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Fragmentation of headquarter services and FDI

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  • Davies, Ronald B.

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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  • Davies, Ronald B., 2005. "Fragmentation of headquarter services and FDI," The North American Journal of Economics and Finance, Elsevier, vol. 16(1), pages 61-79, March.
    • Handle: RePEc:eee:ecofin:v:16:y:2005:i:1:p:61-79
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    2. Arte, Pratik & Larimo, Jorma, 2019. "Taking stock of foreign divestment: Insights and recommendations from three decades of contemporary literature," International Business Review, Elsevier, vol. 28(6), pages 1-1.
    3. Olivier Godart & Holger Görg & David Greenaway, 2013. "Domestic multinationals, foreign affiliates, and labour demand elasticities," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 149(4), pages 611-630, December.
    4. Baltagi, Badi H. & Egger, Peter & Pfaffermayr, Michael, 2007. "Estimating models of complex FDI: Are there third-country effects?," Journal of Econometrics, Elsevier, vol. 140(1), pages 260-281, September.
    5. Salvador Gil-Pareja & Rafael Llorca-Vivero & Jordi Paniagua, 2021. "Headquarters intangible capital and FDI," Working Papers 2107, Department of Applied Economics II, Universidad de Valencia.
    6. Markus Kelle, 2013. "Crossing Industry Borders: German Manufacturers as Services Exporters," The World Economy, Wiley Blackwell, vol. 36(12), pages 1494-1515, December.
    7. Bruce A. Blonigen & Ronald B. Davies & Glen R. Waddell & Helen T. Naughton, 2019. "FDI in Space: Spatial Autoregressive Relationships in Foreign Direct Investment," World Scientific Book Chapters, in: Foreign Direct Investment, chapter 2, pages 55-88, World Scientific Publishing Co. Pte. Ltd..
    8. Markus Kelle, 2012. "Crossing Industrial Borders: German Manufacturers as Services Exporters," Development Working Papers 329, Centro Studi Luca d'Agliano, University of Milano, revised 27 Mar 2012.
    9. Thiess Büttner & Peter Egger & Herbert Hofmann & Christian Holzner & Mario Larch & Volker Meier & Chang Woon Nam & Rigmar Osterkamp & Rüdiger Parsche & Martin Werding, 2006. "Tu felix Austria: Wachstums- und Beschäftigungspolitik in Österreich und Deutschland im Vergleich," ifo Forschungsberichte, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 31.
    10. Debarsy, Nicolas & Jin, Fei & Lee, Lung-fei, 2015. "Large sample properties of the matrix exponential spatial specification with an application to FDI," Journal of Econometrics, Elsevier, vol. 188(1), pages 1-21.
    11. repec:zbw:bofitp:2007_015 is not listed on IDEAS
    12. Mukherjee, Arijit & Suetrong, Kullapat, 2012. "Trade cost reduction and foreign direct investment," Economic Modelling, Elsevier, vol. 29(5), pages 1938-1945.
    13. Ledyaeva, Svetlana, 2007. "Spatial econometric analysis of determinants and strategies of FDI in Russian regions in pre- and post-1998 financial crisis periods," BOFIT Discussion Papers 15/2007, Bank of Finland, Institute for Economies in Transition.
    14. Laura Casi & Laura Resmini, 2017. "Foreign direct investment and growth: Can different regional identities shape the returns to foreign capital investments?," Environment and Planning C, , vol. 35(8), pages 1483-1508, December.
    15. Markus Kelle, 2012. "Crossing Industry Borders: German Manufacturers as Services Exporters," wiiw Working Papers 92, The Vienna Institute for International Economic Studies, wiiw.
    16. Egger, Peter & Larch, Mario & Pfaffermayr, Michael, 2007. "On the welfare effects of trade and investment liberalization," European Economic Review, Elsevier, vol. 51(3), pages 669-694, April.
    17. Salvador Gil‐Pareja & Rafael Llorca‐Vivero & Jordi Paniagua, 2022. "Regional headquarters and foreign direct investment," Review of International Economics, Wiley Blackwell, vol. 30(4), pages 1288-1310, September.
    18. Cuadros, Ana & Martín-Montaner, Joan & Paniagua, Jordi, 2016. "Homeward bound FDI: Are migrants a bridge over troubled finance?," Economic Modelling, Elsevier, vol. 58(C), pages 454-465.
    19. Procher, Vivien D. & Engel, Dirk, 2018. "The investment-divestment relationship: Resource shifts and intersubsidiary competition within MNEs," International Business Review, Elsevier, vol. 27(3), pages 528-542.

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    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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