American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Intra-industry Foreign Direct Investment
American Economic Review
(pp. 2096–2119)
Abstract
We use a new firm-level dataset that establishes the location, ownership, and activity of 650,000 multinational subsidiaries. Using a combination of four-digit-level information and input-output tables, we find the share of vertical FDI (subsidiaries that provide inputs to their parent firms) to be larger than commonly thought, even within developed countries. Most subsidiaries are not readily explained by the comparative advantage considerations whereby multinationals locate activities abroad to take advantage of factor cost differences. Instead, multinationals tend to own the stages of production proximate to their final production, giving rise to a class of high-skill, intra-industry vertical FDI. (JEL G11, J32)Citation
Alfaro, Laura, and Andrew Charlton. 2009. "Intra-industry Foreign Direct Investment." American Economic Review 99 (5): 2096–2119. DOI: 10.1257/aer.99.5.2096Additional Materials
JEL Classification
- F23 Multinational Firms; International Business
- L22 Firm Organization and Market Structure
- L23 Organization of Production
- R32 Other Production and Pricing Analysis