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Types of FDI and determinants of affiliate size: the classification makes the difference

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  • Moritz, Michael
  • Hecht, Veronika
  • Noska, Patricia
  • Schäffler, Johannes

Abstract

This paper focuses on the role of classifying types of foreign direct investment (FDI) for analyzing the determinants of cross-border investment relationships. We base our investigation on a newly established firm-level data set of German multinational firms and their affiliates in the Czech Republic that allows various categorizations into vertical foreign direct investment (VFDI) and horizontal foreign direct investment (HFDI). Apart from data for conventional approaches to classify FDI types, the surveyed information contained herein also includes a detailed selfassessment of the firms with respect to investment motives, and specifications on intra-firm trade and the flow of intermediate inputs. In order to correct for sample selection, we apply a two-step Heckman procedure by comparing multinational firms that have an affiliate in the Czech Republic to companies without investment abroad. The results for the direct measures of FDI types confirm theoretical expectations and previous empirical literature and stand in marked contrast to the outcome for indirect measurement concepts. Our finding leads us to the conclusion that one should be more cautious in interpreting differences between vertical and horizontal FDI when using approximative classification concepts.

Suggested Citation

  • Moritz, Michael & Hecht, Veronika & Noska, Patricia & Schäffler, Johannes, 2019. "Types of FDI and determinants of affiliate size: the classification makes the difference," VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy 203522, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc19:203522
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    Cited by:

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    2. Niklas Becker & Andrzej Cieślik, 2020. "Determinants of German Direct Investment in CEE Countries," JRFM, MDPI, vol. 13(11), pages 1-17, November.
    3. Grass, Karen & Weber, Enzo, 2016. "EU 4.0 - Die Debatte zu Digitalisierung und Arbeitsmarkt in Europa," IAB-Discussion Paper 201639, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    4. repec:iab:iabdpa:201639(en is not listed on IDEAS
    5. Ahn, JaeBin & Park, Jee-Hyeong, 2022. "Identifying FDI types: Watch what they do, not what they say or look like," Economics Letters, Elsevier, vol. 213(C).
    6. Konstantin Koerner & Mathilde Le Moigne, 2023. "FDI and onshore task composition: evidence from German firms with affiliates in the Czech Republic," Journal for Labour Market Research, Springer;Institute for Employment Research/ Institut für Arbeitsmarkt- und Berufsforschung (IAB), vol. 57(1), pages 1-42, December.
    7. O. K. Adeleke, 2023. "FDI inflows and stock market development in Nigeria," Journal of Economic Policy and Management Issues, JEPMI, vol. 2(2), pages 19-30.

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    More about this item

    Keywords

    multinational firm; firm heterogeneity; productivity; vertical FDI; horizontal FDI; employment;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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