contrary to BOP FDI flows, our FDI data only reflect the initial fixed costs incurred by firms engaging in FDI,<sup>34</sup> provide information on the extensive and intensive margins of FDI, are not distorted by “round-tripping” and “trans-shipping” phenomena,<sup>35</sup> are recorded on a gross basis<sup>36</sup> and, finally, are available for a large number of countries and sectors.

Given that we do not have any parent-specific data, we can aggregate the firm-level data provided by the _fDi Markets_ database at the sector-country-pair level without any loss of information to obtain a proxy for _FDIijst_ .<sup>37</sup> We assume that firms engaging in greenfield FDI in a given sector primarily operate in the same

> 32Internal sources of funding are equity and debt provided by the parent company and funds from (potential) sister subsidiaries. External sources of funding are borrowing from unrelated sources in the parent country, destination country or third-country, and local equity. This distinction of sources of funds is porous. The internal funds provided by the parent company may have been raised externally and borrowing by the foreign subsidiary may have been done with the guarantee of the parent company.

> 33As previously mentioned, BOP FDI data only capture the portion of the funding of existing and new foreign affiliates coming from related parties outside the host country. Feldstein (1995) illustrates how using only BOP data fails to provide an accurate picture of the activities of U.S. MNEs abroad.

> 34BOP FDI flows also include sources of funds for already established foreign affiliates, e.g. reinvested earnings.

> 35“Round-tripping” refers to the situation where different treatments of foreign and domestic investors encourage the latter to channel their funds into special purpose entities (SPEs) abroad in order to subsequently repatriate them in the form of incentive-eligible FDI. With “trans-shipping”, funds channeled into SPEs in offshore financial centres are redirected to other countries, leading to strong divergences between the source country of the FDI and the ultimate beneficiary owner. The _fDi Markets_ database reports the ultimate parent company.

> 36BOP FDI flows are recorded on a net basis, i.e. funds that parent companies provide to their foreign affiliates net of funds that affiliates provide to their parents during a given period. This can obscure the reliance of foreign affiliates on funding sources outside the host country.

> 37Of course, we do not deny that MNEs are heterogeneous firms. For example, within a given sector, firms are likely to vary in the financial constraints that they face. What we mean is that, given the FDI data that we have, we would not obtain different results by

14