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Hunting High and Low for Vertical FDI

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  • Ronald B. Davies

Abstract

Recently the horizontal and vertical models of foreign direct investment (FDI) have been synthesized into the knowledge‐capital (KK) model. Empirical tests, however, find that the horizontal model cannot be rejected in favor of the KK model. I suggest this is because the empirical specifications are too restrictive for vertical FDI to manifest itself. Using an alternative specification, I find evidence of vertical FDI. In particular, when I use the stock of FDI I can reject the horizontal model in favor of the knowledge‐capital model and identify countries for which FDI is dominated by vertical investment.

Suggested Citation

  • Ronald B. Davies, 2008. "Hunting High and Low for Vertical FDI," Review of International Economics, Wiley Blackwell, vol. 16(2), pages 250-267, May.
    • Handle: RePEc:bla:reviec:v:16:y:2008:i:2:p:250-267
    DOI: 10.1111/j.1467-9396.2008.00735.x
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    References listed on IDEAS

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    More about this item

    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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