IDEAS home Printed from https://ideas.repec.org/p/hhs/eijswp/0225.html
   My bibliography  Save this paper

The Home Country Effects Of Fdi In Developed Economies

Author

Listed:
  • Kokko, Ari

    (European Institute of Japanese Studies)

Abstract

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
    as

    Download full text from publisher

    File URL: http://swopec.hhs.se/eijswp/papers/eijswp0225.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Blomstrom, Magnus & Fors, Gunnar & Lipsey, Robert E, 1997. "Foreign Direct Investment and Employment: Home Country Experience in the United States and Sweden," Economic Journal, Royal Economic Society, vol. 107(445), pages 1787-1797, November.
    2. Birgitta Swedenborg, 2001. "Determinants and Effects of Multinational Growth: The Swedish Case Revisited," NBER Chapters, in: Topics in Empirical International Economics: A Festschrift in Honor of Robert E. Lipsey, pages 99-136, National Bureau of Economic Research, Inc.
    3. Ludo Cuyvers & Michel Dumont & Glenn Rayp & Katrien Stevens, 2005. "Home Employment Effects of EU Firms’ Activities in Central and Eastern European Countries," Open Economies Review, Springer, vol. 16(2), pages 153-174, April.
    4. Pär Hansson, 2005. "Skill Upgrading and Production Transfer within Swedish Multinationals," Scandinavian Journal of Economics, Wiley Blackwell, vol. 107(4), pages 673-692, December.
    5. Magnus Blomström & Ari Kokko & Mario Zejan, 2000. "Multinational Corporations and Spillovers," Palgrave Macmillan Books, in: Foreign Direct Investment, chapter 8, pages 101-133, Palgrave Macmillan.
    6. Matthew J. Slaughter, 1995. "Multinational Corporations, Outsourcing, and American Wage Divergence," NBER Working Papers 5253, National Bureau of Economic Research, Inc.
    7. Rauscher, Michael, 1994. "Environmental Regulation and the Location of Polluting Industries," CEPR Discussion Papers 1032, C.E.P.R. Discussion Papers.
    8. Paul Krugman, 1986. "Strategic Trade Policy and the New International Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262610450.
    9. Evans, David S, 1987. "Tests of Alternative Theories of Firm Growth," Journal of Political Economy, University of Chicago Press, vol. 95(4), pages 657-674, August.
    10. Magnus Blomström & Ari Kokko & Mario Zejan, 2000. "Technology, Market Characteristics and Spillovers," Palgrave Macmillan Books, in: Foreign Direct Investment, chapter 10, pages 160-176, Palgrave Macmillan.
    11. Gunnar Fors & Ari Kokko, 2001. "Home-Country Effects of FDI: Foreign Production and Structural Change in Home-Country Operations," NBER Chapters, in: Topics in Empirical International Economics: A Festschrift in Honor of Robert E. Lipsey, pages 137-162, National Bureau of Economic Research, Inc.
    12. G. D. A. MacDougall, 1960. "THE BENEFITS and COSTS OF PRIVATE INVESTMENT FROM ABROAD: A THEORETICAL APPROACH," The Economic Record, The Economic Society of Australia, vol. 36(73), pages 13-35, March.
    13. Alan M Rugman & Alain Verbeke, 1998. "Corporate Strategy and International Environmental Policy," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 29(4), pages 819-833, December.
    14. 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, June.
    15. Braconier, Henrik & Ekholm, Karolina, 2000. "Swedish Multinationals and Competition from High- and Low-Wage Locations," Review of International Economics, Wiley Blackwell, vol. 8(3), pages 448-461, August.
    16. 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 304-308, May.
    17. Debaere, Peter, 2004. "Reversing the Perspective: Multinationals from Middle-Income Countries," CEPR Discussion Papers 4435, C.E.P.R. Discussion Papers.
    18. Hartmut Egger & Peter Egger, 2000. "Outsourcing and skill-specific employment in a small economy: Austria and the fall of the Iron Curtain," Economics working papers 2000-24, Department of Economics, Johannes Kepler University Linz, Austria.
    19. Michael Rauscher, 1995. "Environmental regulation and the location of polluting industries," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 2(2), pages 229-244, August.
    20. Hartmut Egger & Peter Egger, 2003. "Outsourcing and skill-specific employment in a small economy: Austria after the fall of the Iron Curtain," Oxford Economic Papers, Oxford University Press, vol. 55(4), pages 625-643, October.
