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The Relationship Between Domestic and Outward Foreign Investment Revisited: The Impact of Industry-Specific Effects

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Author Info

  • 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)

Abstract

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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Bibliographic Info

Paper provided by Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies in its series Working Paper Series in Economics and Institutions of Innovation with number 35.

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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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Postal: CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology, SE-100 44 Stockholm, Sweden
Phone: +46 8 790 95 63
Web page: http://www.infra.kth.se/cesis/
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Keywords: FDI; complementarities; substitutes; knowledge intensity;

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References

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  1. Martin S. Feldstein, 1995. "The Effects of Outbound Foreign Direct Investment on the Domestic Capital Stock," NBER Chapters, in: The Effects of Taxation on Multinational Corporations, pages 43-66 National Bureau of Economic Research, Inc.
  2. Stevens, Guy V. G. & Lipsey, Robert E., 1992. "Interactions between domestic and foreign investment," Journal of International Money and Finance, Elsevier, vol. 11(1), pages 40-62, February.
  3. Berndt, Ernst R & Khaled, Mohammed S, 1979. "Parametric Productivity Measurement and Choice among Flexible Functional Forms," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1220-45, December.
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Cited by:
  1. Huiqun Liu & Jinyong Lu, 2011. "The home-employment effect of FDI from developing countries: in the case of China," Journal of Chinese Economic and Foreign Trade Studies, Emerald Group Publishing, vol. 4(3), pages 173-182, October.
  2. Kokko, Ari, 2006. "The Home Country Effects Of Fdi In Developed Economies," EIJS Working Paper Series 225, The European Institute of Japanese Studies.
  3. Jaan Masso & Urmas Varblane & Priit Vahter, 2007. "The Impact of Outward FDI on Home-Country Employment in a Low-Cost Transition Economy," William Davidson Institute Working Papers Series wp873, William Davidson Institute at the University of Michigan.

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