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A Touch of Sophistication: FDI and Unit Values of Exports

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  • Torfinn Harding
  • Beata Smarzynska Javorcik

Abstract

The debate on trade and growth increasingly focuses on the composition of exports. Exports of more “sophisticated” products appear to be positively correlated with growth, and upgrading the quality of exports is high on the policy agenda of many countries. This study presents evidence suggesting that attracting inflows of FDI offers potential for upgrading a country’s export basket. The empirical analysis relates unit values of exports measured at the 4-digit SITC level to data on sectors treated by investment promotion agencies as priority in their efforts to attract FDI. The sample covers 116 countries over the period 1984-2000. The findings are consistent with a positive effect of FDI on unit values of exports in developing countries. However, such a relationship is less evident in developed countries. These results suggest that FDI can help bridge gaps in production and marketing techniques between developing and high income economies.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2865.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2865

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Keywords: export quality; unit values; FDI; investment promotion; industrial policy;

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References

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  1. James E. Rauch, 1996. "Networks versus Markets in International Trade," NBER Working Papers 5617, National Bureau of Economic Research, Inc.
  2. Juan Carlos Hallak & Peter K. Schott, 2011. "Estimating Cross-Country Differences in Product Quality," The Quarterly Journal of Economics, Oxford University Press, vol. 126(1), pages 417-474.
  3. Beata Smarzynska Javorcik, 2004. "Does Foreign Direct Investment Increase the Productivity of Domestic Firms? In Search of Spillovers Through Backward Linkages," American Economic Review, American Economic Association, vol. 94(3), pages 605-627, June.
  4. Zhi Wang & Shang-Jin Wei, 2008. "What Accounts for the Rising Sophistication of China's Exports?," NBER Working Papers 13771, National Bureau of Economic Research, Inc.
  5. Torfinn Harding & Beata Smarzynska Javorcik, 2007. "Developing economies and international investors. Do investment promotion agencies bring them together?," Discussion Papers 513, Research Department of Statistics Norway.
  6. John Sutton, 2007. "Quality, Trade and the Moving Window: The Globalisation Process," Economic Journal, Royal Economic Society, vol. 117(524), pages F469-F498, November.
  7. Deborah L. Swenson, 2007. "Multinationals and the Creation of Chinese Trade Linkages," NBER Working Papers 13271, National Bureau of Economic Research, Inc.
  8. Iacovone, Leonardo & Javorcik, Beata S., 2008. "Multi-product exporters : diversification and micro-level dynamics," Policy Research Working Paper Series 4723, The World Bank.
  9. Brian Aitken & Gordon H. Hanson & Ann E. Harrison, 1994. "Spillovers, Foreign Investment, and Export Behavior," NBER Working Papers 4967, National Bureau of Economic Research, Inc.
  10. Hallak, Juan Carlos, 2006. "Product quality and the direction of trade," Journal of International Economics, Elsevier, vol. 68(1), pages 238-265, January.
  11. Alessandro Nicita & Marcelo Olarreaga, 2007. "Trade, Production, and Protection Database, 1976--2004," World Bank Economic Review, World Bank Group, vol. 21(1), pages 165-171.
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Cited by:
  1. Kaitila, Ville, 2010. "Quality-adjusted similarity of EU-countriesŽ export structure," Discussion Papers 1227, The Research Institute of the Finnish Economy.
  2. MAYNERIS, Florian & PONCET, Sandra, 2011. "Export performance of Chinese domestic firms: the role of foreign export spillovers," CORE Discussion Papers 2011008, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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