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Domestic and foreign investment in advanced economies. The role of industry integration

Author

Listed:
  • Teresa Sastre

    (Banco de España)

  • Laura Heras Recuero

    (Banco de España)

Abstract

Previous research using country or firm data has been inconclusive on the sign of the relation between domestic and foreign investment. Though several hypotheses have been formulated, the factors determining the sign of this relationship are not clearly identified yet. In this paper we explore the role of industry integration in determining the relation between outward foreign direct investment (FDI) and domestic investment by using disaggregated data at the industry level and several indicators of industry integration. The proportion of intangible investment is used as a proxy of horizontal integration and several measures of participation in Global Value Chains (GVCs) as proxies of vertical integration. The empirical results confirm that the relationship between outward FDI and domestic investment is very varied and differs across industries and countries. That relation is positive (complementary) for those industries with low intensity in intangible investment and high forward integration in GVCs –two features of vertically integrated industries– and becomes negative for those industries with high intangible investment (usually more horizontally integrated).

Suggested Citation

  • Teresa Sastre & Laura Heras Recuero, 2019. "Domestic and foreign investment in advanced economies. The role of industry integration," Working Papers 1933, Banco de España.
    • Handle: RePEc:bde:wpaper:1933
    as

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    File URL: https://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/19/Fich/dt1933e.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    investment; foreign direct investment; vertical and horizontal integration; global value chains;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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