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World Economy

Aggregation Issues of Foreign Direct Investment Estimation in an Interdependent World

Scientific Article in English
Reference
Naughton, Helen, Pehr-Johan Norbäck and Ayça Tekin-Koru (2016). “Aggregation Issues of Foreign Direct Investment Estimation in an Interdependent World”. World Economy 39(12), 2046–2073. doi.org/10.1111/twec.12388

Authors
Helen Naughton, Pehr-Johan Norbäck, Ayça Tekin-Koru

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.

Pehr-Johan Norbäck

+46 (0)8 665 4522
+46 (0)73 574 3379
pehr-johan.norback@ifn.se