Criss-Crossing Globalization: Uphill Flows of Skill-Intensive Goods and Foreign Direct Investment

35 Pages Posted: 18 Aug 2009

See all articles by Aaditya Mattoo

Aaditya Mattoo

World Bank - Development Research Group (DECRG)

Arvind Subramanian

International Monetary Fund (IMF); Center for Global Development

Multiple version iconThere are 2 versions of this paper

Date Written: August 17, 2009

Abstract

This paper documents an unusual and possibly significant phenomenon: The export of skills embodied in goods, services, or capital from poorer to richer countries. We first present a set of stylized facts. Using a measure that combines the sophistication of a country’s exports with the average income level of destination countries, we show that the performance of a number of developing countries, notably China, Mexico, and South Africa, matches that of much more advanced countries, such as Japan, Spain, and the United States. Creating a new combined dataset on foreign direct investment (FDI) (covering greenfield investments as well as mergers and acquisitions) we show that flows of FDI to Organization for Economic Cooperation and Development (OECD) countries from developing countries like Brazil, India, Malaysia, and South Africa as a share of their GDP are as large as flows from countries like Japan, Korea, and the United States. Then, taking the work of Hausmann et al. (2007) as a point of departure, we suggest that it is not just the composition of exports but their destination that matters. In both cross-sectional and panel regressions, with a range of controls, we find that a measure of uphill flows of sophisticated goods is significantly associated with better growth performance. These results suggest the need for a deeper analysis of whether development benefits might derive not from deifying comparative advantage but from defying it.

Keywords: Uphill flows, foreign direct investment, finance, sophisticated goods, exports, services, growth, comparative advantage, mergers and acquisitions, greenfield investment

JEL Classification: F1, F2, F4, O4

Suggested Citation

Mattoo, Aaditya and Subramanian, Arvind, Criss-Crossing Globalization: Uphill Flows of Skill-Intensive Goods and Foreign Direct Investment (August 17, 2009). World Bank Policy Research Working Paper No. 09-7. Available at SSRN: https://ssrn.com/abstract=1456507 or http://dx.doi.org/10.2139/ssrn.1456507

Aaditya Mattoo (Contact Author)

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Arvind Subramanian

International Monetary Fund (IMF) ( email )

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Center for Global Development

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