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Horizontal and Vertical FDI: A Comparative Analysis of Technological Determinants

Quaderni DSE Working Paper No. 713

26 Pages Posted: 24 Sep 2010  

Chiara Franco

University of Pisa

Date Written: September 23, 2010

Abstract

The study analyzes the role played by technological determinants, using the approach of National System of Innovation (NSI), in enhancing or hampering Foreign Direct Investments (FDI) with different motivations, namely horizontal and vertical FDI. The empirical analysis is carried out using data relative to the final destination of sales of US foreign subsidiaries in 42 host countries grouped according to income criteria. A three step empirical strategy is employed: first, we estimate a benchmark model finding that technological determinants exert a greater in influence in high income countries especially for vertical FDI. Secondly, applying a dynamic panel data approach we take into account that agglomeration economies may play a role as well as other FDI determinants. Finally, we are able to further disentangle the destination of sales according to whether they are directed towards other foreign affiliates or to unaffiliated persons recognizing that they are affected by different determinants.

Keywords: Horizontal FDI, Vertical FDI, FDI Determinants, National System of Innovation

JEL Classification: F20, F23, O30

Suggested Citation

Franco, Chiara, Horizontal and Vertical FDI: A Comparative Analysis of Technological Determinants (September 23, 2010). Quaderni DSE Working Paper No. 713. Available at SSRN: https://ssrn.com/abstract=1681522 or http://dx.doi.org/10.2139/ssrn.1681522

Chiara Franco (Contact Author)

University of Pisa ( email )

Via Serafini 3
56126 Pisa
Italy

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