Working Paper Series
Pontus Braunerhjelm, Lars Oxelheim
The Relationship between Domestic and Outward Foreign Direct Investment: The Role of Industry-Specific Effects
() and Per Thulin
Abstract: Previous research has been inconclusive as regards the
effect of outward foreign direct investment (FDI) on domestic investments.
In this article we show that this inconclusiveness can be explained at a
disaggregated level as a function of the way industries are organized.
Based on a simple model including monitoring and trade costs, we argue that
a complementary relationship can be expected to prevail in vertically
integrated industries, whereas a substitutionary relationship can be
expected in horizontally organized production. The empirical analysis
confirms a significant difference between the two categories of industry as
regards the impact of outward FDI on domestic investment. The results may
thus have profound policy implications.
Keywords: FDI; Gross Domestic Investment; Industry-Specific Effects; Monitoring Costs; Trade Costs; (follow links to similar papers)
JEL-Codes: F12; F21; F23; G34; (follow links to similar papers)
30 pages, July 15, 2004
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- This paper is published as:
Braunerhjelm, Pontus, Lars Oxelheim and Per Thulin, (2005), 'The Relationship between Domestic and Outward Foreign Direct Investment: The Role of Industry-Specific Effects', International Business Review, Vol. 14, No. 6, pages 677-694
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