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The relationship between domestic and outward foreign direct investment: The role of industry-specific effects

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Author

  • P Braunerhjelm
  • Lars Oxelheim
  • P Thulin

Summary, in English

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. JEL no. F12, F21, F23, G34.

Publishing year

2005

Language

English

Pages

677-694

Publication/Series

International Business Review

Volume

14

Issue

6

Document type

Journal article

Publisher

Elsevier

Topic

  • Economics and Business
  • Business Administration

Keywords

  • industry-specific effects
  • FDI
  • gross domestic investment

Status

Published

ISBN/ISSN/Other

  • ISSN: 1873-6149