Complex vertical FDI and firm heterogeneity: Evidence from East Asia

Abstract

JEL Classification: F21 F23Keywords: Third-country effects Complex VFDI Spatial lag model a b s t r a c t Hayakawa, Kazunobu, and Matsuura, Toshiyuki-Complex vertical FDI and firm heterogeneity: Evidence from East Asia This study statistically tests the validity of the mechanics of complex vertical foreign direct investment (C-VFDI) in Japanese machinery FDI to East Asia by estimating a multiple-spatial lag model. From a theoretical perspective regarding C-VFDI, the production activity of affiliates in a given country is positively related to the production activity in neighboring countries that have large differences in factor prices with the given country. Furthermore, high-productivity firms are likely to choose a C-VFDI strategy. Our empirical results show no robust geographical relationship among affiliates' activities. However, the significantly positive relationship in wage differentials among those activities is found only for high-productivity firms.

On the drivers of UK direct investment in the Spanish regions: A spatial Durbin approach

“…In this respect, Yeaple (2003), Bergstrand and Egger (2004), Ekholm, Forslid, and Markusen (2007), Ito (2013), and Oyamada (2019) develop models of export‐platform FDI, where a (parent) firm chooses to produce in one host country to serve third markets. Similarly, Baltagi, Egger, and Pfaffermayr (2007), and Hayakawa and Matsuura (2011) propose a model of complex‐vertical FDI, in which MNEs set up a chain of production across multiple locations to exploit their comparative advantages. This shift of attention towards more intricate integration strategies has fuelled the interest in the consideration of multilateral decision making in the analysis of FDI.…”

The Political Economy of Japanese Trade Policy

“…Japanese FDI in East Asia, on the other hand, is closer to VFDI. Actually, Japanese FDI in machinery in East Asia is more complicated and sophisticated and is termed complex VFDI (Hayakawa and Matsuura 2011) or networked FDI (Baldwin and Okubo 2012). In other words, Japanese manufacturing firms, particularly in the machinery industry, extend production networks to the whole of East Asia .…”

The effects of regional trade agreements on FDI by its origin and type: Evidence from U.S. multinational enterprises activities

“…For this, I employ panel data on the sales activity of foreign subsidiaries of U.S. MNEs and 3 The two-country vertical FDI is known as "pure vertical FDI" in the literature. Vertical FDI differs from broadly defined "complex vertical FDI", which involves more than two countries for division-of-labor fragmentation of production process (Yeaple 2003;Hayakawa & Matsuura, 2011). Due to data limitation, I cannot consider complex vertical FDI in this study.…”

“…Vertical FDI is the international fragmentation of production process by the division of labor. For instance, a vertical MNE in a developed country exports capital or skilled-labor-intensive parts to an assembly plant in a low-wage country and re-exports most of the outputs for sale back home (Markusen, 2002;Hayakawa & Matsuura, 2011). 3 Export-platform FDI occurs when an MNE establishes foreign subsidiaries to export final goods to third countries other than the home country.…”