Working papers, Department of Economics, WU (Wirtschaftsuniversität Wien)
Contrasting the dynamic patterns of manufacturing and service FDI: Evidence from transition economies
Abstract: We contribute to the foreign direct investment (FDI)
literature by providing first empirical evidence on the relative importance
of location factors for service and manufacturing FDI. This is of
particular interest as the global stock of inward FDI in the service sector
has become predominant in the last ten years. Based on a sectoral panel of
eight new European member states in the period of 1998 to 2004 we perform a
dynamic panel analysis allowing for individual adjustment periods across
sectors. Results support our assumption that investment into the service
sector, which is characterized by low installation costs, adjusts much
faster to its desired level than manufacturing FDI. Furthermore, since
services are mostly non-tradable, FDI into this sector is largely based on
market-seeking motives while manufacturing FDI is also driven by
international price competitiveness measured via real unit labor costs.
JEL-Codes: C23; F21; P33; (follow links to similar papers)
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