Braunerhjelm, Pontus () (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology) Oxelheim, Lars (Institute of Economic Research and Lund University) Thulin, Per (Center for Business and Policy Studies (SNS) and Linköping University)
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The ambiguity reported in previous research as regards the effect of foreign direct investment (FDI) on domestic investments is shown to be related to how industries are organized. Based on a simple model including monitoring and trade costs, we argue that a complementary relationship should prevail in vertically integrated industries, whereas a substitutionary relationship can be expected in horizontally organized production. Applying iterative SUR-technique, the empirical analysis confirms a significant difference between the two categories of industries. To our knowledge, this is the first attempt to reconcile the inconclusiveness reported in previous empirical analyses.
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Length: 29 pages Date of creation: 12 Aug 2005 Date of revision: Handle: RePEc:hhs:cesisp:0035
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Find related papers by JEL classification: F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
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