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Foreign Direct Investment as a Catalyst for Industrial Development

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Author Info
James R. Markusen
Anthony J. Venables

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Abstract

How does an FDI project affect local firms in the same industry? Competition in the" product and factor markets tends to reduce profits of local firms, but linkage effects to supplier" industries may reduce input costs and raise profits. This paper develops an analytical framework" to assess these effects. Circumstances in which FDI is complementary to local industry are" established, and it is shown how FDI may lead to the establishment of local industrial sectors. " These sectors may grow to the point where local production overtakes and forces out FDI plants. " Our results are consistent with the experience of a number of industrial sectors in the NICs."

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6241.

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Date of creation: Oct 1997
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Publication status: published as European Economic Review, Vol. 43 (1999): 335-356.
Handle: RePEc:nbr:nberwo:6241

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Markusen, James R, 1995. "The Boundaries of Multinational Enterprises and the Theory of International Trade," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 169-89, Spring. [Downloadable!] (restricted)
  2. Magnus Blomstrom & Edward N. Wolff, 1994. "Multinational Corporations and Productivity Convergence in Mexico," NBER Working Papers 3141, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Magnus Blomstrom & Ari Kokko & Mario Zejan, 1995. "Host Country Competition and Technology Transfer by Multinationals," NBER Working Papers 4131, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Rodriguez-Clare, Andres, 1996. "Multinationals, Linkages, and Economic Development," American Economic Review, American Economic Association, vol. 86(4), pages 852-73, September. [Downloadable!] (restricted)
  5. Aitken, B. & Hanson, G.H. & Harrison, A.E., 1994. "Spillovers, Foreign Investment and Export Behavior," Papers 95-06, Columbia - Graduate School of Business.
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  6. Kokko, Ari & Blomstrom, Magnus, 1995. "Policies to encourage inflows of technology through foreign multinationals," World Development, Elsevier, vol. 23(3), pages 459-468, March. [Downloadable!] (restricted)
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  7. Aitken, B. & Harrison, A. & Lipsey, R.E., 1995. "Wages and Foreign Ownership: A Comparative Study of Mexico, Venezuela, and the United States," Papers 95-21, Columbia - Graduate School of Business.
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  8. Chung, W. & Mitchell, W. & Yeung, B., 1994. "Foreign Direct Investment and Host Country Productivity: The Case of the American Automotive Components Industry," Working Papers 367, Research Seminar in International Economics, University of Michigan.
  9. Blomström, Magnus & Kokko, Ari, 1996. "Multinational Corporations and Spillovers," Working Paper Series in Economics and Finance 99, Stockholm School of Economics.
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  10. repec:fth:michin:367 is not listed on IDEAS
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