Testing the O-ring theory for FDI
AbstractModern production processes often involve several sequential stages which are performed in many different countries. This pattern of vertical specialization does not only affect trade between countries but it is also of importance for foreign direct investment (FDI). In this paper, we therefore adopt the idea of Kremer (1993) and Costinot et al. (2011) of a sequential production process which is subject to mistakes to the theory of FDI. Using firm-level panel data on German outward FDI, we show that the affiliate sector's position in the value chain affects the firm's FDI location choice. Affiliates in sectors that are positioned toward the end of the value chain are more likely to be located in more productive countries. --
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Bibliographic InfoPaper provided by Deutsche Bundesbank, Research Centre in its series Discussion Papers with number 24/2013.
Date of creation: 2013
Date of revision:
Foreign Direct Investment; O-Ring Theory; Upstreamness;
Find related papers by JEL classification:
- F14 - International Economics - - Trade - - - Empirical Studies of Trade
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-08-10 (All new papers)
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