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

Research output: Contribution to journalArticle

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

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Research areas and keywords

Subject classification (UKÄ) – MANDATORY

  • Economics and Business
  • Business Administration

Keywords

  • industry-specific effects, FDI, gross domestic investment
Original languageEnglish
Pages (from-to)677-694
JournalInternational Business Review
Volume14
Issue number6
Publication statusPublished - 2005
Publication categoryResearch
Peer-reviewedYes