Subsidiary impact on host-country economies--the case of foreign-owned subsidiaries attracting investment into sweden

This paper examines the impact of foreign-owned subsidiarieson their surrounding host-country economies, focusing particularlyon investment attraction. To explain such subsidiary impact,we develop a LISREL-model including four interlinked constructs:(a) the dynamism of the host-country business environment withinwhich the subsidiary unit is active; (b) the control strategiesof corporate headquarters; (c) quality of subsidiary competencies;and (d) the formalized mandate provided by headquarters forcertain subsidiaries to become centers. Based on the model,six hypotheses are formulated, and tested in a LISREL-analysison a set of data containing information on foreign-owned subsidiariesin Sweden. The results show that the dynamics of the host-countrybusiness environment positively impact on the foreign-ownedsubsidiary competence development and play a fundamental rolein deciding whether such units will impact on the investmentattraction in the host economy.