Foreign Direct Investment and De-industrialisation

Abstract

The purpose of this study is to discuss the various issues regarding de-industrialisation and to systematically analyse the causes of this phenomenon. In addition, the effect of the recent increase in foreign direct investment on de-industrialisation will be analysed. Unlike extant studies, this study employs a more reliable method of estimation, known as the generalised method of moments system, for establishing the importance of foreign direct investment (FDI) with regard to de-industrialisation. For a general assessment of the different factors of de-industrialisation, including FDI, this study classifies the causes of de-industrialisation in OECD countries into external and internal factors. As a result, the analysis has proved that not only internal and external factors are major factors of de-industrialisation, FDI inflow and outflow are also major factors.