How does FDI transmit into domestic investment? Exploring intra-industry and financial channels
By: Wacker, Konstantin M.
Contributor(s): de Leeuw, Tim.
Material type:
BookSeries: wiiw Working Papers: 261Publisher: Wien : Wiener Institut für Internationale Wirtschaftsvergleiche (wiiw), 2025Description: 41 S., 13 Tables and 6 Figures, 30cm.Subject(s): investment | capital formation | FDI | foreign direct investment | inter-industry linkagesCountries covered: Albania | Bosnia and Herzegovina | Bulgaria | Czechia | Estonia | Hungary | Latvia | Lithuania | North Macedonia | Poland | Slovakia | Sloveniawiiw Research Areas: International Trade, Competitiveness and FDIClassification: F21 | F3 | E22 | O11 Online resources: Click here to access online Summary: Foreign direct investment (FDI) is often seen as a means to boost domestic investment and, hence, capital accumulation. Yet, the empirical support for such a positive investment effect of FDI is inconclusive. A possible reason is that FDI is often directed towards the financial sector, where capital investment tends to be low. In this paper, we first explore the within-industry relationship between FDI and domestic investment. We then use a novel approach to analyse how FDI into the financial sector transmits into domestic investment by non-financial industries. Using industry-level FDI and investment data from 12 Central and Eastern European countries between 1997 and 2019, we find that about a quarter of FDI into an industry results in domestic investment. Additionally, we document that industries with close links to the financial sector increase domestic investment in the presence of financial FDI, particularly manufacturing, trade and real estate.
| Cover image | Item type | Current library | Home library | Collection | Shelving location | Call number | Materials specified | Vol info | URL | Copy number | Status | Notes | Date due | Barcode | Item holds | Item hold queue priority | Course reserves | |
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| Paper | WIIW Library | 5.700/261 (Browse shelf(Opens below)) | Available | 1000010007278 |
Foreign direct investment (FDI) is often seen as a means to boost domestic investment and, hence, capital accumulation. Yet, the empirical support for such a positive investment effect of FDI is inconclusive. A possible reason is that FDI is often directed towards the financial sector, where capital investment tends to be low. In this paper, we first explore the within-industry relationship between FDI and domestic investment. We then use a novel approach to analyse how FDI into the financial sector transmits into domestic investment by non-financial industries. Using industry-level FDI and investment data from 12 Central and Eastern European countries between 1997 and 2019, we find that about a quarter of FDI into an industry results in domestic investment. Additionally, we document that industries with close links to the financial sector increase domestic investment in the presence of financial FDI, particularly manufacturing, trade and real estate.
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