FDI and Domestic Investment: An Industry-Level View
Previous empirical work on the link between domestic and foreign investment provides mixed results which partly depend on the level of aggregation of the data. We argue that the aggregated home country implications of foreign direct investment (FDI) cannot be gauged using firm-level data. Aggregated data, in turn, miss channels through which domestic and foreign activities interact. Instead, industry-level data provide useful information on the link between domestic and foreign investment. We theoretically show that the effects of FDI on the domestic capital stock depend on the structure of industries and the relative importance of domestic and multinational firms. Our model allows distinguishing intra-sector competition from inter-sector linkage effects. We test the model using data on German FDI. Using panel cointegration methods, we find evidence for a positive long-run impact of FDI on the domestic capital stock and on the stock of inward FDI. Effects of FDI on the domestic capital stock are driven mainly by intrasector effects. For inward FDI, inter-sector linkages matter as well.
|Date of creation:||Jul 2007|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.sfbtr15.de/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Peter Pedroni, 2000.
"Fully Modified OLS for Heterogeneous Cointegrated Panels,"
Department of Economics Working Papers
2000-03, Department of Economics, Williams College.
- Tom Doan, . "PANELFM: RATS procedure to perform panel data group mean FMOLS," Statistical Software Components RTS00151, Boston College Department of Economics.
- Breitung, Jörg, 2002.
"A parametric approach to the estimation of cointegration vectors in panel data,"
SFB 373 Discussion Papers
2002,3, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
- Jorg Breitung, 2005. "A Parametric approach to the Estimation of Cointegration Vectors in Panel Data," Econometric Reviews, Taylor & Francis Journals, vol. 24(2), pages 151-173.
- Jörg Breitung, 2002. "A parametric approach to the estimation of cointegration vectors in panel data," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 B5-4, International Conferences on Panel Data.
- Buch, Claudia M. & Lipponer, Alexander, 2007.
"Volatile multinationals? Evidence from the labor demand of German firms,"
Discussion Paper Series 1: Economic Studies
2007,22, Deutsche Bundesbank, Research Centre.
- Buch, Claudia M. & Lipponer, Alexander, 2010. "Volatile multinationals? Evidence from the labor demand of German firms," Labour Economics, Elsevier, vol. 17(2), pages 345-353, April.
- Anindya Banerjee & Massimiliano Marcellino & Chiara Osbat, .
"Testing for PPP: Should We Use Panel Methods?,"
186, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- Martin S. Feldstein, 1995.
"The Effects of Outbound Foreign Direct Investment on the Domestic Capital Stock,"
in: The Effects of Taxation on Multinational Corporations, pages 43-66
National Bureau of Economic Research, Inc.
- Martin Feldstein, 1994. "The Effects of Outbound Foreign Direct Investment on the Domestic Capital Stock," NBER Working Papers 4668, National Bureau of Economic Research, Inc.
- Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003.
"Testing for unit roots in heterogeneous panels,"
Journal of Econometrics,
Elsevier, vol. 115(1), pages 53-74, July.
- Pasaran, M.H. & Im, K.S. & Shin, Y., 1995. "Testing for Unit Roots in Heterogeneous Panels," Cambridge Working Papers in Economics 9526, Faculty of Economics, University of Cambridge.
- Tom Doan, . "IPSHIN: RATS procedure to implement Im, Pesaran and Shin panel unit root test," Statistical Software Components RTS00098, Boston College Department of Economics.
- Kleinert, Jörn & Toubal, Farid, 2007. "The impact of locating production abroad on activities at home," Tübinger Diskussionsbeiträge 314, University of Tübingen, School of Business and Economics.
- Samarjit Das & Joerg Breitung, 2004.
"Panel Unit Root Tests under Cross- sectional Dependence,"
Econometric Society 2004 North American Summer Meetings
55, Econometric Society.
- Jörg Breitung & Samarjit Das, 2005. "Panel unit root tests under cross-sectional dependence," Statistica Neerlandica, Netherlands Society for Statistics and Operations Research, vol. 59(4), pages 414-433.
- Mihir A. Desai & C. Fritz Foley & James R. Hines Jr., 2005. "Foreign Direct Investment and Domestic Economic Activity," NBER Working Papers 11717, National Bureau of Economic Research, Inc.
- Mihir C. Desai & C. Fritz Foley & James R. Hines Jr., 2005.
"Foreign Direct Investment and the Domestic Capital Stock,"
NBER Working Papers
11075, National Bureau of Economic Research, Inc.
- Mihir A. Desai & C. Fritz Foley & James R. Hines Jr., 2005. "Foreign Direct Investment and the Domestic Capital Stock," American Economic Review, American Economic Association, vol. 95(2), pages 33-38, May.
- Dierk Herzer & Mechthild Schrooten, 2007. "Outward FDI and Domestic Investment," Discussion Papers of DIW Berlin 679, DIW Berlin, German Institute for Economic Research.
- Kao, Chihwa, 1999. "Spurious regression and residual-based tests for cointegration in panel data," Journal of Econometrics, Elsevier, vol. 90(1), pages 1-44, May.
- W Hejazi & P Pauly, 2003. "Motivations for FDI and domestic capital formation," Journal of International Business Studies, Palgrave Macmillan, vol. 34(3), pages 282-289, May.
- James R. Markusen & Anthony J. Venables, 1995.
"Multinational Firms and The New Trade Theory,"
NBER Working Papers
5036, National Bureau of Economic Research, Inc.
- Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002.
"Unit root tests in panel data: asymptotic and finite-sample properties,"
Journal of Econometrics,
Elsevier, vol. 108(1), pages 1-24, May.
- Tom Doan, . "LEVINLIN: RATS procedure to perform Levin-Lin-Chu test for unit roots in panel data," Statistical Software Components RTS00242, Boston College Department of Economics.
When requesting a correction, please mention this item's handle: RePEc:trf:wpaper:212. 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: (Alexandra Frank)
If references are entirely missing, you can add them using this form.