Fdi and the Structure of Home Country Production

Adelaide to strengthen teaching and research in the field of international economics and closely related disciplines. Its specific objectives are: • to promote individual and group research by scholars within and outside the University of Adelaide • to strengthen undergraduate and postgraduate education in this field • to provide shorter training programs in Australia and elsewhere • to conduct seminars, workshops and conferences for academics and for the wider community • to publish and promote research results • to provide specialised consulting services • to improve public understanding of international economic issues, especially among policy makers and shapers Both theoretical and empirical, policy-oriented studies are emphasised, with a particular focus on developments within, or of relevance to, the Asia-Pacific region. Further details and a list of publications are available from: This paper provides a selective survey of the literature on some of the home country effects of foreign direct investment, and goes on to discuss the effects of FDI on the home country's production structure in some detail. Earlier literature has focused on the impact of outward investment on home country exports: does the establishment of a foreign affiliate substitute for home exports or increase home exports of components and intermediate goods used by the foreign affiliates. The main question in this paper is: what happens when exports of intermediates from the home country to foreign production affiliates replace exports of finished products from the home country to independent foreign customers? This paper provides a selective survey of the literature on home country effects of FDI, and points to some new questions regarding the impact of outward FDI on economic structure in the home country. Much of the existing literature on production interactions between the domestic and foreign operations of MNCs has examined what happens to home country exports and employment as a result of outward FDI. Although the results of earlier studies vary somewhat, there appears to be a consensus that the quantitative effects are not dramatic. The reduced exports of finished products from the home country to independent foreign customers are balanced by increases in exports of intermediate products to the foreign affiliates. However, the structural changes – the transformation that occurs when the parent company becomes increasingly specialised in the production of intermediate goods – have not been discussed in great detail. Drawing heavily on the example of Sweden, we outline some of the changes that have …