The Effect of Investing Abroad on Investment at Home: On the Role of Technology, Tax Savings, and Internal Capital Markets

39 Pages Posted: 5 Jun 2017

See all articles by Stefan Goldbach

Stefan Goldbach

Technical University of Darmstadt

Arne Nagengast

Deutsche Bundesbank - Economics Department

Elias Steinmüller

University of Tuebingen

Georg Wamser

ETH Zurich; University of Tuebingen

Date Written: 2017

Abstract

This paper examines the relationship between foreign and domestic investment activity of multinational enterprises. The empirical analysis is based on micro data of German firms and their operations at home and abroad, including information on investment in fixed assets. The empirical approach, which rests upon extensive and intensive margin variation, is shown to produce very robust results. These suggest a positive relationship between foreign and home investment in real capital. This positive effect seems to be mainly related to additional opportunities for tax planning and better access to financing capital. In contrast, we do not find evidence that improved production processes and technology upgrading cause the positive effect on investment at home. Our empirical approach allows us to distinguish between an extensive and intensive margin effect: setting up a new foreign affiliate leads to an immediate positive effect of about EUR 450,000 additional investment; the investment elasticity at the intensive margin is estimated to be approximately 0.13.

Keywords: Outward FDI, Multinational Firms, Domestic Investment, Corporate Taxes, Internal Capital Markets, Technology

JEL Classification: F23, F61, H25, L23

Suggested Citation

Goldbach, Stefan and Nagengast, Arne and Steinmüller, Elias and Wamser, Georg and Wamser, Georg, The Effect of Investing Abroad on Investment at Home: On the Role of Technology, Tax Savings, and Internal Capital Markets (2017). Bundesbank Discussion Paper No. 14/2017, Available at SSRN: https://ssrn.com/abstract=2977203 or http://dx.doi.org/10.2139/ssrn.2977203

Stefan Goldbach (Contact Author)

Technical University of Darmstadt ( email )

Marktplatz 15
Darmstadt, Hesse D-64289
Germany

Arne Nagengast

Deutsche Bundesbank - Economics Department ( email )

Wilhelm-Epstein-Strasse 14
60431 Frankfurt am Main
Germany

Elias Steinmüller

University of Tuebingen ( email )

Geschwister Scholl Platz
Tübingen, 72070
Germany

Georg Wamser

ETH Zurich ( email )

Weinbergstr. 35
Zurich, 8003
Switzerland

University of Tuebingen ( email )

Wilhelmstr. 19
72074 Tuebingen, Baden Wuerttemberg 72074
Germany

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
117
Abstract Views
769
Rank
425,763
PlumX Metrics