    21. Kravis, Irving B. & Lipsey, Robert E., 1982. "The location of overseas production and production for export by U.S. multinational firms," Journal of International Economics, Elsevier, vol. 12(3-4), pages 201-223, May.
    22. S. Lael Brainard & David A. Riker, 1997. "Are U.S. Multinationals Exporting U.S. Jobs?," NBER Working Papers 5958, National Bureau of Economic Research, Inc.
    23. Desai, Mihir A. & Foley, C. Fritz & Hines, James Jr., 2006. "Do tax havens divert economic activity?," Economics Letters, Elsevier, vol. 90(2), pages 219-224, February.
    24. Cushman, David O, 1985. "Real Exchange Rate Risk, Expectations, and the Level of Direct Investment," The Review of Economics and Statistics, MIT Press, vol. 67(2), pages 297-308, May.
    25. Magnus Blomstrom & Robert E. Lipsey & Ksenia Kulchycky, 1988. "U.S. and Swedish Direct Investment and Exports," NBER Chapters, in: Trade Policy Issues and Empirical Analysis, pages 257-302, National Bureau of Economic Research, Inc.
    26. Slaughter, Matthew J., 2000. "Production transfer within multinational enterprises and American wages," Journal of International Economics, Elsevier, vol. 50(2), pages 449-472, April.
    27. Braunerhjelm, Pontus & Oxelheim, Lars & Thulin, Per, 2005. "The Relationship Between Domestic and Outward Foreign Investment Revisited: The Impact of Industry-Specific Effects," Working Paper Series in Economics and Institutions of Innovation 35, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
    28. Anna Maria Falzoni & Mara Grasseni, 2005. "Home Country Effects of Investing Abroad: Evidence from Quantile Regressions," KITeS Working Papers 170, KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy, revised Jun 2005.
    29. Blomström, Magnus & Globerman, Steve & Kokko, Ari, 2000. "The Determinants of Host Country Spillovers from Foreign Direct Investment," CEPR Discussion Papers 2350, C.E.P.R. Discussion Papers.
    30. Hirschey, Mark, 1982. "Market Power and Foreign Involvement by U.S. Multinationals," The Review of Economics and Statistics, MIT Press, vol. 64(2), pages 343-346, May.
    31. Steve Globerman & Ari Kokko & Fredrik Sjöholm, 2000. "International Technology Diffusion: Evidence from Swedish Patent Data," Kyklos, Wiley Blackwell, vol. 53(1), pages 17-38, February.
    32. Rodolfo Helg & Riccardo Faini & Anna M. Falzoni & Marzio Galeotti & Alessandro Turrini, 2001. "Importing Jobs And Exporting Firms? On The Wage And Employment Implications Of Italy’S Trade And Foreign Direct Investment Flows," International Trade 0103001, University Library of Munich, Germany.
    33. Mendoza, Enrique G. & Tesar, Linda L., 2005. "Why hasn't tax competition triggered a race to the bottom? Some quantitative lessons from the EU," Journal of Monetary Economics, Elsevier, vol. 52(1), pages 163-204, January.
    34. 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.
    35. Scheve, Kenneth F. & Slaughter, Matthew J., 2001. "What determines individual trade-policy preferences?," Journal of International Economics, Elsevier, vol. 54(2), pages 267-292, August.
    36. Giorgio Barba Navaretti & Davide Castellani, 2003. "Investments Abroad and Performance at Home Evidence from Italian Multinationals," Development Working Papers 180, Centro Studi Luca d'Agliano, University of Milano.
    37. Blomström, Magnus & Kokko, Ari, 1995. "Foreign Direct Investment and Politics: The Swedish Model," SSE/EFI Working Paper Series in Economics and Finance 66, Stockholm School of Economics.
    38. Robert E. Lipsey, 2002. "Home and Host Country Effects of FDI," NBER Working Papers 9293, National Bureau of Economic Research, Inc.
    39. repec:hhs:iuiwop:490 is not listed on IDEAS
    40. Timothy Dunne & Mark J. Roberts & Larry Samuelson, 1989. "The Growth and Failure of U. S. Manufacturing Plants," The Quarterly Journal of Economics, Oxford University Press, vol. 104(4), pages 671-698.
    41. Magnus Blomstrom & Robert E. Lipsey & Lennart Ohlsson, 1989. "What Do Rich Countries Trade with Each Other? R&D and the Composition of U.S. and Swedish Trade," NBER Working Papers 3140, National Bureau of Economic Research, Inc.
    42. repec:ilo:ilowps:209169 is not listed on IDEAS
    43. Vernon, Raymond, 1979. "The Product Cycle Hypothesis in a New International Environment," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 41(4), pages 255-267, November.
