Vertical FDI? A Host Country Perspective

35 Pages Posted: 19 Nov 2003

See all articles by Andreas Waldkirch

Andreas Waldkirch

Colby College - Department of Economics

Date Written: August 5, 2003

Abstract

Recent empirical studies of the determinants of multinational activity across countries have found overwhelming support for a horizontal rather than a vertical model of foreign direct investment (FDI). They all use U.S. or other developed country data. This paper, in contrast, uses a previously unexploited industry-level data set on FDI in a relatively skilled-labor and capital scarce country, Mexico, to shed light on the determinants of FDI between largely dissimilar countries. The results indicate considerably more support for the vertical model. The correlation between skill differences and FDI is positive in all industries, but when differences are large, FDI flows into sectors that are intensive in total labor, regardless of skill level. The concentration of multinational activity in (unskilled) labor intensive industries suggests a limited potential for spillover effects.

Keywords: Foreign Direct Investment, Multinationals, Mexico

Keywords: Foreign Direct Investment, Multinationals, Mexico

JEL Classification: F21, F23

Suggested Citation

Waldkirch, Andreas, Vertical FDI? A Host Country Perspective (August 5, 2003). Available at SSRN: https://ssrn.com/abstract=470162 or http://dx.doi.org/10.2139/ssrn.470162

Andreas Waldkirch (Contact Author)

Colby College - Department of Economics ( email )

Waterville, ME 04901
United States
207-859-5244 (Phone)
207-859-5229 (Fax)

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