We build a dynamic general equilibrium model with 2 countries, horizontal and vertical multinational activity and endogenous domestic and foreign investment. It is found that horizontal multinational activity always leads to a complementary relationship between domestic and foreign investment. Vertical multinational activity, in contrast, leads to either a substitutional or complementary relationship between domestic and foreign investment, depending on the firms' technologies. We test the theoretical implications with a panel of U.S. multinationals and find empirical support.

domestic investments, horizontal multinational firms, neoclassical growth model, vertical multinational firms
Capital; Investment (including Inventories); Capacity (jel E22), International Investment; Long-Term Capital Movements (jel F21), Multinational Firms; International Business (jel F23)
Tinbergen Institute
hdl.handle.net/1765/14741
Tinbergen Institute Discussion Paper Series
Discussion paper / Tinbergen Institute
Tinbergen Institute

Emami Namini, J, & Pennings, H.P.G. (2009). Horizontal Multinational Firms, Vertical Multinational Firms and Domestic Investment (No. TI 09-004/2). Discussion paper / Tinbergen Institute. Tinbergen Institute. Retrieved from http://hdl.handle.net/1765/14741