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The Home Country Effects Of Fdi In Developed Economies


  • Kokko, Ari

    () (European Institute of Japanese Studies)


This paper surveys the effects of outward foreign direct investment on the developed home countries of multinational corporations. The focus is on the production interactions arising from outward investment – what is the impact on home country exports and production structure – but the paper also discusses effects on investment, the balance-of-payments, technology and knowledge, and political decision-making in the home country. The main conclusion is that outward FDI is beneficial to the investing firm, but that the effects on the home country vary depending on the characteristics of the investment project and the business environment in the home and host countries. In most cases, there is only a small impact on total exports and production in the developed home countries, but the net effect on employment may be mildly negative. This is related to a shift in production structure, whereby labor intensive activities are outsourced to host countries with lower wage levels, and more advanced operations are kept at home. Most home countries encourage outward investment, but the fear for negative effects (particularly on the balance-of-payments) has at times motivated restrictions on FDI. The final part of the paper discusses effects on developing home countries, and notes that these are likely to coincide with the effects on developed home countries. One exception is technology-sourcing investments, which may be more important than in developed home countries, and which may, at least in theory, provide an alternative to inward FDI as a source of technology for the more advanced developing economies.

Suggested Citation

  • 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.
  • Handle: RePEc:hhs:eijswp:0225

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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: 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. Huiqun Liu & Jinyong Lu, 2011. "The home-employment effect of FDI from developing countries: in the case of China," Journal of Chinese Economic and Foreign Trade Studies, Emerald Group Publishing, vol. 4(3), pages 173-182, October.
    4. Gabor Hunya, 2008. "Austrian FDI by main Countries and Industries," FIW Research Reports series I-015, FIW.
    5. DIACONU MAXIM Laura, 2015. "The Dynamics Of The Fdi Inflows During The Last Three Decades. A Comparative Analysis Between Developing And Developed Countries," Revista Economica, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 67(3), pages 46-62.
    6. Dierk Herzer, 2010. "The Long-Run Relationship between Outward FDI and Total Factor Productivity: Evidence for Developing Countries," Ibero America Institute for Econ. Research (IAI) Discussion Papers 199, Ibero-America Institute for Economic Research.
    7. Alina Taran & Marilena Mironiuc & Maria-Carmen Huian, 2016. "Examining The Influence Of Some Macroeconomic Factors On Foreign Direct Investments," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 18, pages 159-182, December.
    8. Barkauskaite Aida & Naraskeviciute Violeta, 2016. "Foreign Direct Investment Impact on Economic Indicators of the Baltic Countries," Economics and Business, De Gruyter Open, vol. 28(1), pages 61-67, April.

    More about this item


    FDI; MNCs; home country effects;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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