Multinational Investors as Export Superstars: How Emerging-Market Governments Can Reshape Comparative Advantage

25 Pages Posted: 19 Jan 2017

See all articles by Caroline Freund

Caroline Freund

Peter G. Peterson Institute for International Economics

Theodore Moran

Georgetown University; Center for Global Development

Date Written: January 2017

Abstract

This paper investigates three cases — Malaysia, Costa Rica, and Morocco — in which host authorities were successful in using foreign direct investment to change the export profile of the domestic economy. Each case highlights the importance of first-mover firms, and clusters of follower firms, in oligopolistic industries, whose emergence changes the revealed comparative advantage of the domestic economy. The results from these three cases are shown to be consistent with a broader body of econometric analysis. An important implication is that small emerging markets may be better equipped to transform their production structure and stimulate exports with foreign direct investment than by promoting broad domestic entrepreneurship. Our results show that host-country policy changes can have very large effects if they alter the entry of multinationals or the behavior of large firms.

Keywords: Foreign Direct Investment, Development, Integration, Supply Chains

JEL Classification: F23, F12

Suggested Citation

Freund, Caroline and Moran, Theodore, Multinational Investors as Export Superstars: How Emerging-Market Governments Can Reshape Comparative Advantage (January 2017). Peterson Institute for International Economics Working Paper No. 17-1. Available at SSRN: https://ssrn.com/abstract=2901148 or http://dx.doi.org/10.2139/ssrn.2901148

Caroline Freund (Contact Author)

Peter G. Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

Theodore Moran

Georgetown University ( email )

Washington, DC 20057
United States

Center for Global Development

2055 L St. NW
5th floor
Washington, DC 20036
United States

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