Does foreign direct investment replace home country investment? The effectof European integration on the location of Swedish investment

The purpose of this article is to examine the effects of European integrati on on the location of investments by Swedish multinational corporations (MN Cs). Evidence is presented about the extent to which European integration h as attracted investment by Swedish MNCs, and whether foreign direct investm ent (FDI) is being undertaken at the expense of home country investment. In the empirical analysis, involving both OLS and iterative SUR techniques, a significant difference across industries has been confirmed. A substitutio nary relationship between foreign and home country investment is found for more R&D-intensive production, whereas the opposite pattern seems to prevai l for production based on traditional comparative advantage. The results of this study emphasize the importance of using disaggregated industry-level data when analysing the effects of foreign direct investment on home countr y investment.