This paper evaluates evidence of the impact of outbound foreign direct investment (FDI) on domestic investment rates. OECD countries with high rates of outbound FDI in the 1980s and 1990s exhibited lower domestic investment than other countries, which suggests that FDI and domestic investment are substitutes. U.S. time series data tell a very different story, however: years in which American multinational firms have greater foreign capital expenditures coincide with greater domestic capital spending by the same firms. One dollar of additional foreign capital spending is associated with 3.5 dollars of additional domestic capital spending in the time series, implying that foreign and domestic capital are complements in production by multinational firms. This effect is consistent with cross sectional evidence that firms whose foreign operations expand simultaneously expand their domestic operations, and suggests that interpretation of the OECD cross sectional evidence may be confounded by omitted variables.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
11075.
Length: Date of creation: Jan 2005 Date of revision: Handle: RePEc:nbr:nberwo:11075
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Find related papers by JEL classification: F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
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Christian Arndt & Claudia M. Buch & Monika Schnitzer, 2007.
"FDI and Domestic Investment: An Industry-Level View,"
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212, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
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Other versions:
Alejandro Donado & Klaus Wälde, 2008.
"Trade Unions go global!,"
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2008_22, Department of Economics, University of Glasgow, revised Aug 2008.
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Donado, Alejandro & Wälde, Klaus, 2009.
"Trade unions go global!,"
IAB Discussion Paper
200903, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
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