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The Effects of Outward Foreign Direct Investment on Fixed-Capital Formation at Home: The Roles of Host Location and Industry Characteristics

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  • Wen Chung Hsu
  • Chengqi Wang
  • Jeremy Clegg

Abstract

This paper pursues the idea that the relationship between foreign and domestic investments may be not as uniform as many studies suggest. By examining the case of Taiwanese outward foreign direct investment (OFDI), this paper is marked out from existing studies in the following three respects. First, it examines the extent to which the relationship between OFDI and domestic investment varies with the location of investment. Second, this research allows the results to vary between Heckscher-Ohlin (H-O) industries and Schumpeter industries. Finally, its breakdown of data will reveal sub-relationships in the data that up to now have remained hidden within the aggregate relationships reported in most studies. This study suggests that OFDI in China has a positive impact on domestic investment in H-O industries, while OFDI in other countries (OFDIO) has a negative impact on domestic investment in the same industries. These findings are in marked contrast to Schumpeter industries where a positive effect is observed only for OFDIO. Our findings also suggest that the Taiwanese government should design policies to adjust the level of liberalisation for overseas investment through legislation on an industry-by-industry basis in order that OFDI stimulates domestic investment in relevant industries more effectively.

Suggested Citation

  • Wen Chung Hsu & Chengqi Wang & Jeremy Clegg, 2015. "The Effects of Outward Foreign Direct Investment on Fixed-Capital Formation at Home: The Roles of Host Location and Industry Characteristics," Global Economic Review, Taylor & Francis Journals, vol. 44(3), pages 353-368, September.
    • Handle: RePEc:taf:glecrv:v:44:y:2015:i:3:p:353-368
    DOI: 10.1080/1226508X.2015.1077720
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    Cited by:

    1. Sylvia Kor & Md Qamruzzaman, 2023. "Nexus between FDI, Financial Development, Capital Formation and Renewable Energy Consumption; evidence from Bangladesh," International Journal of Energy Economics and Policy, Econjournals, vol. 13(6), pages 129-145, November.
    2. Safet Kurtović & Nehat Maxhuni & Blerim Halili & Bujar Krasniqi, 2022. "Does outward foreign direct investment crowd in or crowd out domestic investment in central, east and southeast europe countries? an asymmetric approach," Economic Change and Restructuring, Springer, vol. 55(3), pages 1419-1444, August.

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