Working Paper: NBER ID: w18083
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: vertical and horizontal FDI; complex FDI; networked FDI; sourcing; sales; Japanese foreign affiliates; multinationals
JEL Codes: F21; F23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| local sourcing share (D16) | vertical motives (L22) |
| local sales share (L81) | horizontal motives (L22) |
| Japanese FDI (F23) | vertical and horizontal characteristics (C23) |
| affiliates in North America (L83) | more horizontal than those in Asia and the EU (P19) |
| affiliates became more vertical (L22) | shift in operational strategies (L21) |