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Vertical FDI Reviseted

Author

Listed:
  • Henrik Braconier

    (National Institute of Economic Research, Stockholm)

  • Pehr-Johan Norback

    (Research Institute of Industrial Economics, Stockholm)

  • Dieter Urban

    (LSE)

Abstract

This study explores how relative skilled-wage premia affect FDI. Contrary to previous studies based on factor endowment differences, we find strong support for vertical FDI, in the sense that more FDI is conducted in countries where unskilled labor is relatively cheap. In addition, we find that relative skill-premia also affect FDI activities that have previously been associated with horizontal FDI, i.e. local affiliate sales. Consequently, the potential effects of changes in the relative wage costs on international production reallocation within MNEs are large. In fact, if not for the 8% rise in the US skilled wage premium relative to the average host country between 1986-1994, annual US affiliate sales abroad in relation to US GDP would have been half a percentage point higher.

Suggested Citation

  • Henrik Braconier & Pehr-Johan Norback & Dieter Urban, 2002. "Vertical FDI Reviseted," Development Working Papers 167, Centro Studi Luca d'Agliano, University of Milano.
  • Handle: RePEc:csl:devewp:167
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    File URL: http://www.dagliano.unimi.it/media/WP2002_167.pdf
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    References listed on IDEAS

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    Cited by:

    1. Jörn Kleinert & Farid Toubal, 2010. "Gravity for FDI," Review of International Economics, Wiley Blackwell, vol. 18(1), pages 1-13, February.
    2. Ronald B. Davies & Carsten Eckel, 2007. "Tax Competition for Heterogeneous Firms with Endogenous Entry:The Case of Heterogeneous Fixed Costs," The Institute for International Integration Studies Discussion Paper Series iiisdp213, IIIS.
    3. Tanaka, Kiyoyasu, 2011. "Vertical foreign direct investment: Evidence from Japanese and U.S. multinational enterprises," Japan and the World Economy, Elsevier, vol. 23(2), pages 97-111, March.
    4. Henrik Braconier & Pehr-Johan Norbäck & Dieter Urban, 2005. "Reconciling the Evidence on the Knowledge-capital Model," Review of International Economics, Wiley Blackwell, vol. 13(4), pages 770-786, September.
    5. Kleinert, Jörn & Toubal, Farid, 2005. "A Structural Model of Export versus Affiliates Production," Tübinger Diskussionsbeiträge 288, University of Tübingen, School of Business and Economics.
    6. W.Jos Jansen & Ad C.J.Stokman, 2003. "Foreign Direct Investment and International Business Cycle Comovement," MEB Series (discontinued) 2003-10, Netherlands Central Bank, Monetary and Economic Policy Department.
    7. 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.
    8. Katariina Nilsson Hakkala & Pehr-Johan Norbäck & Helena Svaleryd, 2008. "Asymmetric Effects of Corruption on FDI: Evidence from Swedish Multinational Firms," The Review of Economics and Statistics, MIT Press, vol. 90(4), pages 627-642, November.
    9. Ronald B. Davies & Carsten Eckel, 2010. "Tax Competition for Heterogeneous Firms with Endogenous Entry," American Economic Journal: Economic Policy, American Economic Association, vol. 2(1), pages 77-102, February.
    10. Lahimer, Noomen, 2009. "La contribution des investissements directs étrangers à la réduction de la pauvreté en Afrique subsaharienne," Economics Thesis from University Paris Dauphine, Paris Dauphine University, number 123456789/1167 edited by Goaied, Mohamed & Bienaymé, Alain, January.
    11. repec:eee:ememar:v:33:y:2017:i:c:p:1-18 is not listed on IDEAS
    12. Shujie Yao & Pan Wang, "undated". "Has China Displaced the Outward Investments of OECD Countries?," Discussion Papers 12/10, University of Nottingham, GEP.
    13. Andreas Waldkirch, 2004. "Vertical FDI? A Host Country Perspective," International Trade 0403008, EconWPA.
    14. Richard Baldwin & Toshihiro Okubo, 2014. "Networked FDI: Sales and Sourcing Patterns of Japanese Foreign Affiliates," The World Economy, Wiley Blackwell, vol. 37(8), pages 1051-1080, August.
    15. Yao, Shujie & Wang, Pan, 2014. "Has China displaced the outward investments of OECD countries?," China Economic Review, Elsevier, vol. 28(C), pages 55-71.
    16. Alfons Palangkaraya & Andreas Waldkirch, 2008. "Relative factor abundance and FDI factor intensity in developed countries," International Economic Journal, Taylor & Francis Journals, vol. 22(4), pages 489-508.
    17. Isabel Faeth, 2005. "Determinants of FDI in Australia : Which Theory Can Explain it Best?," Department of Economics - Working Papers Series 946, The University of Melbourne.
    18. Jörn Kleinert & Farid Toubal, 2010. "Production versus Distribution-oriented FDI," Working Papers hal-00608510, HAL.

    More about this item

    Keywords

    multinational firms; wage differentials;

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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