IDEAS home Printed from https://ideas.repec.org/p/ehl/lserod/20351.html
   My bibliography  Save this paper

Foreign direct investment

Author

Listed:
  • Hatzius, J.

Abstract

This paper argues that the liberalisation of foregin direct investment (FDI) has made labour costs more important to domestic investment and long-run labour demand. It provides evidence from British and German data that is consistent with this view. First, high unit labour costs increase FDI outflows and lower FDI inflows. Second, the effect of unit labour costs on domestic manufacturing investment was more negative in the high-FDI 1980s than in the low-FDI 1970s, and this change was concentrated in high-FDI industries. The implied effect on long-run labour demand is substantial.

Suggested Citation

  • Hatzius, J., 1997. "Foreign direct investment," LSE Research Online Documents on Economics 20351, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:20351
    as

    Download full text from publisher

    File URL: http://eprints.lse.ac.uk/20351/
    File Function: Open access version.
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Klein, Michael W. & Rosengren, Eric, 1994. "The real exchange rate and foreign direct investment in the United States : Relative wealth vs. relative wage effects," Journal of International Economics, Elsevier, vol. 36(3-4), pages 373-389, May.
    2. Culem, Claudy G., 1988. "The locational determinants of direct investments among industrialized countries," European Economic Review, Elsevier, vol. 32(4), pages 885-904, April.
    3. Feldstein, Martin & Hines, James R. & Hubbard, R. Glenn (ed.), 1995. "The Effects of Taxation on Multinational Corporations," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226240954.
    4. James R. Markusen & Anthony J. Venables & Denise Eby Konan & Kevin H. Zhang, 1996. "A Unified Treatment of Horizontal Direct Investment, Vertical Direct Investment, and the Pattern of Trade in Goods and Services," NBER Working Papers 5696, National Bureau of Economic Research, Inc.
    5. Pain, Nigel, 1993. "An Econometric Analysis of Foreign Direct Investment in the United Kingdom," Scottish Journal of Political Economy, Scottish Economic Society, vol. 40(1), pages 1-23, February.
    6. Bond, Stephen R & Jenkinson, Tim, 1996. "The Assessment: Investment Performance and Policy," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 12(2), pages 1-29, Summer.
    7. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-1426, November.
    8. Barrell, Ray & Pain, Nigel, 1996. "An Econometric Analysis of U.S. Foreign Direct Investment," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 200-207, May.
    9. Lucas, Robert E. B., 1993. "On the determinants of direct foreign investment: Evidence from East and Southeast Asia," World Development, Elsevier, vol. 21(3), pages 391-406, March.
    10. Harris, M.N. & Matyas, L., 1996. "A Comparative Analysis of Different Estimatiors for Dynamic Panel data Models," Monash Econometrics and Business Statistics Working Papers 4/96, Monash University, Department of Econometrics and Business Statistics.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ahmad Seyf, 2001. "Can Globalisation and Global Localisation Explain Foreign Direct Investment? Japanese Firms in Europe," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 8(1), pages 137-153.
    2. Enrico Pennings, "undated". "How to Maximize Domestic Benefits from Irreversible Foreign Investments," Working Papers 205, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    3. Adam Swain, 1998. "Governing the Workplace: The Workplace and Regional Development Implications of Automotive Foreign Direct Investment in Hungary," Regional Studies, Taylor & Francis Journals, vol. 32(7), pages 653-671.
    4. Schroder, Philipp J. H., 2001. "On the speed and boundaries of structural adjustment when fiscal policy is tight," Economic Systems, Elsevier, vol. 25(4), pages 345-364, December.
