IDEAS home Printed from https://ideas.repec.org/p/eec/wpaper/2107.html
   My bibliography  Save this paper

Headquarters intangible capital and FDI

Author

Listed:
  • Salvador Gil-Pareja

    (Dep. Applied Economics II, University of Valencia, Avda. dels Tarongers s/n, 46022 Valencia (Spain). INTECO Research Unit)

  • Rafael Llorca-Vivero

    (Dep. Applied Economics II, University of Valencia, Avda. dels Tarongers s/n, 46022 Valencia (Spain). INTECO Research Unit)

  • Jordi Paniagua

    (Dep. Applied Economics II, University of Valencia, Avda. dels Tarongers s/n, 46022 Valencia (Spain))

Abstract

Headquarters (HQs) provide a wide range of services, playing a fundamental role in Foreign Direct Investment (FDI). We use the structural gravity equation to investigate the effect of regional HQs on three dimensions of FDI (number of foreign firms, capital investment, and jobs) at the country-pair- sector level. Furthermore, we explore two underlying mechanisms that help explain this relationship: financial constraints and informational costs and uncertainty. We find a positive effect of regional HQs on FDI, as well as inter-country and inter-sector spillovers. Our results are robust, accounting for HQ intensity, domestic investment flows in the three dimensions and endogeneity tests.

Suggested Citation

  • Salvador Gil-Pareja & Rafael Llorca-Vivero & Jordi Paniagua, 2021. "Headquarters intangible capital and FDI," Working Papers 2107, Department of Applied Economics II, Universidad de Valencia.
    • Handle: RePEc:eec:wpaper:2107
    as

