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Does Foreign Direct Investment Replace Home Country Investment? The Effect of European Integration on the Location of Swedish Investment

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  • Pontus Braunerhjelm
  • Lars Oxelheim

Abstract

The purpose of this article is to examine the effects of European integration on the location of investments by Swedish multinational corporations (MNCs). Evidence is presented about the extent to which European integration has attracted investment by Swedish MNCs, and whether foreign direct investment (FDI) is being undertaken at the expense of home country investment. In the empirical analysis, involving both OLS and iterative SUR techniques, a significant difference across industries has been confirmed. A substitutionary relationship between foreign and home country investment is found for more R&D‐intensive production, whereas the opposite pattern seems to prevail for production based on traditional comparative advantage. The results of this study emphasize the importance of using disaggregated industry‐level data when analysing the effects of foreign direct investment on home country investment.

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  • Pontus Braunerhjelm & Lars Oxelheim, 2000. "Does Foreign Direct Investment Replace Home Country Investment? The Effect of European Integration on the Location of Swedish Investment," Journal of Common Market Studies, Wiley Blackwell, vol. 38(2), pages 199-221, June.
    • Handle: RePEc:bla:jcmkts:v:38:y:2000:i:2:p:199-221
    DOI: 10.1111/1468-5965.00217
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    Cited by:

    1. Jaan Masso & Urmas Varblane & Priit Vahter, 2010. "The Impact Of Outward Fdi On Home-Country Employment In A Low-Cost Transition Economy," World Scientific Book Chapters, in: David A Dyker (ed.), Network Dynamics In Emerging Regions Of Europe, chapter 16, pages 333-360, World Scientific Publishing Co. Pte. Ltd..
    2. Lundan, Sarianna M., 2007. "The Home Country Effects of Internationalisation," Discussion Papers 1100, The Research Institute of the Finnish Economy.
    3. Bernhard Dachs & Bernd Ebersberger & Steffen Kinkel & Oliver Som, 2015. "The effects of production offshoring on R&D and innovation in the home country," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 42(1), pages 9-31, March.
    4. Florence Eid, 2003. "Foreign Direct Investment in The Arab World: Creating The Missing Link," Working Papers 0309, Economic Research Forum, revised Mar 2003.
    5. Kokko, Ari, 2006. "The Home Country Effects Of Fdi In Developed Economies," EIJS Working Paper Series 225, Stockholm School of Economics, The European Institute of Japanese Studies.
    6. Oksanen, Olli-Pekka, 2006. "Are Foreign Investments Replacing Domestic Investments? - Evidence from Finnish Manufacturing," Discussion Papers 1001, The Research Institute of the Finnish Economy.
    7. Oxelheim, Lars & Ghauri, Pervez, 2008. "EU-China and the non-transparent race for inward FDI," Journal of Asian Economics, Elsevier, vol. 19(4), pages 358-370, August.
    8. Heather Berry, 2010. "Why Do Firms Divest?," Organization Science, INFORMS, vol. 21(2), pages 380-396, April.
    9. 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.
    10. Jatinder Singh, 2011. "Inward Investment and Market Structure in an Open Developing Economy: A Case of India’s Manufacturing Sector," Journal of Economics and Behavioral Studies, AMH International, vol. 2(6), pages 286-297.
    11. repec:wsr:ecbook:2013:i:v-001 is not listed on IDEAS

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    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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