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The relationship between domestic and outward foreign direct investment: The role of industry-specific effects

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  • Braunerhjelm, Pontus
  • Oxelheim, Lars
  • Thulin, Per

Abstract

Previous research has been inconclusive as regards the effect of outward foreign direct investment (FDI) on domestic investments. In this article, we show that this inconclusiveness can be explained at a disaggregated level as a function of the way industries are organized. Based on a simple theoretical framework including monitoring and trade costs, we argue that a complementary relationship can be expected to prevail in vertically integrated industries, whereas a substitutionary relationship can be expected in horizontally organized production. The empirical analysis confirms a significant difference between the two categories of industry as regards the impact of outward FDI on domestic investment. The results may thus have profound policy implications. JEL no. F12, F21, F23, G34.

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Bibliographic Info

Article provided by Elsevier in its journal International Business Review.

Volume (Year): 14 (2005)
Issue (Month): 6 (December)
Pages: 677-694

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Handle: RePEc:eee:iburev:v:14:y:2005:i:6:p:677-694

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Keywords: FDI Gross domestic investment Industry-specific effects;

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Citations

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Cited by:
  1. Julian Emami Namini & Enrico Pennings, 2009. "Horizontal Multinational Firms, Vertical Multinational Firms and Domestic Investment," Tinbergen Institute Discussion Papers 09-004/2, Tinbergen Institute.
  2. Oxelheim, Lars & Ghauri, Pervez, 2008. "EU – China and the Non-transparent Race for Inward FDI," Working Paper Series 745, Research Institute of Industrial Economics.
  3. Nagubadi, Rao V. & Zhang, Daowei, 2011. "Bilateral foreign direct investment in forest industry between the U.S. and Canada," Forest Policy and Economics, Elsevier, vol. 13(5), pages 338-344, June.
  4. Zhan, Ge, 2013. "Statistical power in international business research: Study levels and data types," International Business Review, Elsevier, vol. 22(4), pages 678-686.
  5. Santi Chaisrisawatsuk & Wisit Chaisrisawatsuk, 2007. "Imports, Exports and Foreign Direct Investment Interactions and Their Effects," Working Papers 4507, Asia-Pacific Research and Training Network on Trade (ARTNeT), an initiative of UNESCAP and IDRC, Canada..

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