Foreign Direct Investment and Domestic Economic Activity

Mihir A. Desai, C. Fritz Foley and James Hines

No 11717, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: How does rising foreign investment influence domestic economic activity? Firms whose foreign operations grow rapidly exhibit coincident rapid growth of domestic operations, but this pattern alone is inconclusive, as foreign and domestic business activities are jointly determined. This study uses foreign GDP growth rates, interacted with lagged firm-specific geographic distributions of foreign investment, to predict changes in foreign investment by a large panel of American firms. Estimates produced using this instrument for changes in foreign activity indicate that 10% greater foreign capital investment is associated with 2.2% greater domestic investment, and that 10% greater foreign employee compensation is associated with 4.0% greater domestic employee compensation. Changes in foreign and domestic sales, assets, and numbers of employees are likewise positively associated; the evidence also indicates that greater foreign investment is associated with additional domestic exports and R&D spending. The data do not support the popular notion that greater foreign activity crowds out domestic activity by the same firms, instead suggesting the reverse.

JEL-codes: F21 F23 H25 (search for similar items in EconPapers)
Date: 2005-10
New Economics Papers: this item is included in nep-pbe
Note: CF IFM ITI PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (110)

Published as Desai, Mihir A., C. Fritz Foley and James R. Hines, Jr. "Foreign Direct Investment And The Domestic Capital Stock," American Economic Review, 2005, v95(2,May), 33-38.

Downloads: (external link)
http://www.nber.org/papers/w11717.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:11717

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w11717

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().