2016

Aggregation Issues of Foreign Direct Investment Estimation in an Interdependent World

Reprint No. 2016:62

Author(s): Helen Naughton, Pehr-Johan Norbäck and Ayça Tekin‐KoruYear: 2016 Title: World Economy Volume (No.): 39 (12) Pages: 2046–2073
Online article (restrictions may apply)


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.


Reference:
Naughton, Helen, Pehr‐Johan Norbäck och Ayça Tekin‐Koru (2016), "Aggregation Issues of Foreign Direct Investment Estimation in an Interdependent World". World Economy 39(12), 2046–2073.

Pehr-Johan Norbäck

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