OUTWARD FDI'S DOMESTIC EFFECT

[BIZ/EDU: Maastricht, December 24]
An article in the newsletter, R.V. Goedegebuure of the Maastricht School of Management, examines the relationship between outward foreign direct investments (FDI) and domestic investments. It has been argued in the literature that such analysis should make a distinction between R&D intensive (Schumpeterian) and traditional (Heckscher-Ohlin) type of industries. In line with this argument, two types of domestic investments have been distinguished: investments in R&D and capital investments (equipment; machinery).

The paper provides strong empirical evidence that investments in R&D are positively correlated to outward FDI, especially in high-tech industries and companies. In addition, there is evidence that capital investments are also positively correlated to outward FDI, which indicates that the positive effects - related to the marketing seeking and strategic asset seeking motives for FDI - outweigh the negative effects of efficiency seeking.

The expectation that within low-tech industries and companies R&D investments are unrelated to outward FDI, and capital investments are negatively related to outward FDI are not confirmed.

Overall, the analyses indicate that there is no justification for scepticism regarding the impact of outward FDI on domestic activity.
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