In this paper, unique data from the Swiss National Bank on foreign direct investment (FDI) of Swiss firms, disaggregated according to recipient country and industrial sector for the years 1985 to 1997 are analysed for the first time. The analysis is performed on an aggregate, country-wide level and also on a sector-specific level. This allows us to investigate the effects of FDI on the demand for domestic goods and hence labour demand. Pooled regressions for all industrial sectors combined, and covering 56 countries reveal the existence of a weak substitutional effect between FDI and exports for the 21 industrial countries, and no corresponding effect for the 35 developing countries. A more differentiated picture arises when a disaggregate analysis on a sectoral level is conducted.