The Relationship between Domestic and Outward Foreign Direct Investment: The Role of Industry-Specific Effects
AbstractPrevious 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 model 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.
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Bibliographic InfoPaper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 625.
Length: 30 pages
Date of creation: 15 Jul 2004
Date of revision:
Publication status: Published in International Business Review, 2005, pages 677-694.
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Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
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FDI; Gross Domestic Investment; Industry-Specific Effects; Monitoring Costs; Trade Costs;
Other versions of this item:
- Braunerhjelm, Pontus & Oxelheim, Lars & Thulin, Per, 2005. "The relationship between domestic and outward foreign direct investment: The role of industry-specific effects," International Business Review, Elsevier, vol. 14(6), pages 677-694, December.
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
- 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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