Why and how FDI stocks are a biased measure of MNE affiliate activity
Sjoerd Beugelsdijk (),
Arjen Slangen and
Additional contact information
Arjen Slangen: International Strategy & Marketing Section, University of Amsterdam, The Netherlands
Roger Smeets: CPB Netherlands Bureau for Economic Policy Analysis & Department of International Economics and Business, University of Groningen, The Netherlands
Journal of International Business Studies, 2010, vol. 41, issue 9, 1444-1459
Many international business (IB) studies have used foreign direct investment (FDI) stocks to measure the aggregate value-adding activity of multinational enterprises (MNE) affiliates in host countries. We argue that FDI stocks are a biased measure of that activity, because the degree to which they overestimate or underestimate affiliate activity varies systematically with host-country characteristics. First, most FDI into countries that serve as tax havens generate no actual productive activity; thus FDI stocks in such countries overestimate affiliate activity. Second, FDI stocks do not include locally raised external funds, funds widely used in countries with well-developed financial markets or volatile exchange rates, resulting in an underestimation of affiliate activity in such countries. Finally, the extent to which FDI translates into affiliate activity increases with affiliate labor productivity, so in countries where labor is more productive, FDI stocks also result in an underestimation of affiliate activity. We test these hypotheses by first regressing affiliate value-added and affiliate sales on FDI stocks to calculate a country-specific mismatch, and then by regressing this mismatch on a host country's tax haven status, level of financial market development, exchange rate volatility, and affiliate labor productivity. All hypotheses are supported, implying that FDI stocks are a biased measure of MNE affiliate activity, and hence that the results of FDI-data-based studies of such activity need to be reconsidered.
References: Add references at CitEc
Citations: View citations in EconPapers (28) Track citations by RSS feed
Downloads: (external link)
http://www.palgrave-journals.com/jibs/journal/v41/n9/pdf/jibs201029a.pdf Link to full text PDF (application/pdf)
http://www.palgrave-journals.com/jibs/journal/v41/n9/full/jibs201029a.html Link to full text HTML (text/html)
Access to full text is restricted to subscribers.
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:pal:jintbs:v:41:y:2010:i:9:p:1444-1459
Ordering information: This journal article can be ordered from
http://www.springer. ... nt/journal/41267/PS2
Access Statistics for this article
Journal of International Business Studies is currently edited by John Cantwell
More articles in Journal of International Business Studies from Palgrave Macmillan, Academy of International Business
Bibliographic data for series maintained by Sonal Shukla ().