IDEAS home Printed from https://ideas.repec.org/p/ecm/nasm04/140.html
   My bibliography  Save this paper

Reversing the Perspective: Multinational Activity from Middle-Income Countries

Author

Listed:
  • Debaere
  • PEter

Abstract

The organization of production within the multinational corporation (MNC) depends on the relative factor abundance of the home country and the destination country. This proposition is at the heart of the theory of the multinational corporation (MNCs) that Helpman (1984, 1985) and Helpman and Krugman (1985) developed and that is primarily conceived from the perspective of the advanced, developed countries. It rationalizes one-way, North-South MNC activity; MNCs from capital-abundant nations break up domestic production and relocate the labor-intensive parts to low-wage countries. I show how two-way MNC activities are implied by the theory that Helpman and Krugman develop and how these are essential to understand MNCs from middle-income countries: these MNCs relocate labor-intensive activities to more labor-abundant countries, they also move capital-intensive components to more capital-abundant countries. I use unique South Korean firm-level data to investigate this hypothesis. I provide evidence from the affiliates of South Korea�s MNCs that bears out this prediction. I also formally test the implications of the hypothesis for the parents� capital-intensity with a panel of South Korean MNC parents (1980-1996). Relocating to more capital-abundant countries indeed decreases the parent�s capital-labor ratio, whereas relocating to more labor-abundant countries increase this ratio.

Suggested Citation

  • Debaere & PEter, 2004. "Reversing the Perspective: Multinational Activity from Middle-Income Countries," Econometric Society 2004 North American Summer Meetings 140, Econometric Society.
  • Handle: RePEc:ecm:nasm04:140
    as

    Download full text from publisher

    File URL: http://repec.org/esNASM04/up.28583.1074698202.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Deardorff, A.V., 1998. "Fragmentation Across Cones," Working Papers 427, Research Seminar in International Economics, University of Michigan.
    2. Brainard, S Lael, 1997. "An Empirical Assessment of the Proximity-Concentration Trade-off between Multinational Sales and Trade," American Economic Review, American Economic Association, vol. 87(4), pages 520-544, September.
    3. Bernard, Andrew B. & Bradford Jensen, J., 1999. "Exceptional exporter performance: cause, effect, or both?," Journal of International Economics, Elsevier, vol. 47(1), pages 1-25, February.
    4. Debaere, Peter & Demiroglu, Ufuk, 2003. "On the similarity of country endowments," Journal of International Economics, Elsevier, vol. 59(1), pages 101-136, January.
    5. Robert E. Lipsey, 2001. "Foreign Direct Investment and the Operations of Multinational Firms: Concepts, History, and Data," NBER Working Papers 8665, National Bureau of Economic Research, Inc.
    6. Donald R. Davis & David E. Weinstein, 2001. "An Account of Global Factor Trade," American Economic Review, American Economic Association, vol. 91(5), pages 1423-1453, December.
    7. Markusen, James R., 1984. "Multinationals, multi-plant economies, and the gains from trade," Journal of International Economics, Elsevier, vol. 16(3-4), pages 205-226, May.
    8. Ann E. Harrison & Brian J. Aitken, 1999. "Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela," American Economic Review, American Economic Association, vol. 89(3), pages 605-618, June.
    9. Haddad, Mona & Harrison, Ann, 1993. "Are there positive spillovers from direct foreign investment? : Evidence from panel data for Morocco," Journal of Development Economics, Elsevier, vol. 42(1), pages 51-74, October.
    10. Gordon H. Hanson & Raymond J. Mataloni, Jr. & Matthew J. Slaughter, 2001. "Expansion Strategies of U.S. Multinational Firms," NBER Working Papers 8433, National Bureau of Economic Research, Inc.
    11. James R. Markusen, 1995. "The Boundaries of Multinational Enterprises and the Theory of International Trade," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 169-189, Spring.
    12. S. Lael Brainard, 1993. "A Simple Theory of Multinational Corporations and Trade with a Trade-Off Between Proximity and Concentration," NBER Working Papers 4269, National Bureau of Economic Research, Inc.
    13. Rodriguez-Clare, Andres, 1996. "Multinationals, Linkages, and Economic Development," American Economic Review, American Economic Association, vol. 86(4), pages 852-873, September.
    14. Kim, June-Dong & Rang, In-Soo, 1997. "Outward FDI and exports: The case of South Korea and Japan," Journal of Asian Economics, Elsevier, vol. 8(1), pages 39-50.
    15. Head, Keith & Ries, John, 2002. "Offshore production and skill upgrading by Japanese manufacturing firms," Journal of International Economics, Elsevier, vol. 58(1), pages 81-105, October.
    16. Roberts, Mark J & Tybout, James R, 1997. "The Decision to Export in Colombia: An Empirical Model of Entry with Sunk Costs," American Economic Review, American Economic Association, vol. 87(4), pages 545-564, September.
    17. Dunning, John H. & Hoesel, Roger van & Narula, Rajneesh, 1996. "Explaining the 'new' wave of outward FDI from developing coountries : the case of Taiwan and Korea," Research Memorandum 009, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
    18. Feenstra, Robert C. & Hanson, Gordon H., 1997. "Foreign direct investment and relative wages: Evidence from Mexico's maquiladoras," Journal of International Economics, Elsevier, vol. 42(3-4), pages 371-393, May.
    19. repec:fth:michin:427 is not listed on IDEAS
    20. James R. Markusen & Keith E. Maskus, 2001. "General-Equilibrium Approaches to the Multinational Firm: A Review of Theory and Evidence," NBER Working Papers 8334, National Bureau of Economic Research, Inc.
    21. Elhanan Helpman, 1985. "Multinational Corporations and Trade Structure," Review of Economic Studies, Oxford University Press, vol. 52(3), pages 443-457.
    22. Debeare, Peter, 2003. "Relative Factor Abundance and Trade," Journal of Political Economy, University of Chicago Press, vol. 111(3), pages 589-610, June.
    23. Arndt, Sven W., 1997. "Globalization and the open economy," The North American Journal of Economics and Finance, Elsevier, vol. 8(1), pages 71-79.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ronald B. Davies, 2008. "Hunting High and Low for Vertical FDI," Review of International Economics, Wiley Blackwell, vol. 16(2), pages 250-267, May.

    More about this item

    Keywords

    multinationals;

    JEL classification:

    • F1 - International Economics - - Trade

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ecm:nasm04:140. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum). General contact details of provider: http://edirc.repec.org/data/essssea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.