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Interdependence in Multinational Production Networks

  • Maggie X. Chen

    ()

    (Institute for International Economic Policy, George Washington University)

Most multinational firms today operate multilateral production networks. Most existing emperical analyses, however, have focused on the choice between producing at home and investing overseaas and assumed firms' decisions to invest in foreign countries to be interdepedent of their locations in third countries. This paper uses detailed French multinational subsidiary level data to examine the effect of existing production networks on multinationals' entry decisions. The paper finds strong evidence of horizontal and vertical inderdependence across multinationals' foreign production locations, but little evidence of interdependence between home-country production and foreign investment when third-country effects are taken into account. This result constitutes a sharp contrast to the conventional emphasis, and highlights the importance of investigating the causes and effects of foreign direct investment in the context of multinational production networks.

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File URL: http://www.gwu.edu/~iiep/assets/docs/papers/Chen_IIEPWP2010-20.pdf
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Paper provided by The George Washington University, Institute for International Economic Policy in its series Working Papers with number 2010-20.

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Length: 30 pages
Date of creation: Sep 2010
Date of revision:
Publication status: Published in University Library of Munich, Germany 2009
Handle: RePEc:gwi:wpaper:2010-20
Contact details of provider: Web page: http://www.gwu.edu/~iiep/
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  1. Bruce A. Blonigen & Ronald B. Davies & Glen R. Waddell & Helen T. Naughton, 2004. "FDI in Space: Spatial Autoregressive Relationships in Foreign Direct Investment," NBER Working Papers 10939, National Bureau of Economic Research, Inc.
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  8. 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.
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  11. Laura Alfaro & Andrew Charlton, 2009. "Intra-industry Foreign Direct Investment," American Economic Review, American Economic Association, vol. 99(5), pages 2096-2119, December.
  12. Chen, Maggie X., 2009. "Regional economic integration and geographic concentration of multinational firms," European Economic Review, Elsevier, vol. 53(3), pages 355-375, April.
  13. Markusen, James R. & Venables, Anthony J, 1996. "The Theory of Endowment, Intra-Industry and Multinational Trade," CEPR Discussion Papers 1341, C.E.P.R. Discussion Papers.
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  16. Baltagi, Badi H. & Egger, Peter & Pfaffermayr, Michael, 2007. "Estimating models of complex FDI: Are there third-country effects?," Journal of Econometrics, Elsevier, vol. 140(1), pages 260-281, September.
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