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Self-Protection: Fragmentation of Headquarter Services and FDI

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Author Info
Ronald B. Davies () (University of Oregon Economics Department)

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Abstract

I develop a simple model in which production of skill-intensive headquarter services are fragmented across borders in order to take advantage of complementarities between types of skilled labor. This setting indicates that FDI tends to come from and go to skill-abundant countries. It also yields an ambiguous effect of FDI on domestic relative wages. If the complementarities between skilled labor types are large enough, then increased FDI increases the wages of both skilled and unskilled labor in the home economy. Thus, this model predicts investment patterns comparable to the horizontal model but requires neither trade barriers nor reductions in home wages.

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File URL: http://economics.uoregon.edu/papers/UO-2003-37_Davies_Frag_Head.pdf
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Publisher Info
Paper provided by University of Oregon Economics Department in its series University of Oregon Economics Department Working Papers with number 2003-37.

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Length: 28
Date of creation: 01 Sep 2003
Date of revision: 01 Nov 2003
Handle: RePEc:ore:uoecwp:2003-37

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Related research
Keywords: Headquarter Services; Fragmentation; Foreign Direct Investment;

Find related papers by JEL classification:
F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

This paper has been announced in the following NEP Reports:

References listed on IDEAS
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  1. Ronald B. Davies, 2002. "Hunting High and Low for Vertical FDI," University of Oregon Economics Department Working Papers 2002-12, University of Oregon Economics Department, revised 01 Aug 2002. [Downloadable!]
    Other versions:
  2. Brainard, S Lael, 1997. "An Empirical Assessment of the Proximity-Concentration Trade-off between Multinational Sales and Trade," American Economic Review, American Economic Association, vol. 87(4), pages 520-44, September. [Downloadable!] (restricted)
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    Other versions:
  5. Bruce A. Blonigen & Ronald B. Davies & Keith Head, 2002. "Estimating The Knowledge-Capital Model of the Multinational Enterprise: Comment," University of Oregon Economics Department Working Papers 2002-13, University of Oregon Economics Department, revised 01 Mar 2002. [Downloadable!]
    Other versions:
  6. Markusen, James R. & Venables, Anthony J., 1996. "The Theory of Endowment, Intra-Industry and Multinational Trade," CEPR Discussion Papers 1341, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  7. Braconier, Henrik & Norbäck, Pehr-Johan & Urban, Dieter, 2002. "Vertical FDI Revisited," Working Paper Series 579, Research Institute of Industrial Economics. [Downloadable!]
    Other versions:
  8. Markusen, James R., 1984. "Multinationals, multi-plant economies, and the gains from trade," Journal of International Economics, Elsevier, vol. 16(3-4), pages 205-226, May. [Downloadable!] (restricted)
  9. Wolfgang Keller, 2000. "Geographic Localization of International Technology Diffusion," NBER Working Papers 7509, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. Head, Keith & Ries, John & Swenson, Deborah, 1995. "Agglomeration benefits and location choice: Evidence from Japanese manufacturing investments in the United States," Journal of International Economics, Elsevier, vol. 38(3-4), pages 223-247, May. [Downloadable!] (restricted)
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  11. Braconier, Henrik & Ekholm, Karolina, 2000. "Swedish Multinationals and Competition from High- and Low-Wage Locations," Review of International Economics, Blackwell Publishing, vol. 8(3), pages 448-61, August. [Downloadable!] (restricted)
    Other versions:
  12. Markusen, James R & Venables, Anthony J, 1997. "The Role of Multinational Firms in the Wage-Gap Debate," Review of International Economics, Blackwell Publishing, vol. 5(4), pages 435-51, November.
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    Other versions:
  14. David L. Carr & James R. Markusen & Keith E. Maskus, 2001. "Estimating the Knowledge-Capital Model of the Multinational Enterprise," American Economic Review, American Economic Association, vol. 91(3), pages 693-708, June. [Downloadable!] (restricted)
    Other versions:
  15. James R. Markusen & Anthony J. Venables & Denise Eby Konan & Kevin H. Zhang, 1996. "A Unified Treatment of Horizontal Direct Investment, Vertical Direct Investment, and the Pattern of Trade in Goods and Services," NBER Working Papers 5696, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  16. Adam B. Jaffe & Manuel Trajtenberg, 1998. "International Knowledge Flows: Evidence from Patent Citations," NBER Working Papers 6507, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  17. Slaughter, Matthew J., 2000. "Production transfer within multinational enterprises and American wages," Journal of International Economics, Elsevier, vol. 50(2), pages 449-472, April. [Downloadable!] (restricted)
  18. Feenstra, Robert C & Hanson, Gordon H, 1996. "Globalization, Outsourcing, and Wage Inequality," American Economic Review, American Economic Association, vol. 86(2), pages 240-45, May. [Downloadable!] (restricted)
    Other versions:
  19. Andreas Waldkirch, 2003. "The 'new regionalism' and foreign direct investment: the case of Mexico," Journal of International Trade & Economic Development, Taylor and Francis Journals, vol. 12(2), pages 151-184, June. [Downloadable!] (restricted)
  20. Venables, Anthony J., 1999. "Fragmentation and multinational production," European Economic Review, Elsevier, vol. 43(4-6), pages 935-945, April. [Downloadable!] (restricted)
  21. Carsten Eckel, 2003. "Fragmentation, Efficiency-Seeking FDI, and Employment," Review of International Economics, Blackwell Publishing, vol. 11(2), pages 317-331, 05. [Downloadable!] (restricted)
  22. Markusen, James R. & Venables, Anthony J., 1998. "Multinational firms and the new trade theory," Journal of International Economics, Elsevier, vol. 46(2), pages 183-203, December. [Downloadable!] (restricted)
    Other versions:
  23. Guellec, Dominique & Pottelsberghe de la Potterie, Bruno v., 2001. "The internationalisation of technology analysed with patent data," Research Policy, Elsevier, vol. 30(8), pages 1253-1266, October. [Downloadable!] (restricted)
  24. Markusen, James R & Maskus, Keith E, 2002. "Discriminating among Alternative Theories of the Multinational Enterprise," Review of International Economics, Blackwell Publishing, vol. 10(4), pages 694-707, November. [Downloadable!] (restricted)
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  25. Helpman, Elhanan, 1984. "A Simple Theory of International Trade with Multinational Corporations," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 451-71, June. [Downloadable!] (restricted)
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