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Export-Platform Foreign Direct Investment

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  • Jim Markusen
  • Caroline Ekholm, Rikard Forslid

Abstract

An interesting empirical phenomenon is export-platform foreign-direct investment, particularly affiliate production for sale in third countries rather than in the parent or host countries. This is rather poorly understood because our theoretical understanding of multinationals is largely derived from two-country models. Our model shows how affiliate production solely for third countries can occur when a firm in each of two large, high-income countries has a domestic plant to serve its own market, and uses a plant in a small, low-cost country to serve the other highincome country. Third-country export-platform FDI can also occur when the host and third countries are inside a free-trade area and the parent is outside. Our empirical section shows that US affiliates located inside a free-trade area concentrate their exports to other free-trade member countries, consistent with parameterizations of our model in which the outside firm is the chief beneficiary of the free-trade area. Affiliates located outside of free-trade areas such as those in Southeast Asia show a balance between exports to the parent and exports to third countries, consistent with parameterizations that generate “global export-platform” production. Classification-

Suggested Citation

  • Jim Markusen & Caroline Ekholm, Rikard Forslid, 2005. "Export-Platform Foreign Direct Investment," The Institute for International Integration Studies Discussion Paper Series iiisdp050, IIIS.
  • Handle: RePEc:iis:dispap:iiisdp050
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    References listed on IDEAS

    as
    1. James R. Markusen, 2004. "Multinational Firms and the Theory of International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262633078, December.
    2. James R. Markusen & Keith E. Maskus, 2002. "Discriminating Among Alternative Theories of the Multinational Enterprise," Review of International Economics, Wiley Blackwell, vol. 10(4), pages 694-707, November.
    3. Bruce A. Blonigen, 2019. "In Search of Substitution Between Foreign Production and Exports," World Scientific Book Chapters, in: Foreign Direct Investment, chapter 9, pages 293-323, World Scientific Publishing Co. Pte. Ltd..
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    6. David L. Carr & James R. Markusen & Keith E. Maskus, 2021. "Estimating The Knowledge-Capital Model of the Multinational Enterprise," World Scientific Book Chapters, in: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models, chapter 5, pages 95-110, World Scientific Publishing Co. Pte. Ltd..
    7. Ronald W. Jones, 2000. "Globalization and the Theory of Input Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 026210086x, December.
    8. Ekholm, Karolina & Braconier, Henrik, 2001. "Foreign Direct Investment in Central and Eastern Europe: Employment Effects in the EU," CEPR Discussion Papers 3052, C.E.P.R. Discussion Papers.
    9. Blomstrom, Magnus & Goldberg, Linda S. (ed.), 2001. "Topics in Empirical International Economics," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226060835, January.
    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. Magnus Blomstrom & Linda S. Goldberg, 2001. "Topics in Empirical International Economics: A Festschrift in Honor of Robert E. Lipsey," NBER Books, National Bureau of Economic Research, Inc, number blom01-1, May.
    12. James R. Markusen & Keith E. Maskus, 2001. "Multinational Firms: Reconciling Theory and Evidence," NBER Chapters, in: Topics in Empirical International Economics: A Festschrift in Honor of Robert E. Lipsey, pages 71-98, National Bureau of Economic Research, Inc.
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    More about this item

    Keywords

    Multinational firms; export platform; foreign direct investment; affiliate exports; free-trade area;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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