Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 625: The Relationship between Domestic and Outward Foreign Direct Investment: The Role of Industry-Specific Effects

Pontus Braunerhjelm, Lars Oxelheim () and Per Thulin ()
Additional contact information
Pontus Braunerhjelm: Center for Business and Policy Studies (SNS) and Linköping University, Postal: P.O. Box 5629, SE-114 86 Stockholm, Sweden
Lars Oxelheim: The Research Institute of Industrial Economics, Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden
Per Thulin: Center for Business and Policy Studies (SNS), Postal: P.O. Box 5629, SE-114 86 Stockholm, Sweden

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

JEL-codes: F12; F21; F23; G34

30 pages, July 15, 2004

Full text files

WP625.pdf PDF-file 

Download statistics

Questions (including download problems) about the papers in this series should be directed to Elisabeth Gustafsson ()
Report other problems with accessing this service to Sune Karlsson ().

This page generated on 2024-02-05 17:12:18.