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Contrasting the dynamic patterns of manufacturing and service FDI: Evidence from transition economies

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  • Riedl, Aleksandra

Abstract

We contribute to the foreign direct investment (FDI) literature by providing first empirical evidence on the relative importance of location fac- tors for service and manufacturing FDI. This is of particular interest as the global stock of inward FDI in the service sector has become predominant in the last ten years. Based on a sectoral panel of eight new European member states in the period of 1998 to 2004 we perform a dynamic panel analysis al- lowing for individual adjustment periods across sectors. Results support our assumption that investment into the service sector, which is characterized by low installation costs, adjusts much faster to its desired level than manufactur- ing FDI. Furthermore, since services are mostly non-tradable, FDI into this sector is largely based on market-seeking motives while manufacturing FDI is also driven by international price competitiveness measured via real unit labor costs. (author´s abstract)

Suggested Citation

  • Riedl, Aleksandra, 2008. "Contrasting the dynamic patterns of manufacturing and service FDI: Evidence from transition economies," Department of Economics Working Paper Series 117, WU Vienna University of Economics and Business.
    • Handle: RePEc:wiw:wus005:1550
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    Cited by:

    1. Elisabeth Christen & Joseph Francois, 2017. "Modes of Supply for US Exports of Services," The World Economy, Wiley Blackwell, vol. 40(3), pages 517-531, March.
    2. Mario Pečarić & Tino Kusanović & Pavle Jakovac, 2021. "The Determinants of FDI Sectoral Structure in the Central and East European EU Countries," Economies, MDPI, vol. 9(2), pages 1-16, April.
    3. Reuter, Ute & Burr, Wolfgang, 2011. "International market assessment: Site selection in service firms," Research Papers on Innovation, Services and Technology 2/2011, University of Stuttgart, Institute of Business Administration, Department I - Institute of Research & Development and Innovation Management.
    4. Francois, Joseph & Christen, Elisabeth, 2010. "Modes of Delivery in Services," CEPR Discussion Papers 7912, C.E.P.R. Discussion Papers.

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    More about this item

    Keywords

    foreign direct investment; service sector; stock adjustment model; transition economies;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • P33 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - International Trade, Finance, Investment, Relations, and Aid

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