    44. Roger Svensson, 1996. "Effects of overseas production on home country exports: Evidence based on Swedish multinationals," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 132(2), pages 304-329, September.
    45. Andreas Polk, 2002. "Lobbying Activities of Multinational Firms," SOI - Working Papers 0205, Socioeconomic Institute - University of Zurich, revised Jun 2002.
    46. Lipsey, Robert E & Weiss, Merle Yahr, 1981. "Foreign Production and Exports in Manufacturing Industries," The Review of Economics and Statistics, MIT Press, vol. 63(4), pages 488-494, November.
    47. John H Dunning, 1980. "Towards an Eclectic Theory of International Production: Some Empirical Tests," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 11(1), pages 9-31, March.
    48. Jordan GL. & Valhne JE., 1981. "Domestic employment effects of direct investment abroad by two Swedish multinationals," ILO Working Papers 992091693402676, International Labour Organization.
    49. Lawrence H. Summers, 1999. "Distinguished Lecture on Economics in Government: Reflections on Managing Global Integration," Journal of Economic Perspectives, American Economic Association, vol. 13(2), pages 3-18, Spring.
    50. Irving B. Kravis & Robert E. Lipsey, 1988. "The Effect of Multinational Firms' Operations on Their Domestic Employment," NBER Working Papers 2760, National Bureau of Economic Research, Inc.
    51. Konings, Jozef & Murphy, Alan, 2001. "Do Multinational Enterprises Substitute Parent Jobs for Foreign Ones? Evidence from European Firm Level Panel Data," CEPR Discussion Papers 2972, C.E.P.R. Discussion Papers.
    52. David A. Riker & S. Lael Brainard, 1997. "U.S. Multinationals and Competition from Low Wage Countries," NBER Working Papers 5959, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    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: David A Dyker (ed.), Network Dynamics In Emerging Regions Of Europe, chapter 16, pages 333-360, World Scientific Publishing Co. Pte. Ltd..
    2. 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.
    3. Lundan, Sarianna M., 2007. "The Home Country Effects of Internationalisation," Discussion Papers 1100, The Research Institute of the Finnish Economy.
    4. Khanindra Ch. Das, 2015. "Outward FDI by Indian Manufacturing MNEs: Impacts and Implications," ARTNeT Working Papers 148, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).
    5. Kun-Ming Chen & Shu-Fei Yang, 2013. "Impact of Outward Foreign Direct Investment on Domestic R&D Activity: Evidence from Taiwan's Multinational Enterprises in Low-wage Countries," Asian Economic Journal, East Asian Economic Association, vol. 27(1), pages 17-38, March.
    6. Koi Nyen Wong & Soo Khoon Goh, 2013. "Outward FDI, merchandise and services trade: evidence from Singapore," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 14(2), pages 276-291, April.
    7. Lee, In Hyeock (Ian) & Hong, Eunsuk & Makino, Shige, 2020. "The effect of non-conventional outbound foreign direct investment (FDI) on the domestic employment of multinational enterprises (MNEs)," International Business Review, Elsevier, vol. 29(3).
    8. 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.
    9. 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.
    10. Mariasole Bannò & Lucia Piscitello & Celeste Varum, 2015. "Determinants of the Internationalization of Regions: The Role and Effectiveness of Public Policy Measures," Regional Studies, Taylor & Francis Journals, vol. 49(7), pages 1208-1222, July.
    11. Jan Knoerich, 2017. "How does outward foreign direct investment contribute to economic development in less advanced home countries?," Oxford Development Studies, Taylor & Francis Journals, vol. 45(4), pages 443-459, October.
    12. 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.
    13. Gabor Hunya, 2008. "Austrian FDI by main Countries and Industries," FIW Research Reports series I-015, FIW.
    14. Barkauskaite Aida & Naraskeviciute Violeta, 2016. "Foreign Direct Investment Impact on Economic Indicators of the Baltic Countries," Economics and Business, Sciendo, vol. 28(1), pages 61-67, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lundan, Sarianna M., 2007. "The Home Country Effects of Internationalisation," Discussion Papers 1100, The Research Institute of the Finnish Economy.
    2. Ludo Cuyvers & Michel Dumont & Glenn Rayp & Katrien Stevens, 2005. "Home Employment Effects of EU Firms’ Activities in Central and Eastern European Countries," Open Economies Review, Springer, vol. 16(2), pages 153-174, April.
