Aggregation Issues of Foreign Direct Investment Estimation in an Interdependent World

28 Pages Posted: 7 Jan 2017

See all articles by Helen Tammela Naughton

Helen Tammela Naughton

University of Montana - Department of Economics

Pehr‐Johan Norbäck

Research Institute of Industrial Economics (IFN)

Ayça Tekin‐Koru

Research Institute of Industrial Economics (IFN)

Date Written: December 2016

Abstract

This paper attempts to understand foreign direct investment (FDI) heterogeneity and offers useful insights about aggregation issues in FDI estimations by carrying out a spatial econometric analysis using affiliate‐level data on sales activities of Swedish multinational corporations around the globe. The results indicate that the multilayered nature of aggregation in FDI matters for empirical analysis. Affiliate‐level host‐country and third‐country sales activity provides evidence of a negative spatial lag or substitution of FDI in space, broadly supporting the export‐platform theory. For exports back to Sweden, we find a positive spatial lag suggesting agglomeration of production activities and vertical specialisation. The sequential aggregation from affiliate level to firm and country level provides evidence of a severe scale problem particularly in export‐platform FDI. This aggregation bias is likely present in many of the country‐level analyses in previous literature.

Suggested Citation

Naughton, Helen Tammela and Norbäck, Pehr‐Johan and Tekin‐Koru, Ayça, Aggregation Issues of Foreign Direct Investment Estimation in an Interdependent World (December 2016). The World Economy, Vol. 39, Issue 12, pp. 2046-2073, 2016. Available at SSRN: https://ssrn.com/abstract=2894680 or http://dx.doi.org/10.1111/twec.12388

Helen Tammela Naughton (Contact Author)

University of Montana - Department of Economics ( email )

Missoula, MT 59812

Pehr‐Johan Norbäck

Research Institute of Industrial Economics (IFN)

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Ayça Tekin‐Koru

Research Institute of Industrial Economics (IFN)

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

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