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Interdependence in Multinational Production Networks

  • Chen, Maggie

The majority of multinational firms today operate a multilateral production network. Most existing empirical analyses have, however, focused on firms' choice between producing at home and investing overseas and assumed that a firm's decision to invest in a foreign country is independent of its locations in third countries. This paper examines the effect of existing production network on multinationals' entry decision. Using detailed French multinational subsidiary level data, the paper finds strong evidence of horizontal and vertical interdependence across multinationals' foreign production locations. There is, however, little evidence of horizontal interdependence between home-country production and foreign investment when the third-country effects are taken into account, constituting a sharp contrast to the conventional emphasis. This result is robust to the various specifications and sensitivity analyses undertaken in the paper, and highlights the importance of investigating the causes and effects of foreign direct investment in the context of multinational production network.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 23506.

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Date of creation: 2009
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Handle: RePEc:pra:mprapa:23506
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  1. Karolina Ekholm & Rikard Forslid & James Markusen, 2003. "Export-Platform Foreign Direct Investment," NBER Working Papers 9517, National Bureau of Economic Research, Inc.
  2. Keith Head & Thierry Mayer, 2004. "Market Potential and the Location of Japanese Investment in the European Union," The Review of Economics and Statistics, MIT Press, vol. 86(4), pages 959-972, November.
  3. David L. Carr & James R. Markusen & Keith E. Maskus, 1998. "Estimating the Knowledge-Capital Model of the Multinational Enterprise," NBER Working Papers 6773, National Bureau of Economic Research, Inc.
  4. Diego Puga & Tony Venables, 1995. "Preferential trading arrangements and industrial location," LSE Research Online Documents on Economics 2151, London School of Economics and Political Science, LSE Library.
  5. Markusen, James R. & Venables, Anthony J., 2000. "The theory of endowment, intra-industry and multi-national trade," Journal of International Economics, Elsevier, vol. 52(2), pages 209-234, December.
  6. 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.
  7. Anthony J. Venables, 1993. "Equilibrium Locations of Vertically Linked Industries," CEP Discussion Papers dp0137, Centre for Economic Performance, LSE.
  8. Laura Alfaro & Andrew Charlton, 2009. "Intra-industry Foreign Direct Investment," American Economic Review, American Economic Association, vol. 99(5), pages 2096-2119, December.
  9. 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.
  10. Bruce Blonigen, 2005. "A Review of the Empirical Literature on FDI Determinants," Atlantic Economic Journal, International Atlantic Economic Society, vol. 33(4), pages 383-403, December.
  11. Badi H. Baltagi & Peter Egger & Michael Pfaffermayr, 2005. "Estimating Models of Complex FDI: Are There Third-Country Effects?," Center for Policy Research Working Papers 73, Center for Policy Research, Maxwell School, Syracuse University.
  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. Motta, Massimo & Norman, George, 1996. "Does Economic Integration Cause Foreign Direct Investment?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(4), pages 757-83, November.
  14. Krugman, Paul & Venables, Anthony J., 1996. "Integration, specialization, and adjustment," European Economic Review, Elsevier, vol. 40(3-5), pages 959-967, April.
  15. Gordon H. Hanson & Raymond J. Mataloni & Matthew J. Slaughter, 2003. "Vertical Production Networks in Multinational Firms," NBER Working Papers 9723, National Bureau of Economic Research, Inc.
  16. 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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