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A Touch of Sophistication: FDI and Unit Values of Exports

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  • Harding, Torfinn
  • Smarzynska-Javorcik, Beata

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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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7596.

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Date of creation: Dec 2009
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Handle: RePEc:cpr:ceprdp:7596

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

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  1. 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.
  2. James E. Rauch, 1996. "Networks versus Markets in International Trade," NBER Working Papers 5617, National Bureau of Economic Research, Inc.
  3. Smarzynska, Beata K., 2002. "Does foreign direct investment increase the productivity of domestic firms : in search of spillovers through backward linkages," Policy Research Working Paper Series 2923, The World Bank.
  4. Deborah L. Swenson, 2008. "Multinationals and the creation of Chinese trade linkages," Canadian Journal of Economics, Canadian Economics Association, vol. 41(2), pages 596-618, May.
  5. Hallak, Juan Carlos, 2006. "Product quality and the direction of trade," Journal of International Economics, Elsevier, vol. 68(1), pages 238-265, January.
  6. Harding, Torfinn & Javorcik, Beata Smarzynska, 2007. "Developing economies and international investors : do investment promotion agencies bring them together ?," Policy Research Working Paper Series 4339, The World Bank.
  7. Aitken, B. & Hanson, G.H. & Harrison, A.E., 1994. "Spillovers, Foreign Investment and Export Behavior," Papers 95-06, Columbia - Graduate School of Business.
  8. 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.
  9. Iacovone, Leonardo & Javorcik, Beata S., 2008. "Multi-product exporters : diversification and micro-level dynamics," Policy Research Working Paper Series 4723, The World Bank.
  10. John Sutton, 2007. "Quality, Trade and the Moving Window: The Globalisation Process," Economic Journal, Royal Economic Society, vol. 117(524), pages F469-F498, November.
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Cited by:
  1. Florian Mayneris & Sandra Poncet, 2010. "Export Performance of China's Domestic Firms: the Role of Foreign Export Spillovers," Working Papers 2010-32, CEPII research center.
  2. Kaitila, Ville, 2010. "Quality-adjusted similarity of EU-countriesŽ export structure," Discussion Papers 1227, The Research Institute of the Finnish Economy.

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