Uneven development instead of complementarity: how the repatriation of FDI-profits fuels capital accumulation in Germany

Parnreiter Christof (), Kolhoff Klara (), Steinwärder Laszlo () and Obersteller Christian ()
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Parnreiter Christof: University of Hamburg, Hamburg, Germany
Kolhoff Klara: University of Hamburg, Hamburg, Germany
Steinwärder Laszlo: University of Hamburg, Hamburg, Germany
Obersteller Christian: University of Hamburg, Hamburg, Germany

ZFW – Advances in Economic Geography, 2025, vol. 69, issue 1, 10-23

Abstract: Conventional assumptions that outward Foreign Direct Investment (FDI) is moving prosperity abroad have recently been countered by studies showing how they trigger production and income growth in the transnational corporations’ (TNC’s) home country, albeit regionally uneven. What has largely been ignored in these and other debates on FDI, but represents an essential benefit of it, is the repatriation of profits. Our analysis of FDI-induced dividend payments between German TNCs and their foreign subsidiaries shows the significance of these profit returns. Between 1990 and 2020, German TNCs repatriated around two-thirds of all profits they generated abroad, amounting to €900 billion (€407 billion in net terms). The geographical distribution of net profit inflows to Germany is characterized by the prominence of tax havens and providers of cheap labor, particularly China and the European periphery. Sector-wise, manufacturing is most important. Beyond empirical concerns, we argue that profit repatriation triggers uneven development on two scales: Globally, because it withdraws investment capital from the profit-losing countries and adds it elsewhere, e.g. in Germany, where it has the potential to spark further investment; and regionally, i.e. within Germany, because economically strong federal states, which are home to most FDI-sending TNCs, benefit disproportionately from the profit reflows.

Keywords: foreign direct investment; geographical transfer of value; Germany; profit repatriation; transnational corporations; uneven development (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:bpj:zfwige:v:69:y:2025:i:1:p:10-23:n:1003

DOI: 10.1515/zfw-2024-0065

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