between the closure of a local production unit and reimporting of the affiliates, there is a whole process
of establishing a production abroad. Moreover, in order to be able to assert with a reasonable amount of
assurance that a distinctive number of jobs had been lost due to some relocation, one would have to be
able to prove that these job losses would not have occurred had there been no FDI operation. On the
contrary, it can also be argued that relocation can help to create jobs through the mere survival of the
firm (MADEUF, 1995).
Because of these methodological difficulties we prefer to discuss the topic for Austria with a rather
simple method. We only want to investigate the motives of Austrian investments and their implications
on and relations to trade patterns. There are a broad variety of factors that are important for the impact of
FDI on the domestic economy. Among others these are industrial mixes, investment motives, strategic
and competitive considerations within FDIs are undertaken and finally it is the impact on FDI induced
trade (AGARWAL, 1996). To assess the impact of Austria’s FDI on the domestic economy we chose the
following approach:
Firstly, we investigate the regional and sectoral pattern of Austria’s FDI. Such an analysis provides a first
understanding of the different kinds of Austria’s FDI. Furthermore, we can see which regions and
industries expose substantial shares of overall FDI. Hence we will focus the subsequent analysis only on
those regions and sectors which are of importance.
Secondly, we analyse the motives of Austria’s FDI. Broadly speaking we can distinguish two very
different types of FDI: supply based and market driven FDI. The aim of the first type is to acquire some
particular resources at a lower cost than at home. It is broadly assumed that for the CEECs these
resources consist primarily of cheap labour.1 This type of investment is also efficiency seeking. Such
investment is mostly associated with 'relocation', reduced employment at home and increasing
(re)imports from the host country. Hence the domestic economy endures (see MADEUF, 1995). The
second type of investment depends on the expectation of new sales opportunities. Market based
investment is often influenced by strategic considerations too. Such investment usually creates additional
exports of inputs such as machinery and intermediate goods to the related foreign affiliates and of final
goods which were not so far exported to the related host country but can be exported after FDI due to
closer consumer relations. It is very likely that such investment will even improve the competitiveness of
the parent company. As FDI motives are market-related, domestic and foreign employment can be
assumed to be highly complementary (BORSOS, 1995).
Thirdly, following the considerations above we would expect that supply-based FDI shows considerable
larger export shares than market driven FDI. Furthermore, we can assume that market-driven affiliates
stimulate exports from the home country by the parent company while imports from the affiliates should
be only of minor importance. Hence intra-firm trade should show a surplus of the parent company for
market-driven FDI. On the contrary, supply-based affiliates will deliver parts and components, semi-
finished or finished goods to their parent company. Although the parent company will even provide
investment goods to its affiliates intra-firm trade balances can be expected to be negative.2
As we will see in section 2 most of the empirical studies only deal with one of these two closely
interrelated issues. They either investigate motives of investment or analyse trade patterns. Although
most of the studies report very diverse patterns of FDI it is hard to find any study that analyses the