Working Paper: NBER ID: w26827
Authors: Ronald B. Davies; James R. Markusen
Abstract: The structure of a multinational firm, that is how its affiliates relate to one another, is critical for understanding where multinationals locate, how policy affects them, and their resilience to localized shocks. Here, we review the two main structures: horizontal investments which replicate activities across borders, and vertical investments which fragment activities across countries. In addition, we use data (primarily from the US) to examine which of these structures seems to dominate the data. This includes a novel use of measures of global value-chain positioning of a country's industries. In each case, the data suggests a dominant role for horizontal investment. We conclude with a discussion of the challenge that intangibles play in multinational data and point towards potentially fertile areas for future research.
Keywords: Multinational Enterprises; Foreign Direct Investment; Horizontal FDI; Vertical FDI; Global Value Chains
JEL Codes: F23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Structure of MNEs (horizontal vs vertical FDI) (F23) | Operational strategies (L21) |
| Structure of MNEs (horizontal vs vertical FDI) (F23) | Economic outcomes (F69) |
| Horizontal FDI (F23) | Economic resilience (R11) |
| Horizontal FDI (F23) | Operations in developed countries (O57) |
| Vertical FDI (F23) | Economic resilience (R11) |
| Geographic distribution of MNEs (F64) | Operational structures (L23) |
| Horizontal FDI (F23) | Trade policy effects (F68) |