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Vertical FDI? A Host Country Perspective

  • Andreas Waldkirch

    (Oregon State University)

Recent empirical studies of the determinants of multinational activity across countries have found overwhelming support for a horizontal rather than a vertical model of foreign direct investment (FDI). They all use U.S. or other developed country data. This paper, in contrast, uses a previously unexploited industry-level data set on FDI in a relatively skilled-labor and capital scarce country, Mexico, to shed light on the determinants of FDI between largely dissimilar countries. The results indicate considerably more support for the vertical model. The correlation between skill differences and FDI is positive in all industries, but when differences are large, FDI flows into sectors that are intensive in total labor, regardless of skill level. The concentration of multinational activity in (unskilled) labor intensive industries suggests a limited potential for spillover effects.

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File URL: http://econwpa.repec.org/eps/it/papers/0403/0403008.pdf
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Paper provided by EconWPA in its series International Trade with number 0403008.

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Length: 35 pages
Date of creation: 30 Mar 2004
Date of revision:
Handle: RePEc:wpa:wuwpit:0403008
Note: Type of Document - pdf; pages: 35. 35 pages, pdf-file
Contact details of provider: Web page: http://econwpa.repec.org

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  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, June.
  2. Moulton, Brent R., 1986. "Random group effects and the precision of regression estimates," Journal of Econometrics, Elsevier, vol. 32(3), pages 385-397, August.
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  11. Markusen, James R & Maskus, Keith E, 2002. "Discriminating among Alternative Theories of the Multinational Enterprise," Review of International Economics, Wiley Blackwell, vol. 10(4), pages 694-707, November.
  12. 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.
  13. 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.
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  16. Kloek, T, 1981. "OLS Estimation in a Model Where a Microvariable Is Explained by Aggregates and Contemporaneous Disturbances Are Equicorrelated," Econometrica, Econometric Society, vol. 49(1), pages 205-07, January.
  17. Andreas Waldkirch, 2003. "The 'new regionalism' and foreign direct investment: the case of Mexico," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 12(2), pages 151-184.
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