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Contrasting the dynamic patterns of manufacturing and service FDI: Evidence from transition economies

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  • Aleksandra Riedl

    (Department of Economics, Vienna University of Economics & B.A.)

Abstract

We contribute to the foreign direct investment (FDI) literature by providing first empirical evidence on the relative importance of location factors for service and manufacturing FDI. This is of particular interest as the global stock of inward FDI in the service sector has become predominant in the last ten years. Based on a sectoral panel of eight new European member states in the period of 1998 to 2004 we perform a dynamic panel analysis allowing for individual adjustment periods across sectors. Results support our assumption that investment into the service sector, which is characterized by low installation costs, adjusts much faster to its desired level than manufacturing FDI. Furthermore, since services are mostly non-tradable, FDI into this sector is largely based on market-seeking motives while manufacturing FDI is also driven by international price competitiveness measured via real unit labor costs.

Suggested Citation

  • Aleksandra Riedl, 2008. "Contrasting the dynamic patterns of manufacturing and service FDI: Evidence from transition economies," Department of Economics Working Papers wuwp117, Vienna University of Economics and Business, Department of Economics.
  • Handle: RePEc:wiw:wiwwuw:wuwp117
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    Cited by:

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    3. Reuter, Ute & Burr, Wolfgang, 2011. "International market assessment: Site selection in service firms," Research Papers on Innovation, Services and Technology 2/2011, University of Stuttgart, Institute of Business Administration, Department I - Institute of Research & Development and Innovation Management.
    4. Christen, Elisabeth & Francois, Joseph, 2010. "Modes of Delivery in Services," CEPR Discussion Papers 7912, C.E.P.R. Discussion Papers.

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    More about this item

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • P33 - Economic Systems - - Socialist Institutions and Their Transitions - - - International Trade, Finance, Investment, Relations, and Aid

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