Foreign Direct Investment and the Domestic Capital Stock / Mihir C. Desai, C. Fritz Foley, James R. Hines Jr..

Format:

Book

Author/Creator:

Desai, Mihir C.

Contributor:

National Bureau of Economic Research.

Foley, C. Fritz.

Hines, James R, Jr.

Series:

Working Paper Series (National Bureau of Economic Research) no. w11075.

NBER working paper series no. w11075

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2005.

Summary:

This paper evaluates evidence of the impact of outbound foreign direct investment (FDI) on domestic investment rates. OECD countries with high rates of outbound FDI in the 1980s and 1990s exhibited lower domestic investment than other countries, which suggests that FDI and domestic investment are substitutes. U.S. time series data tell a very different story, however: years in which American multinational firms have greater foreign capital expenditures coincide with greater domestic capital spending by the same firms. One dollar of additional foreign capital spending is associated with 3.5 dollars of additional domestic capital spending in the time series, implying that foreign and domestic capital are complements in production by multinational firms. This effect is consistent with cross sectional evidence that firms whose foreign operations expand simultaneously expand their domestic operations, and suggests that interpretation of the OECD cross sectional evidence may be confounded by omitted variables.

Notes:

Print version record

January 2005.