Foreign Direct Investment as a Catalyst for Industrial Development

32 Pages Posted: 30 Aug 2000 Last revised: 23 Jul 2022

See all articles by James R. Markusen

James R. Markusen

University of Colorado at Boulder - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Anthony J. Venables

University of Oxford; Centre for Economic Policy Research (CEPR)

Date Written: October 1997

Abstract

How does an FDI project affect local firms in the same industry? Competition in the" product and factor markets tends to reduce profits of local firms, but linkage effects to supplier" industries may reduce input costs and raise profits. This paper develops an analytical framework" to assess these effects. Circumstances in which FDI is complementary to local industry are" established, and it is shown how FDI may lead to the establishment of local industrial sectors. " These sectors may grow to the point where local production overtakes and forces out FDI plants. " Our results are consistent with the experience of a number of industrial sectors in the NICs."

Suggested Citation

Markusen, James R. and Venables, Anthony J., Foreign Direct Investment as a Catalyst for Industrial Development (October 1997). NBER Working Paper No. w6241, Available at SSRN: https://ssrn.com/abstract=225999

James R. Markusen (Contact Author)

University of Colorado at Boulder - Department of Economics ( email )

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Anthony J. Venables

University of Oxford ( email )

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Centre for Economic Policy Research (CEPR)

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