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

This paper examines the impact of foreign-owned subsidiaries on their surrounding host-country economies, focusing particularly on 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 within which the subsidiary unit is active; (b) the control strategies of corporate headquarters; (c) quality of subsidiary competencies; and (d) the formalized mandate provided by headquarters for certain subsidiaries to become centers. Based on the model, six hypotheses are formulated, and tested in a LISREL-analysis on a set of data containing information on foreign-owned subsidiaries in Sweden. The results show that the dynamics of the host-country business environment positively impact on the foreign-owned subsidiary competence development and play a fundamental role in deciding whether such units will impact on the investment attraction in the host economy.