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The Relationship Between Domestic and Outward Foreign Direct Investment

Author

Listed:
  • Braunerhjelm, Pontus

    (Center for Business and Policy Studies)

  • Oxelheim, Lars

    (Department of Business Administration, School of Economics and Management, Lund University)

  • Thulin, Per

    (Center for Business and Policy Studies)

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.

Suggested Citation

  • Braunerhjelm, Pontus & Oxelheim, Lars & Thulin, Per, 2004. "The Relationship Between Domestic and Outward Foreign Direct Investment," Working Paper Series 2004/10, Lund University, Institute of Economic Research.
    • Handle: RePEc:hhb:lufewp:2004_010
    as

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    Cited by:

    1. Hui‐lin LIN & Wen‐Bin CHUANG, 2007. "Fdi And Domestic Investment In Taiwan: An Endogenous Switching Model," The Developing Economies, Institute of Developing Economies, vol. 45(4), pages 465-490, December.
    2. Safet Kurtović & Nehat Maxhuni & Blerim Halili & Bujar Krasniqi, 2022. "Does outward foreign direct investment crowd in or crowd out domestic investment in central, east and southeast europe countries? an asymmetric approach," Economic Change and Restructuring, Springer, vol. 55(3), pages 1419-1444, August.

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