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Direct Versus Indirect FDI: Impact On Domestic Exports And Employment

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  • Christian Bellak

    ()

  • Wilfried Altzinger

    ()
    (Department of Economics, Vienna University of Economics & B.A.)

Abstract

One of the specific characteristics of Austrian Foreign Direct Investment (FDI) abroad is that a large part is carried out by firms, which themselves are affiliates of foreign Multinational Enterprises (MNEs). Such investment is termed indirect FDI in order to distinguish it from direct FDI, made by Austrian-owned firms. The objective of this paper is to analyse, whether the relatively better domestic employment performance of domestic firms (direct FDI) compared to foreign-owned firms (indirect FDI) can be linked to FDI abroad. Based on an analysis of the sales and trade structure of a sample of Austrian investors in Central and East European Countries (CEECs), this paper tests the hypothesis that these two groups of investors have different motives to invest in CEECs and therefore their activities in CEECs differ by type (sales affiliate, production abroad) and consequently the employment effects at home. Regression results confirm that direct FDI are more strongly determined by labour costs and exhibit an employment pattern related to a deeper international division of labour (including production), while indirect FDI is based relatively more on market seeking investment. Empirical results also confirm that employment effects at home differ. The positive (negative) effect of one additional unit of parent (affiliate) sales on domestic employment for indirect FDI compared to direct FDI is larger (smaller). The - despite this empirical fact - relatively better domestic employment performance of direct FDI is explained by their superior sales performance, resulting from restructuring their international division of labour.

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Bibliographic Info

Paper provided by Vienna University of Economics Research Group: Growth and Employment in Europe: Sustainability and Competitiveness in its series Working Papers with number geewp09.

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Date of creation: Nov 1999
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Handle: RePEc:wiw:wiwgee:geewp09

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Keywords: Foreign Direct Investment;

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References

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  1. Magnus Blomstrom & Gunnar Fors & Robert E. Lipsey, 1997. "Foreign Direct Investment and Employment: Home Country Experience in the United States and Sweden," NBER Working Papers 6205, National Bureau of Economic Research, Inc.
  2. Robert E. Lipsey, 1994. "Outward Direct Investment and the U.S. Economy," NBER Working Papers 4691, National Bureau of Economic Research, Inc.
  3. Martín, Carmela & Velazquez, Francisco J, 1997. "The Determining Factors of Foreign Direct Investment in Spain and the rest of the OECD: Lessons for CEECs," CEPR Discussion Papers 1637, C.E.P.R. Discussion Papers.
  4. Palle S. Andersen & P. Hainaut, 1998. "Foreign direct investment and employment in the industrial countries," BIS Working Papers 61, Bank for International Settlements.
  5. repec:fth:iniesr:490 is not listed on IDEAS
  6. n/a, 2002. "The Role of Efficiency as an Explanation of International Income Differences," NIESR Discussion Papers 137, National Institute of Economic and Social Research.
  7. Taggart, James & Hood, Neil, 1999. "Determinants of autonomy in multinational corporation subsidiaries," European Management Journal, Elsevier, vol. 17(2), pages 226-236, April.
  8. Brenton, Paul & Di Mauro, Francesca, 1999. "The Potential Magnitude and Impact of FDI flows to CEECs," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 14, pages 59-74.
  9. Christian Bellak, 1997. "Austrian Manufacturing MNEs: Long-Term Perspectives," Business History, Taylor & Francis Journals, vol. 39(1), pages 47-71.
  10. Lipsey, Robert E & Weiss, Merle Yahr, 1981. "Foreign Production and Exports in Manufacturing Industries," The Review of Economics and Statistics, MIT Press, vol. 63(4), pages 488-94, November.
  11. Barrell, Ray & Pain, Nigel, 1997. "Foreign Direct Investment, Technological Change, and Economic Growth within Europe," Economic Journal, Royal Economic Society, vol. 107(445), pages 1770-86, November.
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Cited by:
  1. Jaan Masso & Urmas Varblane & Priit Vahter, 2007. "The Impact Of Outward Fdi On Home-Country Employment In A Low-Cost Transition Economy," University of Tartu - Faculty of Economics and Business Administration Working Paper Series 52, Faculty of Economics and Business Administration, University of Tartu (Estonia).

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