    5. Laura Ehrlich & Ulo Kaasik & Anu Randveer, 2002. "The impact of Scandinavian economies on Estonia via foreign trade and direct investments," Bank of Estonia Working Papers 2002-4, Bank of Estonia, revised 12 Nov 2002.
    6. Carvalho, Flavia & Duysters, Geert & Costa, Ionara, 2010. "Drivers of Brazilian foreign investments – technology seeking and technology exploiting as determinants of emerging FDI," MERIT Working Papers 2010-017, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    7. Peter Nisbet & Wayne Thomas & Stuart Barrett, 2003. "UK direct investment in the United States: a mode of entry analysis," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 10(3), pages 245-259.
    8. Enrico Pennings & Carlo Altomonte, 2006. "The Hazard Rate of Foreign Direct Investment: A Structural Estimation of a Real‐option Model," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 68(5), pages 569-593, October.
    9. M. Taner Yigit & Ali M. Kutan, 2004. "Effects of Transition and Political Instability on Foreign Direct Investment Inflows : Central Europe and the Balkans," Working Papers 0407, Department of Economics, Bilkent University.
    10. Engelbert Stockhammer & Stefan Ederer, 2008. "Demand effects of the falling wage share in Austria," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 35(5), pages 481-502, December.
    11. Cletus C. Coughlin & Eran Segev, 2000. "Location Determinants of New Foreign‐Owned Manufacturing Plants," Journal of Regional Science, Wiley Blackwell, vol. 40(2), pages 323-351, May.
    12. Robert C. Feenstra, "undated". "Facts And Fallacies About Foreign Direct Investment," Department of Economics 98-04, California Davis - Department of Economics.
    13. Anusorn Tamajai, . "The Impact of Capital Inflows of Asian Economic Growth," Fordham Economics Dissertations, Fordham University, Department of Economics, number 2000.4.
    14. Kirsi Zongo & Mahamadou Diarra, 2022. "Exchange Rate Misalignments, Foreign Direct Investment and Industrial Performance in Sub-Saharan Africa [Désalignements du taux de change, investissements directs étrangers et performances industri," Working Papers hal-03649887, HAL.
    15. Andrzej Adamczyk & Tomasz Tokarski & Robert W. Włodarczyk, 2009. "Przestrzenne zróżnicowanie płac w Polsce," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 9, pages 87-108.
    16. John Dunning, 2001. "The Eclectic (OLI) Paradigm of International Production: Past, Present and Future," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 8(2), pages 173-190.
    17. Ihrig, Jane, 2000. "Multinationals' response to repatriation restrictions," Journal of Economic Dynamics and Control, Elsevier, vol. 24(9), pages 1345-1379, August.
    18. Stübben, Felix & Lackenbauer, Jörg & Wenzel, Heinz-Dieter, 2005. "Eine Dekade wirtschaftlicher Transformation in den Westbalkanstaaten: Ein Überblick," BERG Working Paper Series 53, Bamberg University, Bamberg Economic Research Group.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. J Hatzius, 1997. "Foreign Direct Investment," CEP Discussion Papers dp0336, Centre for Economic Performance, LSE.
    2. Hatzius , Jan, 1996. "Foreign Direct Investment, Capital Formation and Labour Costs: Theory and Evidence for Germany," Working Paper Series 468, Research Institute of Industrial Economics.
    3. Hatzius, Jan, 2000. "Foreign direct investment and factor demand elasticities," European Economic Review, Elsevier, vol. 44(1), pages 117-143, January.
    4. Isabel Faeth, 2009. "Determinants Of Foreign Direct Investment – A Tale Of Nine Theoretical Models," Journal of Economic Surveys, Wiley Blackwell, vol. 23(1), pages 165-196, February.
    5. Isabel Faeth, 2005. "Determinants of FDI in Australia : Which Theory Can Explain it Best?," Department of Economics - Working Papers Series 946, The University of Melbourne.