    Download full text from publisher

    File URL: http://repecsrv.uv.es/paper/RePEc/pdf/eec_2107.pdf
    File Function: First version, 2107
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. J.K. Mullen & Martin Williams, 2007. "Foreign Direct Investment And Regional Productivity Spillovers In Us Manufacturing," Review of Urban & Regional Development Studies, Wiley Blackwell, vol. 19(3), pages 185-196, November.
    2. Portes, Richard & Rey, Helene, 2005. "The determinants of cross-border equity flows," Journal of International Economics, Elsevier, vol. 65(2), pages 269-296, March.
    3. Joseph P. Daniels & Marc Ruhr, 2014. "Transportation Costs and US Manufacturing FDI," Review of International Economics, Wiley Blackwell, vol. 22(2), pages 299-309, May.
    4. Salvador Gil-Pareja & Rafael-Llorca Vivero & Jordi Paniagua, 2013. "The effect of the great recession on foreign direct investment: global empirical evidence with a gravity approach," Applied Economics Letters, Taylor & Francis Journals, vol. 20(13), pages 1244-1248, September.
    5. Chiţu, Livia & Eichengreen, Barry & Mehl, Arnaud, 2014. "History, gravity and international finance," Journal of International Money and Finance, Elsevier, vol. 46(C), pages 104-129.
    6. Bruce A. Blonigen & Wesley W. Wilson (ed.), 2018. "Handbook of International Trade and Transportation," Books, Edward Elgar Publishing, number 17028.
    7. Jörn Kleinert & Farid Toubal, 2010. "Gravity for FDI," Review of International Economics, Wiley Blackwell, vol. 18(1), pages 1-13, February.
    8. Grossman, Gene M. & Helpman, Elhanan & Szeidl, Adam, 2006. "Optimal integration strategies for the multinational firm," Journal of International Economics, Elsevier, vol. 70(1), pages 216-238, September.
    9. Russell H. Hillberry, 2002. "Aggregation bias, compositional change, and the border effect," Canadian Journal of Economics, Canadian Economics Association, vol. 35(3), pages 517-530, August.
    10. Magnus Blomström & Ari Kokko & Mario Zejan, 2000. "Multinational Corporations and Spillovers," Palgrave Macmillan Books, in: Foreign Direct Investment, chapter 8, pages 101-133, Palgrave Macmillan.
    11. Conconi, Paola & Sapir, André & Zanardi, Maurizio, 2016. "The internationalization process of firms: From exports to FDI," Journal of International Economics, Elsevier, vol. 99(C), pages 16-30.
    12. Luc Laeven & Fabian Valencia, 2020. "Systemic Banking Crises Database II," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 68(2), pages 307-361, June.
    13. Beverelli, Cosimo & Keck, Alexander & Larch, Mario & Yotov, Yoto, 2018. "Institutions, Trade and Development: A Quantitative Analysis," School of Economics Working Paper Series 2018-3, LeBow College of Business, Drexel University.
    14. Anca Cristea, 2015. "The effect of communication costs on trade in headquarter services," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 151(2), pages 255-289, May.
    15. Jordi Paniagua, 2015. "A gravity model for foreign re-investment," Economics Bulletin, AccessEcon, vol. 35(1), pages 627-632.
    16. Alfaro, Laura & Chanda, Areendam & Kalemli-Ozcan, Sebnem & Sayek, Selin, 2004. "FDI and economic growth: the role of local financial markets," Journal of International Economics, Elsevier, vol. 64(1), pages 89-112, October.
    17. James E. Anderson & Yoto V. Yotov, 2010. "The Changing Incidence of Geography," American Economic Review, American Economic Association, vol. 100(5), pages 2157-2186, December.
    18. Benedikt Heid & Mario Larch & Yoto V. Yotov, 2021. "Estimating the effects of non‐discriminatory trade policies within structural gravity models," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 54(1), pages 376-409, February.
    19. di Giovanni, Julian, 2005. "What drives capital flows? The case of cross-border M&A activity and financial deepening," Journal of International Economics, Elsevier, vol. 65(1), pages 127-149, January.
    20. Wang, Zi, 2021. "Headquarters gravity: How multinationals shape international trade," Journal of International Economics, Elsevier, vol. 131(C).
    21. Oldenski, Lindsay, 2012. "Export Versus FDI and the Communication of Complex Information," Journal of International Economics, Elsevier, vol. 87(2), pages 312-322.
    22. Sara Amoroso & Bettina Müller, 2018. "The short-run effects of knowledge intensive greenfield FDI on new domestic entry," The Journal of Technology Transfer, Springer, vol. 43(3), pages 815-836, June.
    23. Merlevede, Bruno & Schoors, Koen & Spatareanu, Mariana, 2014. "FDI Spillovers and Time since Foreign Entry," World Development, Elsevier, vol. 56(C), pages 108-126.
