The Relationship Between Domestic and Outward Foreign Investment Revisited: The Impact of Industry-Specific Effects
The ambiguity reported in previous research as regards the effect of foreign direct investment (FDI) on domestic investments is shown to be related to how industries are organized. Based on a simple model including monitoring and trade costs, we argue that a complementary relationship should prevail in vertically integrated industries, whereas a substitutionary relationship can be expected in horizontally organized production. Applying iterative SUR-technique, the empirical analysis confirms a significant difference between the two categories of industries. To our knowledge, this is the first attempt to reconcile the inconclusiveness reported in previous empirical analyses.
|Date of creation:||12 Aug 2005|
|Contact details of provider:|| Postal: CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology, SE-100 44 Stockholm, Sweden|
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NBER Working Papers
4668, National Bureau of Economic Research, Inc.
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"Interactions between Domestic and Foreign Investment,"
NBER Working Papers
2714, National Bureau of Economic Research, Inc.
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