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Does Foreign Direct Investment Replace Home Country Investment? The Effect of European Integration on the Location of Swedish Investment

The purpose of this paper is to examine the effects of European integration on the location of investments by Swedish multinational corporations (MNCs). Evidence is presented about the extent to which European integration has attracted investment by Swedish MNCs, and whether foreign direct investment is being undertaken at the expense of home country investment. In the empirical analysis, involving both OLS and iterative SUR techniques, a significant difference across industries has been confirmed. A substitutionary relationship between foreign and home country investment is found for more R&D-intensive production, whereas the opposite pattern seems to prevail for production based on traditional comparative advantage. The results of this study emphasize the importance of using disaggregated industry-level data when analysing the effects of foreign direct investment on home country investment.

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Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 522.

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Length: 29 pages
Date of creation: 15 Oct 1999
Date of revision:
Publication status: Published in Journal of Common Market Studies, 2000, pages 199-221.
Handle: RePEc:hhs:iuiwop:0522
Contact details of provider: Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
Phone: +46 8 665 4500
Fax: +46 8 665 4599
Web page: http://www.ifn.se/
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