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Outward FDI, Total Factor Productivity and Domestic Output: Evidence from Germany


  • Dierk Herzer


This paper examines the impact of outward FDI on domestic output and total factor productivity by applying cointegration techniques to macroeconomic time series data for Germany. We find a positive relationship between outward FDI and domestic output as well as between outward FDI and total factor productivity. Furthermore, our results indicate that there is bidirectional causality between outward FDI and domestic output, and outward FDI and total factor productivity, suggesting that increased output and productivity are both a consequence and a cause of increased outward FDI. Overall, the results of this paper can be interpreted as evidence of productivity-enhancing, and thus growth-enhancing, effects of outward FDI, which is inconsistent with the simplistic idea that outward investment represents a diversion of domestic economic activity.

Suggested Citation

  • Dierk Herzer, 2012. "Outward FDI, Total Factor Productivity and Domestic Output: Evidence from Germany," International Economic Journal, Taylor & Francis Journals, vol. 26(1), pages 155-174, October.
  • Handle: RePEc:taf:intecj:v:26:y:2012:i:1:p:155-174 DOI: 10.1080/10168737.2010.538430

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    References listed on IDEAS

    1. Lloyd A. Metzler, 1949. "Tariffs, International Demand, and Domestic Prices," Journal of Political Economy, University of Chicago Press, vol. 57, pages 345-345.
    2. Jones, Ronald W, 1969. "Tariffs and Trade in General Equilibrium: Comment," American Economic Review, American Economic Association, vol. 59(3), pages 418-424, June.
    3. Jones, Ronald W, 1985. "Income Effects and Paradoxes in the Theory of International Trade," Economic Journal, Royal Economic Society, vol. 95(378), pages 330-344, June.
    4. Falvey, Rodney E, 1975. "A Note on the Distinction between Tariffs and Quotas," Economica, London School of Economics and Political Science, vol. 42(167), pages 319-326, August.
    5. Lloyd A. Metzler, 1949. "Tariffs, the Terms of Trade, and the Distribution of National Income," Journal of Political Economy, University of Chicago Press, vol. 57, pages 1-1.
    6. Jagdish Bhagwati, 1958. "Immiserizing Growth: A Geometrical Note," Review of Economic Studies, Oxford University Press, vol. 25(3), pages 201-205.
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    Cited by:

    1. KARGI, Bilal, 2014. "Portfolio in Turkish Economy, and A Long Termed Relation Between Foreign Direct Investments and The Growth, and The Structural Breakage Analysis (1980-2012)," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 70-81.
    2. repec:eee:iburev:v:26:y:2017:i:5:p:839-854 is not listed on IDEAS
    3. Fabrizio Coricelli & Andreas Wörgötter, 2012. "Structural Change and the Current Account: The Case of Germany," OECD Economics Department Working Papers 940, OECD Publishing.
    4. repec:kap:iecepo:v:14:y:2017:i:2:d:10.1007_s10368-016-0371-1 is not listed on IDEAS
    5. Cozza, C. & Rabellotti, R. & Sanfilippo, M., 2015. "The impact of outward FDI on the performance of Chinese firms," China Economic Review, Elsevier, vol. 36(C), pages 42-57.

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