    24. J. M. C. Santos Silva & Silvana Tenreyro, 2006. "The Log of Gravity," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 641-658, November.
    25. Sergio Correia & Paulo Guimarães & Tom Zylkin, 2020. "Fast Poisson estimation with high-dimensional fixed effects," Stata Journal, StataCorp LP, vol. 20(1), pages 95-115, March.
    26. Claudia Buch & Iris Kesternich & Alexander Lipponer & Monika Schnitzer, 2014. "Financial constraints and foreign direct investment: firm-level evidence," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 150(2), pages 393-420, May.
    27. Nocke, Volker & Yeaple, Stephen, 2007. "Cross-border mergers and acquisitions vs. greenfield foreign direct investment: The role of firm heterogeneity," Journal of International Economics, Elsevier, vol. 72(2), pages 336-365, July.
    28. Beata Smarzynska Javorcik, 2004. "Does Foreign Direct Investment Increase the Productivity of Domestic Firms? In Search of Spillovers Through Backward Linkages," American Economic Review, American Economic Association, vol. 94(3), pages 605-627, June.
    29. Stephen Ross Yeaple, 2006. "Offshoring, Foreign Direct Investment, and the Structure of U.S. Trade," Journal of the European Economic Association, MIT Press, vol. 4(2-3), pages 602-611, 04-05.
    30. Helpman, Elhanan, 2011. "Understanding Global Trade," Economics Books, Harvard University Press, number 9780674060784, Spring.
    31. 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.
    32. Sergio Mariotti & Lucia Piscitello, 1995. "Information Costs and Location of FDIs within the Host Country: Empirical Evidence from Italy," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 26(4), pages 815-841, December.
    33. Guariglia, Alessandra & Poncet, Sandra, 2008. "Could financial distortions be no impediment to economic growth after all? Evidence from China," Journal of Comparative Economics, Elsevier, vol. 36(4), pages 633-657, December.
    34. Héricourt, Jérôme & Poncet, Sandra, 2009. "FDI and credit constraints: Firm-level evidence from China," Economic Systems, Elsevier, vol. 33(1), pages 1-21, March.
    35. Pol Antràs, 2003. "Firms, Contracts, and Trade Structure," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(4), pages 1375-1418.
    36. Andrew Myburgh & Jordi Paniagua, 2016. "Does International Commercial Arbitration Promote Foreign Direct Investment?," Journal of Law and Economics, University of Chicago Press, vol. 59(3), pages 597-627.
    37. Nizalova Olena Y. & Murtazashvili Irina, 2016. "Exogenous Treatment and Endogenous Factors: Vanishing of Omitted Variable Bias on the Interaction Term," Journal of Econometric Methods, De Gruyter, vol. 5(1), pages 71-77, January.
    38. Stephen Ross Yeaple, 2003. "The Role of Skill Endowments in the Structure of U.S. Outward Foreign Direct Investment," The Review of Economics and Statistics, MIT Press, vol. 85(3), pages 726-734, August.
    39. Choi, Chi-Young & Choi, Horag, 2014. "Does distance reflect more than transport costs?," Economics Letters, Elsevier, vol. 125(1), pages 82-86.
    40. James E. Anderson, 2011. "The Gravity Model," Annual Review of Economics, Annual Reviews, vol. 3(1), pages 133-160, September.
    41. Helpman, Elhanan, 1984. "A Simple Theory of International Trade with Multinational Corporations," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 451-471, June.
    42. Wolfgang Keller, 2021. "Knowledge Spillovers, Trade, and FDI," NBER Working Papers 28739, National Bureau of Economic Research, Inc.
    43. Baier, Scott L. & Bergstrand, Jeffrey H., 2007. "Do free trade agreements actually increase members' international trade?," Journal of International Economics, Elsevier, vol. 71(1), pages 72-95, March.
    44. Serena Fatica, 2010. "Investment Liberalization and Cross‐Border Acquisitions: The Effect of Partial Foreign Ownership," Review of International Economics, Wiley Blackwell, vol. 18(2), pages 320-333, May.
    45. repec:rre:publsh:v:37:y:2007:i:1:p:28-38 is not listed on IDEAS
    46. Sinani, Evis & Meyer, Klaus E., 2004. "Spillovers of technology transfer from FDI: the case of Estonia," Journal of Comparative Economics, Elsevier, vol. 32(3), pages 445-466, September.
    47. Salvador Gil-Pareja & Rafael Llorca-Vivero & José Antonio Martínez-Serrano, 2017. "Does the Degree of Development Matter in the Impact of Banking Crises on International Trade?," Review of Development Economics, Wiley Blackwell, vol. 21(3), pages 829-848, August.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Salvador Gil‐Pareja & Rafael Llorca‐Vivero & Jordi Paniagua, 2022. "Regional headquarters and foreign direct investment," Review of International Economics, Wiley Blackwell, vol. 30(4), pages 1288-1310, September.
