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Arndt, Christian; Buch, Claudia M. and Schnitzer, Monika (2010): FDI and Domestic Investment: An Industry-Level View. In: The B.E. Journal of Economic Analysis and Policy, Vol. 10, No. 1

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Previous empirical work on the link between domestic and foreigninvestment has provided mixed results. This may partly be due to thelevel of aggregation of the data. In this paper, we argue that theimpact of FDI on the domestic capital stock depends on the structure ofindustries. Using industry-level data on the stock of German FDI, wetest our predictions. We use panel cointegration methods which addressthe potential endogeneity of FDI. We find evidence for a positivelong-run impact of FDI on the domestic capital stock.

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