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Vertical FDI? A Host Country Perspective

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  • Andreas Waldkirch

    (Oregon State University)

Abstract

Recent empirical studies of the determinants of multinational activity across countries have found overwhelming support for a horizontal rather than a vertical model of foreign direct investment (FDI). They all use U.S. or other developed country data. This paper, in contrast, uses a previously unexploited industry-level data set on FDI in a relatively skilled-labor and capital scarce country, Mexico, to shed light on the determinants of FDI between largely dissimilar countries. The results indicate considerably more support for the vertical model. The correlation between skill differences and FDI is positive in all industries, but when differences are large, FDI flows into sectors that are intensive in total labor, regardless of skill level. The concentration of multinational activity in (unskilled) labor intensive industries suggests a limited potential for spillover effects.

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Bibliographic Info

Paper provided by EconWPA in its series International Trade with number 0403008.

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Length: 35 pages
Date of creation: 30 Mar 2004
Date of revision:
Handle: RePEc:wpa:wuwpit:0403008

Note: Type of Document - pdf; pages: 35. 35 pages, pdf-file
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Web page: http://128.118.178.162

Related research

Keywords: Foreign Direct Investment; Multinationals; Mexico;

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References

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  1. Markusen, James R & Maskus, Keith E, 2002. "Discriminating among Alternative Theories of the Multinational Enterprise," Review of International Economics, Wiley Blackwell, vol. 10(4), pages 694-707, November.
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  3. Kei-Mu Yi, 2000. "Can vertical specialization explain the growth of world trade?," Staff Reports 96, Federal Reserve Bank of New York.
  4. David L. Carr & James R. Markusen & Keith E. Maskus, 1998. "Estimating the Knowledge-Capital Model of the Multinational Enterprise," NBER Working Papers 6773, National Bureau of Economic Research, Inc.
  5. Markusen, James R., 2002. "Multinational Firms and the Theory of International Trade," MPRA Paper 8380, University Library of Munich, Germany.
  6. Robert C. Feenstra & Gordon H. Hanson, 1995. "Foreign Direct Investment and Relative Wages: Evidence from Mexico's Maquiladoras," NBER Working Papers 5122, National Bureau of Economic Research, Inc.
  7. 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.
  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.
  9. Bruce A. Blonigen & Ronald B. Davies & Keith Head, 2002. "Estimating the Knowledge-Capital Model of the Multinational Enterprise: Comment," NBER Working Papers 8929, National Bureau of Economic Research, Inc.
  10. James R. Markusen, 1997. "Trade versus Investment Liberalization," NBER Working Papers 6231, National Bureau of Economic Research, Inc.
  11. James R. Markusen & Keith E. Maskus, 2001. "General-Equilibrium Approaches to the Multinational Firm: A Review of Theory and Evidence," NBER Working Papers 8334, National Bureau of Economic Research, Inc.
  12. David Hummels & Jun Ishii & Kei-Mu Yi, 1999. "The nature and growth of vertical specialization in world trade," Staff Reports 72, Federal Reserve Bank of New York.
  13. Kloek, T, 1981. "OLS Estimation in a Model Where a Microvariable Is Explained by Aggregates and Contemporaneous Disturbances Are Equicorrelated," Econometrica, Econometric Society, vol. 49(1), pages 205-07, January.
  14. Braconier, Henrik & Norbäck, Pehr-Johan & Urban, Dieter, 2002. "Vertical FDI Revisited," Working Paper Series 579, Research Institute of Industrial Economics.
  15. Stephen Ross Yeaple, 2003. "The Role of Skill Endowments in the Structure of U.S. Outward Foreign Direct Investment," The Review of Economics and Statistics, MIT Press, vol. 85(3), pages 726-734, August.
  16. Andreas Waldkirch, 2003. "The 'new regionalism' and foreign direct investment: the case of Mexico," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 12(2), pages 151-184.
  17. Wheeler, David & Mody, Ashoka, 1992. "International investment location decisions : The case of U.S. firms," Journal of International Economics, Elsevier, vol. 33(1-2), pages 57-76, August.
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Citations

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Cited by:
  1. Peter Nunnenkamp & José Eduardo Alatorre Bremont, 2007. "FDI in Mexico: An Empirical Assessment of Employment Effects," Kiel Working Papers 1328, Kiel Institute for the World Economy.
  2. Xun, Lei & Awokuse, Titus O., 2005. "The Determinants of US Outgoing FDI in the Food-Processing Sector," 2005 Annual meeting, July 24-27, Providence, RI 19131, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  3. Frank A.G. den Butter & Raphie Hayat, 0000. "Trade between China and the Netherlands: a Case Study of Globalization," Tinbergen Institute Discussion Papers 08-016/3, Tinbergen Institute.
  4. Helga Kristjánsdóttir, 2005. "What Drives Sector Allocation of Foreign Direct Investment in Iceland?," EPRU Working Paper Series 05-08, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.

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