Working Paper Series, Institute of Economic Research, Lund University
Pontus Braunerhjelm, Lars Oxelheim
The Relationship Between Domestic and Outward Foreign Direct Investment
() and Per Thulin
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; (follow links to similar papers)
15 pages, December 20, 2004
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