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Types of FDI and Determinants of Affiliate Size: the Classification Makes the Difference

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  • Michael Moritz

    (Institute for Employment Research, Nuremberg, Germany)

  • Veronika Hecht

    (Institute for Employment Research, Nuremberg, Germany)

  • Patricia Noska

    (Ludwig-Maximilians-Universität München, Munich, Germany)

  • Johannes Schaffler

    (Institute for Employment Research, Nuremberg, Germany)

Abstract

This paper focuses on the role of classifying types of foreign direct investment (FDI) for analyzing the relevance of productivity for the size of cross-border investments in terms of the foreign subsidiary's workforce. We use a newly established firm-level data set of German multinational firms and their Czech affiliates that allows various categorizations into vertical FDI and horizontal FDI. Apart from data for conventional approaches to classify FDI types, the survey data include a self-assessment of the firms with respect to investment motives, and information on intra-firm trade. In order to correct for sample selection, we apply a two-step Heckman procedure by comparing multinational firms to companies without investment abroad. The results for the direct measures of FDI types confirm theoretical expectations and previous empirical literature and stand in marked contrast to the outcome for indirect measurement concepts. We conclude that one should be more cautious in interpreting differences between vertical and horizontal FDI when using approximative classification concepts.

Suggested Citation

  • Michael Moritz & Veronika Hecht & Patricia Noska & Johannes Schaffler, 2020. "Types of FDI and Determinants of Affiliate Size: the Classification Makes the Difference," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 70(4), pages 312-331, October.
  • Handle: RePEc:fau:fauart:v:70:y:2020:i:4:p:312-331
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    Cited by:

    1. Ahn, JaeBin & Park, Jee-Hyeong, 2022. "Identifying FDI types: Watch what they do, not what they say or look like," Economics Letters, Elsevier, vol. 213(C).
    2. Grass, Karen & Weber, Enzo, 2016. "EU 4.0 - Die Debatte zu Digitalisierung und Arbeitsmarkt in Europa," IAB-Discussion Paper 201639, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    3. Konstantin Koerner & Mathilde Le Moigne, 2023. "FDI and onshore task composition: evidence from German firms with affiliates in the Czech Republic," Journal for Labour Market Research, Springer;Institute for Employment Research/ Institut für Arbeitsmarkt- und Berufsforschung (IAB), vol. 57(1), pages 1-42, December.
    4. O. K. Adeleke, 2023. "FDI inflows and stock market development in Nigeria," Journal of Economic Policy and Management Issues, JEPMI, vol. 2(2), pages 19-30.
    5. Niklas Becker & Andrzej Cieślik, 2020. "Determinants of German Direct Investment in CEE Countries," JRFM, MDPI, vol. 13(11), pages 1-17, November.
    6. repec:iab:iabdpa:201639(en is not listed on IDEAS
    7. Konstantin Koerner & Michael Moritz & Johannes Schäffler, 2022. "Foreign direct investment and onshore employment dynamics: Evidence from German firms with affiliates in the Czech Republic," The World Economy, Wiley Blackwell, vol. 45(6), pages 1773-1829, June.

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    More about this item

    Keywords

    multinational firm; firm heterogeneity; productivity; vertical FDI; horizontal FDI; employment;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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