Emerging multinational companies investing in developed countries: at odds with the HOS theorem?
AbstractThe paper takes stake of the new trend of outward foreign direct investment (FDI) by multinational companies from emerging countries into developed countries to criticize the Heckscher-Ohlin-Samuelson theorem. A literature review exhibits that labour costs do not play any relevant role in the first attempts to provide an analytical framework for understanding this new trend. A HOS equation, emended in order to encompass FDI, is used to explain outward FDI (production relocation) from developed to developing and emerging countries based on differences in labour endowment and thus in wage rates. Step by step, the equation takes on board technological gap and government policies. Then it is shown that such equation is absolutely at odds with explaining outward FDI from emerging to developed countries. One has to turn the HOS theory ups and down in order to understand the latter FDI outflows in a sort of “reverse-HOS” equation. Since the paucity of data is a major hindrance to any econometric testing of the reverse equation so far, the last section provides empirical evidence that labour matters and a lower wage rate is a decisive comparative advantage for Indian and Chinese multinationals investing in developed countries. Additional evidence exhibits that technological gaps, catching up and home country’s government policy matter as well
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Turin in its series Department of Economics and Statistics Cognetti de Martiis. Working Papers with number 201107.
Length: 28 pages
Date of creation: Oct 2011
Date of revision:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Buch, Claudia M. & Kokta, Robert M. & Piazolo, Daniel, 2003. "Foreign direct investment in Europe: Is there redirection from the South to the East?," Journal of Comparative Economics, Elsevier, vol. 31(1), pages 94-109, March.
- John H Dunning, 1995. "Reappraising the Eclectic Paradigm in an Age of Alliance Capitalism," Journal of International Business Studies, Palgrave Macmillan, vol. 26(3), pages 461-491, September.
- Martijn Burger & Bas Karreman, 2010. "Foreign Direct Investment, China and the World Economy," Regional Studies, Taylor & Francis Journals, vol. 44(9), pages 1302-1303.
- Nagesh Kumar, 2006. "Emerging Multinationals : Trends, Patterns and Determinants of Outward Investment by Indian Enterprises," Microeconomics Working Papers 22108, East Asian Bureau of Economic Research.
- Lancaster, Kelvin, 1980. "Intra-industry trade under perfect monopolistic competition," Journal of International Economics, Elsevier, vol. 10(2), pages 151-175, May.
- Altomonte, Carlo & Guagliano, Claudia, 2003. "Comparative study of FDI in Central and Eastern Europe and the Mediterranean," Economic Systems, Elsevier, vol. 27(2), pages 223-246, June.
- Yadong Luo & Rosalie L Tung, 2007. "International expansion of emerging market enterprises: A springboard perspective," Journal of International Business Studies, Palgrave Macmillan, vol. 38(4), pages 481-498, July.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Piero Cavaleri) or (Marina Grazioli).
If references are entirely missing, you can add them using this form.