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The Home Country Effects Of Fdi In Developed Economies

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  • Kokko, Ari

    ()
    (European Institute of Japanese Studies)

Abstract

This paper surveys the effects of outward foreign direct investment on the developed home countries of multinational corporations. The focus is on the production interactions arising from outward investment – what is the impact on home country exports and production structure – but the paper also discusses effects on investment, the balance-of-payments, technology and knowledge, and political decision-making in the home country. The main conclusion is that outward FDI is beneficial to the investing firm, but that the effects on the home country vary depending on the characteristics of the investment project and the business environment in the home and host countries. In most cases, there is only a small impact on total exports and production in the developed home countries, but the net effect on employment may be mildly negative. This is related to a shift in production structure, whereby labor intensive activities are outsourced to host countries with lower wage levels, and more advanced operations are kept at home. Most home countries encourage outward investment, but the fear for negative effects (particularly on the balance-of-payments) has at times motivated restrictions on FDI. The final part of the paper discusses effects on developing home countries, and notes that these are likely to coincide with the effects on developed home countries. One exception is technology-sourcing investments, which may be more important than in developed home countries, and which may, at least in theory, provide an alternative to inward FDI as a source of technology for the more advanced developing economies.

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Bibliographic Info

Paper provided by The European Institute of Japanese Studies in its series EIJS Working Paper Series with number 225.

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Length: 37 pages
Date of creation: 12 Apr 2006
Date of revision:
Handle: RePEc:hhs:eijswp:0225

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Keywords: FDI; MNCs; home country effects;

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References

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Citations

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Cited by:
  1. Herzer, Dierk, 2011. "The Long-Run Relationship between Outward FDI and Total Factor Productivity: Evidence for Developing Countries," Proceedings of the German Development Economics Conference, Berlin 2011 41, Verein für Socialpolitik, Research Committee Development Economics.
  2. Lundan, Sarianna M., 2007. "The Home Country Effects of Internationalisation," Discussion Papers 1100, The Research Institute of the Finnish Economy.
  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.
  4. 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.
  5. Gabor Hunya, 2008. "Austrian FDI by main Countries and Industries," FIW Research Reports series I-015, FIW.

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