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Similarity in Demand Structures and Foreign Direct Investment in the Food and Beverage Industry

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  • Steinbach, Sandro

Abstract

I study the relationship between demand similarity and foreign direct investment in the food and beverage industry. My regression specification includes a measure of similarity in income per capita to proxy for similarity in demand. Using firm-level greenfield investment data, I find a significant effect of income similarity along the intensive and extensive margin of foreign direct investment. My findings show that investment activities are more intense between countries with similar income per capita. The similarity effect is larger for the intensive margin, implying that it is not only more likely that an investment is realized between countries with similar income per capita, but also that such a project involves a considerable larger investment and creates more jobs. Although I find evidence for heterogeneity in the similarity effect, all coefficient estimates have a negative sign. Moreover, distinguishing between types of foreign direct investment, I find that the similarity effect is mainly relevant for manufacturing projects. These results show that demand for quality is an important determinant of cross-border investment activities in the food and beverage industry.

Suggested Citation

  • Steinbach, Sandro, 2016. "Similarity in Demand Structures and Foreign Direct Investment in the Food and Beverage Industry," 2016 Annual Meeting, July 31-August 2, 2016, Boston, Massachusetts 235906, Agricultural and Applied Economics Association.
  • Handle: RePEc:ags:aaea16:235906
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    File URL: http://purl.umn.edu/235906
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    References listed on IDEAS

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    1. Stein, Ernesto & Daude, Christian, 2007. "Longitude matters: Time zones and the location of foreign direct investment," Journal of International Economics, Elsevier, vol. 71(1), pages 96-112, March.
    2. Angela Cheptea & Charlotte Emlinger & Karine Latouche, 2012. "Multinational Retailers and Home Country Exports," Post-Print hal-01208840, HAL.
    3. Angela Cheptea & Charlotte Emlinger & Karine Latouche, 2015. "Multinational Retailers and Home Country Food Exports," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 97(1), pages 159-179.
    4. Colen, Liesbeth & Persyn, Damiaan & Guariso, Andrea, 2016. "Bilateral Investment Treaties and FDI: Does the Sector Matter?," World Development, Elsevier, vol. 83(C), pages 193-206.
    5. Munisamy Gopinath & Rodrigo Echeverria, 2004. "Does Economic Development Impact the Foreign Direct Investment-Trade Relationship? A Gravity-Model Approach," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(3), pages 782-787.
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    More about this item

    Keywords

    Greenfield foreign direct investment; food and beverage industry; demand similarity; Industrial Organization; International Relations/Trade; F14; F23; L66;

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L66 - Industrial Organization - - Industry Studies: Manufacturing - - - Food; Beverages; Cosmetics; Tobacco

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