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Intra-industry Foreign Direct Investment

Author Info

  • Laura Alfaro
  • Andrew Charlton

Abstract

We use a new firm-level dataset that establishes the location, ownership, and activity of 650,000 multinational subsidiaries. Using a combination of four-digit-level information and input-output tables, we find the share of vertical FDI (subsidiaries that provide inputs to their parent firms) to be larger than commonly thought, even within developed countries. Most subsidiaries are not readily explained by the comparative advantage considerations whereby multinationals locate activities abroad to take advantage of factor cost differences. Instead, multinationals tend to own the stages of production proximate to their final production, giving rise to a class of high-skill, intra-industry vertical FDI. (JEL G11, J32)

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 99 (2009)
Issue (Month): 5 (December)
Pages: 2096-2119

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Handle: RePEc:aea:aecrev:v:99:y:2009:i:5:p:2096-2119
Note: DOI: 10.1257/aer.99.5.2096
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Find related papers by JEL classification:
  • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
  • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
  • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
  • R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis

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