Aggregation Issues of Foreign Direct Investment Estimation in an Interdependent World


Naughton H., Norback P., Tekin Koru A.

WORLD ECONOMY, vol.39, no.12, pp.2046-2073, 2016 (SSCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 39 Issue: 12
  • Publication Date: 2016
  • Doi Number: 10.1111/twec.12388
  • Journal Name: WORLD ECONOMY
  • Journal Indexes: Social Sciences Citation Index (SSCI), Scopus
  • Page Numbers: pp.2046-2073
  • TED University Affiliated: Yes

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.