    6. Florence Hubert & Nigel Pain, 2002. "Aides à l’investissement, intégration européenne et localisation de l’investissement direct allemand," Économie et Prévision, Programme National Persée, vol. 152(1), pages 151-170.
    7. Anderton, Robert & Hijzen, Alexander & De Santis, Roberto A., 2004. "On the determinants of euro area FDI to the United States: the knowledge- capital-Tobin's Q framework," Working Paper Series 329, European Central Bank.
    8. James Love, 2003. "Technology sourcing versus technology exploitation: an analysis of US foreign direct investment flows," Applied Economics, Taylor & Francis Journals, vol. 35(15), pages 1667-1678.
    9. Pham Dinh Long & Nguyen Van Duc, 2017. "Impacts of remittances on foreign direct investment in South East Asia - An empirical investigation," HO CHI MINH CITY OPEN UNIVERSITY JOURNAL OF SCIENCE - ECONOMICS AND BUSINESS ADMINISTRATION, HO CHI MINH CITY OPEN UNIVERSITY JOURNAL OF SCIENCE, HO CHI MINH CITY OPEN UNIVERSITY, vol. 7(2), pages 75-81.
    10. Bruno Pires Tiberto & Helder Ferreira de Mendonça, 2023. "Effects of Sustainable Monetary and Fiscal Policy on FDI Inflows to EMDE Countries," Working Papers Series 575, Central Bank of Brazil, Research Department.
    11. Fragkiskos Filippaios & Marina Papanastassiou, 2008. "US Outward Foreign Direct Investment in the European Union and the Implementation of the Single Market: Empirical Evidence from a Cohesive Framework," Journal of Common Market Studies, Wiley Blackwell, vol. 46, pages 969-1000, December.
    12. M. Giulietti & S. Mccorriston & P. Osborne, 2004. "Foreign direct investment in the UK: evidence from a disaggregated panel of the UK food sector," Applied Economics, Taylor & Francis Journals, vol. 36(7), pages 653-663.
    13. Dalila NICET-CHENAF & Eric ROUGIER, 2007. "Foreign Direct Investment: a comparative study of the attraction of Moroccan and Tunisian economies (In French)," Cahiers du GREThA (2007-2019) 2007-02, Groupe de Recherche en Economie Théorique et Appliquée (GREThA).
    14. Miroslav Mateev & Iliya Tsekov, 2014. "Are there any top FDI performers among EU-15 and CEE countries? A comparative panel data analysis," Financial Theory and Practice, Institute of Public Finance, vol. 38(3), pages 337-374.
    15. Asamoah, Michael Effah & Adjasi, Charles K.D. & Alhassan, Abdul Latif, 2016. "Macroeconomic uncertainty, foreign direct investment and institutional quality: Evidence from Sub-Saharan Africa," Economic Systems, Elsevier, vol. 40(4), pages 612-621.
    16. Giovanni S.F. Bruno & Anna M. Falzoni & Rodolfo Helg, 2004. "Measuring the effect of globalization on labour demand elasticity: An empirical application to OECD countries," KITeS Working Papers 153, KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy, revised Feb 2004.
    17. Mr. Ali J Al-Sadiq, 2013. "Outward Foreign Direct Investment and Domestic Investment: The Case of Developing Countries," IMF Working Papers 2013/052, International Monetary Fund.
    18. Merih Uctum & Remzi Uctum, 2005. "Portfolio Flows, Foreign Direct Investment, Crises," Computing in Economics and Finance 2005 224, Society for Computational Economics.
    19. Dong Xuan Nguyen, 2016. "Trade liberalization and export sophistication in Vietnam," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 25(8), pages 1071-1089, November.
    20. Lanouar Charfeddine & Zouhair Mrabet, 2015. "Trade liberalization and relative employment: further evidence from Tunisia," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 5(1), pages 173-202, June.

    More about this item

    JEL classification:

    • F3 - International Economics - - International Finance
    • G3 - Financial Economics - - Corporate Finance and Governance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ehl:lserod:20351. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: LSERO Manager (email available below). General contact details of provider: https://edirc.repec.org/data/lsepsuk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.