The relationship between domestic and outward foreign direct investment: The role of industry-specific effects
Previous research has been inconclusive as regards the effect of outward foreign direct investment (FDI) on domestic investments. In this article, we show that this inconclusiveness can be explained at a disaggregated level as a function of the way industries are organized. Based on a simple theoretical framework including monitoring and trade costs, we argue that a complementary relationship can be expected to prevail in vertically integrated industries, whereas a substitutionary relationship can be expected in horizontally organized production. The empirical analysis confirms a significant difference between the two categories of industry as regards the impact of outward FDI on domestic investment. The results may thus have profound policy implications. JEL no. F12, F21, F23, G34.
Volume (Year): 14 (2005)
Issue (Month): 6 (December)
|Contact details of provider:|| Web page: http://www.elsevier.com/wps/find/journaldescription.cws_home/133/description#description|
|Order Information:|| Postal: http://www.elsevier.com/wps/find/journaldescription.cws_home/133/bibliographic|
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.:
- Dunning, John H., 2000. "The eclectic paradigm as an envelope for economic and business theories of MNE activity," International Business Review, Elsevier, vol. 9(2), pages 163-190, April.
- Magnus Blomstrom & Robert E. Lipsey & Ksenia Kulchycky, 1988.
"U.S. and Swedish Direct Investment and Exports,"
in: Trade Policy Issues and Empirical Analysis, pages 257-302
National Bureau of Economic Research, Inc.
- Stevens, Guy V. G. & Lipsey, Robert E., 1992.
"Interactions between domestic and foreign investment,"
Journal of International Money and Finance,
Elsevier, vol. 11(1), pages 40-62, February.
- Robert E. Lipsey & Guy V.G. Stevens, 1988. "Interactions between Domestic and Foreign Investment," NBER Working Papers 2714, National Bureau of Economic Research, Inc.
- Guy V.G. Stevens & Robert E. Lipsey, 1988. "Interactions between domestic and foreign investment," International Finance Discussion Papers 329, Board of Governors of the Federal Reserve System (U.S.).
- Oxelheim, Lars & Randøy, Trond & Stonehill, Arthur, 2001.
"On the Treatment of Finance-Specific Factors Within the OLI Paradigm,"
Working Paper Series
554, Research Institute of Industrial Economics.
- Oxelheim, Lars & Randøy, Trond & Stonehill, Arthur, 2001. "On the treatment of finance-specific factors within the OLI paradigm," International Business Review, Elsevier, vol. 10(4), pages 381-398, August.
- D Sethi & S E Guisinger & S E Phelan & D M Berg, 2003. "Trends in foreign direct investment flows: a theoretical and empirical analysis," Journal of International Business Studies, Palgrave Macmillan, vol. 34(4), pages 315-326, July.
- Noorzoy, M. S., 1980. "Flows of direct investment and their effects on U.S. domestic investment," Economics Letters, Elsevier, vol. 5(4), pages 311-317.
- Baltagi, Badi H. & Li, Qi, 1991. "A transformation that will circumvent the problem of autocorrelation in an error-component model," Journal of Econometrics, Elsevier, vol. 48(3), pages 385-393, June.
- Martin Feldstein, 1994.
"The Effects of Outbound Foreign Direct Investment on the Domestic Capital Stock,"
NBER Working Papers
4668, National Bureau of Economic Research, Inc.
- Martin S. Feldstein, 1995. "The Effects of Outbound Foreign Direct Investment on the Domestic Capital Stock," NBER Chapters, in: The Effects of Taxation on Multinational Corporations, pages 43-66 National Bureau of Economic Research, Inc.
- 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, 06.
- Braunerhjelm, Pontus & Oxelheim, Lars, 1999. "Does Foreign Direct Investment Replace Home Country Investment? The Effect of European Integration on the Location of Swedish Investment," Working Paper Series 522, Research Institute of Industrial Economics.
- Eduardo Borensztein & Jose De Gregorio & Jong-Wha Lee, 1995.
"How Does Foreign Direct Investment Affect Economic Growth?,"
NBER Working Papers
5057, National Bureau of Economic Research, Inc.
- Borensztein, E. & De Gregorio, J. & Lee, J-W., 1998. "How does foreign direct investment affect economic growth?1," Journal of International Economics, Elsevier, vol. 45(1), pages 115-135, June.
- David W Loree & Stephen E Guisinger, 1995. "Policy and Non-Policy Determinants of U.S. Equity Foreign Direct Investment," Journal of International Business Studies, Palgrave Macmillan, vol. 26(2), pages 281-299, June.
- W Hejazi & P Pauly, 2003. "Motivations for FDI and domestic capital formation," Journal of International Business Studies, Palgrave Macmillan, vol. 34(3), pages 282-289, May.
- René Belderbos, 1992.
"Large multinational enterprises based in a small economy: Effects on domestic investment,"
Review of World Economics (Weltwirtschaftliches Archiv),
Springer, vol. 128(3), pages 543-557, September.
- Belderbos, R.A., 1992. "Large Multnational Enterprises Based in a Small Economy: Effects on Domestic Investment," Papers 9115-g, Erasmus University of Rotterdam - Institute for Economic Research.
- Fors, Gunnar & Svensson, Roger, 1994. "R&D in Swedish Multinational Corporations," Working Paper Series 406, Research Institute of Industrial Economics.
- James R. Markusen, 1995. "The Boundaries of Multinational Enterprises and the Theory of International Trade," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 169-189, Spring.
- Perry, Martin K., 1989. "Vertical integration: Determinants and effects," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 4, pages 183-255 Elsevier.
- Lipsey, Robert E & Weiss, Merle Yahr, 1984. "Foreign Production and Exports of Individual Firms," The Review of Economics and Statistics, MIT Press, vol. 66(2), pages 304-08, May.
- Blomstrom, Magnus & Lipsey, Robert E, 1989. "The Export Performance of U.S. and Swedish Multinationals," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 35(3), pages 245-64, September.
- Lall, Sanjaya, 1980. "Monopolistic Advantages and Foreign Involvement by U.S. Manufacturing Industry," Oxford Economic Papers, Oxford University Press, vol. 32(1), pages 102-22, March.
- Brainard, S Lael, 1997. "An Empirical Assessment of the Proximity-Concentration Trade-off between Multinational Sales and Trade," American Economic Review, American Economic Association, vol. 87(4), pages 520-44, September.
When requesting a correction, please mention this item's handle: RePEc:eee:iburev:v:14:y:2005:i:6:p:677-694. See general information about how to correct material in RePEc.
If references are entirely missing, you can add them using this form.