KCG Researchers Contributed to a BMF Research Project on FDI and the German Current Account

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KCG Researchers, Prof. Holger Görg, Ph.D., Cecília Hornok, Ph.D, and Dr. Léa Marchal, worked on a joint research project titled “On the Economic Relevance of Foreign Direct Investments (FDI) and their Role for the German Current Account Balance” with the Forecasting Centre  at the Kiel Institute for the World Economy. The project was financially supported by the German Federal Ministry of Finance (BMF)  from October 2017 to March 2018. With project members from both KCG and the Forecasting Centre, the team was able to investigate the economic relevance of German FDI from both macro- and microeconomic perspectives.

KCG Researchers’ contribution in this project mainly focused on the related literature review and on the empirical analysis based on microeconomic data, aiming at investigating the impact of FDI on employment, labour productivity, qualification structure and international trade engagement in the FDI recipient countries. More concretely, they carried out a feasibility study, summarizing information related to potential data sources and estimation methods and techniques required for an empirical analysis of the causal effects of German FDI in the FDI recipient countries. Against this background they also conducted an empirical study with focus on France as a recipient country of German FDI. Their analysis shows that there is no significant difference between German acquisitions and domestic or other foreign acquisitions of French firms in their direct economic impact on the firms acquired. In contrast, they find that the presence of German-owned firms has positive spillover effects on domestically owned firms in the same industry with respect to labour productivity, export and import activities, as well as qualification structure. Spillover effects from German FDI are also found to be stronger than the average spillover effects from FDI in France in general. From both the feasibility study and the French case study suggestions and proposals were derived for future research.

Main findings of the project are summarized and presented in the joint publication “Fiedler et al. (2018), Foreign Direct Investments – Effects on German Current Account and Spillover Effects in the Recipient Countries (Direktinvestitionen im Ausland – Effekte auf die deutsche Leistungsbilanz und Spillovers in den Empfängerländern)”, which is available as “Kieler Beiträge zur Wirtschaftspolitik Nr. 16, 2018”.