The Relationship Between Domestic and Outward Foreign Direct Investment

Pontus Braunerhjelm, Lars Oxelheim and Per Thulin ()

No 2004/10, Working Paper Series from Lund University, Institute of Economic Research

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 theoretical framework 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 (search for similar items in EconPapers)
Pages: 15 pages
Date: 2004-12-20
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:hhb:lufewp:2004_010

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