Domestic impacts of outward FDI in Taiwan: Evidence from panel data of manufacturing firms

This paper explores how the outward FDI made by Taiwanese manufacturing firms affects their decisions on domestic employment, production, investment and income distribution. The empirical examination was carried out by utilizing a set of panel data of 1084 manufacturing firms in Taiwan over the period of 2000-2010. Taking into account the firm heterogeneity, it is found that Taiwanese outward FDI to high-wage countries (horizontal FDI) tends to have a favorable impact on domestic employment, production and investment. At the same time, the outward FDI to low-wage economies (vertical FDI) is very likely to lead to job loss and industrial hollowing out at home. In contrast, domestic income inequality is generally aggravated by outward FDI irrespective of the wage level in destination countries.