    2. Cuadros, Ana & Martín-Montaner, Joan & Paniagua, Jordi, 2016. "Homeward bound FDI: Are migrants a bridge over troubled finance?," Economic Modelling, Elsevier, vol. 58(C), pages 454-465.
    3. Anderson, James E. & Borchert, Ingo & Mattoo, Aaditya & Yotov, Yoto V., 2018. "Dark costs, missing data: Shedding some light on services trade," European Economic Review, Elsevier, vol. 105(C), pages 193-214.
    4. Heid, Benedikt & Stähler, Frank, 2024. "Structural gravity and the gains from trade under imperfect competition: Quantifying the effects of the European Single Market," Economic Modelling, Elsevier, vol. 131(C).
    5. Benedikt Heid & Mario Larch & Yoto V. Yotov, 2021. "Estimating the effects of non‐discriminatory trade policies within structural gravity models," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 54(1), pages 376-409, February.
    6. Fernando Mistura & Caroline Roulet, 2019. "The determinants of Foreign Direct Investment: Do statutory restrictions matter?," OECD Working Papers on International Investment 2019/01, OECD Publishing.
    7. Randolph Bruno & Nauro Campos & Saul Estrin & Meng Tian, 2017. "Economic integration, foreign investment and international trade: the effects of membership of the European Union," CEP Discussion Papers dp1518, Centre for Economic Performance, LSE.
    8. Felbermayr, Gabriel & Yotov, Yoto V., 2021. "From theory to policy with gravitas: A solution to the mystery of the excess trade balances," European Economic Review, Elsevier, vol. 139(C).
    9. Maria Teresa Costa-Campi & Jordi Paniagua & Elisa Trujillo-Baute, 2015. "Are energy market integrations a green light for FDI?," Working Papers 2015/18, Institut d'Economia de Barcelona (IEB).
    10. Head, Keith & Ries, John, 2008. "FDI as an outcome of the market for corporate control: Theory and evidence," Journal of International Economics, Elsevier, vol. 74(1), pages 2-20, January.
    11. Paniagua, Jordi & Peiró-Palomino, Jesús & Santana-Gallego, María, 2022. "Does happiness drive tourism decisions?," Economic Modelling, Elsevier, vol. 111(C).
    12. Desbordes, Rodolphe & Wei, Shang-Jin, 2017. "The effects of financial development on foreign direct investment," Journal of Development Economics, Elsevier, vol. 127(C), pages 153-168.
    13. Konstantinos Dellis, 2018. "Financial development and FDI flows: evidence from advanced economies," Working Papers 254, Bank of Greece.
    14. Federico Carril-Caccia & Juliette Milgram Baleix & Jordi Paniagua, 2022. "Does terrorism affect greenfield investment? A structural gravity approach," ThE Papers 22/06, Department of Economic Theory and Economic History of the University of Granada..
    15. Silviano Esteve-Pérez & Salvador Gil-Pareja & Rafael Llorca-Vivero & Jordi Paniagua, 2021. "Has the Euro paid off? A study of the trade-induced welfare effects of the EMU," Working Papers 2103, Department of Applied Economics II, Universidad de Valencia.
    16. Silviano Esteve‐Pérez & Salvador Gil‐Pareja & Rafael Llorca‐Vivero & José Antonio Martínez‐Serrano, 2020. "EMU and trade: A PPML re‐assessment with intra‐national trade flows," The World Economy, Wiley Blackwell, vol. 43(10), pages 2574-2599, October.
    17. James E. Anderson, 2011. "The Gravity Model," Annual Review of Economics, Annual Reviews, vol. 3(1), pages 133-160, September.
    18. Head, Keith & Mayer, Thierry, 2014. "Gravity Equations: Workhorse,Toolkit, and Cookbook," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 131-195, Elsevier.
    19. Blyde, Juan & Molina, Danielken, 2015. "Logistic infrastructure and the international location of fragmented production," Journal of International Economics, Elsevier, vol. 95(2), pages 319-332.
    20. Mariam Camarero & Sergi Moliner & Cecilio Tamarit, 2021. "Is there a euro effect in the drivers of US FDI? New evidence using Bayesian model averaging techniques," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 157(4), pages 881-926, November.

    More about this item

    Keywords

    FDI; headquarters; spillovers; intangible capital; credit constraints; structural gravity;
    All these keywords.

    JEL classification:

    • F20 - International Economics - - International Factor Movements and International Business - - - General
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

    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:eec:wpaper:2107. See general information about how to correct material in RePEc.

    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 bibliographic 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Vicente Esteve (email available below). General contact details of provider: https://edirc.repec.org/data/dsvales.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.