    3. 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: David A Dyker (ed.), Network Dynamics In Emerging Regions Of Europe, chapter 16, pages 333-360, World Scientific Publishing Co. Pte. Ltd..
    4. Palle S. Andersen & P. Hainaut, 1998. "Foreign direct investment and employment in the industrial countries," BIS Working Papers 61, Bank for International Settlements.
    5. Blanas, Sotiris, 2012. "Intra-firm trade and employment in US manufacturing," Kiel Advanced Studies Working Papers 458, Kiel Institute for the World Economy (IfW).
    6. Henrik Braconier & Karolina Ekholm, 2000. "Swedish Multinationals and Competition from High‐ and Low‐Wage Locations," Review of International Economics, Wiley Blackwell, vol. 8(3), pages 448-461, August.
    7. James R. Markusen & Keith E. Maskus, 2001. "General-Equilibrium Approaches to the Multinational Firm: A Review of Theory and Evidence," NBER Working Papers 8334, National Bureau of Economic Research, Inc.
    8. Rosario Crinò, 2009. "Offshoring, Multinationals And Labour Market: A Review Of The Empirical Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 23(2), pages 197-249, April.
    9. Davide Castellani & Ilaria Mariotti & Lucia Piscitello, 2006. "Outward investments and skill upgrading. Evidence from the Italian case," KITeS Working Papers 185, KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy, revised Nov 2006.
    10. Ludo Cuyvers & Emmanuel Dhyne & Reth Soeng, 2010. "The effects of internationalisation on domestic labour demand by skills : Firm-level evidence for Belgium," Working Paper Research 206, National Bank of Belgium.
    11. Sascha O. Becker & Karolina Ekholm & Robert Jäckle & Marc-Andreas Muendler, 2005. "Location Choice and Employment Decisions: A Comparison of German and Swedish Multinationals," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 141(4), pages 693-731, December.
    12. Oksanen, Olli-Pekka, 2006. "Are Foreign Investments Replacing Domestic Investments? - Evidence from Finnish Manufacturing," Discussion Papers 1001, The Research Institute of the Finnish Economy.
    13. Yamashita, Nobuaki & Fukao, Kyoji, 2010. "Expansion abroad and jobs at home: Evidence from Japanese multinational enterprises," Japan and the World Economy, Elsevier, vol. 22(2), pages 88-97, March.
    14. Wen-Chung Hsu & Xingbo Gao & Jianhua Zhang & Hsin Mei Lin, 2011. "The effects of outward FDI on home-country productivity: Do location of investment and market orientation matter?," Journal of Chinese Economic and Foreign Trade Studies, Emerald Group Publishing, vol. 4(2), pages 99-116, June.
    15. Bernhard Dachs & Bernd Ebersberger & Steffen Kinkel & Oliver Som, 2015. "The effects of production offshoring on R&D and innovation in the home country," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 42(1), pages 9-31, March.
    16. Ellingsen, Gaute & Likumahuwa, Winfried & Nunnenkamp, Peter, 2006. "Outward FDI by Singapore: a different animal?," Open Access Publications from Kiel Institute for the World Economy 3947, Kiel Institute for the World Economy (IfW).
    17. Amiti, Mary & Wakelin, Katharine, 2003. "Investment liberalization and international trade," Journal of International Economics, Elsevier, vol. 61(1), pages 101-126, October.
    18. 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.
    19. Stefano Federico & Gaetano Alfredo Minerva, 2005. "Fear of Relocation? Assessing the Impact of Italy’s FDI on Local Employment," Working Papers 102, SEMEQ Department - Faculty of Economics - University of Eastern Piedmont.
    20. Cesare Imbriani & Rosanna Pittiglio & Filippo Reganati, 2011. "Outward Foreign Direct Investment and Domestic Performance: the Italian Manufacturing and Services Sectors," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 39(4), pages 369-381, December.

    More about this item

    Keywords

    FDI; MNCs; home country effects;
    All these keywords.

    JEL classification:

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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hhs:eijswp:0225. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/eihhsse.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Nanhee Lee (email available below). General contact details of provider: https://edirc.repec.org/data/eihhsse.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.