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Complex vertical FDI and firm heterogeneity: Evidence from East Asia

  • Hayakawa, Kazunobu
  • Matsuura, Toshiyuki

This study statistically tests the validity of the mechanics of complex vertical foreign direct investment (C-VFDI) in Japanese machinery FDI to East Asia by estimating a multiple-spatial lag model. From a theoretical perspective regarding C-VFDI, the production activity of affiliates in a given country is positively related to the production activity in neighboring countries that have large differences in factor prices with the given country. Furthermore, high-productivity firms are likely to choose a C-VFDI strategy. Our empirical results show no robust geographical relationship among affiliates' activities. However, the significantly positive relationship in wage differentials among those activities is found only for high-productivity firms.

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Article provided by Elsevier in its journal Journal of the Japanese and International Economies.

Volume (Year): 25 (2011)
Issue (Month): 3 (September)
Pages: 273-289

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Handle: RePEc:eee:jjieco:v:25:y:2011:i:3:p:273-289
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