The impact of horizontal and vertical FDI on host's country economic growth

Sjoerd Beugelsdijk*, Roger Smeets, Remco Zwinkels

*Corresponding author for this work

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

In this paper, we contribute to the literature investigating the impact of FDI on host country economic growth by distinguishing between the growth effects of horizontal (market seeking) FDI and vertical (efficiency seeking) FDI. Using a new database, we estimate the growth effects of vertical and horizontal US MNE activity into 44 host countries over the period 1983-2003, also using traditional total FDI figures as a benchmark. Controlling for endogeneity and absorptive capacity effects, we find that horizontal and vertical FDI have positive and significant growth effects in developed countries. Moreover, our results indicate a superior growth effect of horizontal FDI over vertical FDI. In line with existing literature, we find no significant effects of horizontal or vertical FDI in developing countries.

Original languageEnglish
Pages (from-to)452-472
Number of pages21
JournalInternational Business Review
Volume17
Issue number4
DOIs
Publication statusPublished - Aug 2008

Keywords

  • Economic growth
  • Horizontal/market seeking FDI
  • Vertical/efficiency seeking FDI

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