Working Paper: CEPR ID: DP8963
Authors: Richard Baldwin; Toshihiro Okubo
Abstract: This paper applies a novel empirical approach to characterising the horizontal-ness and vertical-ness of affiliates based on Yeaple?s complex FDI concept. In its simplest form, horizontal-ness is measured as affiliates? local sales share while their vertical-ness is measures as their share of non-local sourcing of intermediates. Japanese affiliates in most sectors and nations are partly vertical and partly horizontal but those in North American are far more ?horizontal? than those in the EU and Asia. Affiliates became more vertical between 1996 and 2005. A four-way sales and sourcing split (host, home, regional and RoW) suggests that affiliates act as nodes in regional production networks ? especially in Asia. We posit several hypotheses that could be tested with our empirical approach.
Keywords: Complex FDI; Japanese Foreign Affiliates; Multinationals; Networked FDI; Sales; Sourcing; Vertical and Horizontal FDI
JEL Codes: F21; F23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Japanese FDI involves both vertical and horizontal motives (F23) | Japanese affiliates in North America are more horizontal than those in Asia and Europe (L22) |
| Between 1996 and 2005, affiliates became more vertical in their operations (L22) | Shift in the nature of FDI over time (F23) |
| Presence of related affiliates in a region enhances the FDI attractiveness of host nations (F23) | Regional production networks influence FDI dynamics (F23) |