Foreign outward direct investment and exports in Austrian manufacturing: Substitutes or complements?

Foreign Outward Direct Investment and Exports in Austrian Manufacturing: Substitutes or Complements? — The relationship between foreign outward direct investment and exports is crucial for assessing the impact of increased internationalization by foreign outward direct investment on a country’s welfare. Three models of trade and FDI are reviewed to generate hypotheses on their direct relationship over time as well as on common determinants. The propositions are empirically examined with time-series cross-section data for Austrian manufacturing. The results indicate a significant complementary relationship between FDI and exports in the eighties and early nineties. Moreover, long-run multipliers of exogenously increased FDI and exports are calculated. They are found to be positive but small in magnitude.     

The role of comparative advantage in trade within industries: A panel data approach for the European Union

The Role of Comparative Advantage in Trade within Industries: A Panel Data Approach for the European Union. — A large share of EU member states trade is intra-industry trade (IIT) in the period 1985-1996; in particular, IIT is based on products differentiated in quality (vertical IIT). Moreover, exports from southern countries are located mainly at the lower end of the price-quality spectrum, whereas those countries with higher per capita incomes are located at the higher end. According to the vertical IIT models, we hypothesize that commercial specialization of members states over the quality spectrum within industries is explained by differences in technological, physical and human capital. The results show that comparative advantage is an important driver of the pattern of European trade within industries.     

Country characteristics and foreign direct investment in China: A panel data analysis

Country Characteristics and Foreign Direct Investment in China: A Panel Data Analysis. — In this paper an error-components model is developed to analyze the economic, political and cultural determinants of both pledged and realized FDI in China which has recently become the second largest host country for FDI. The panel data cover the period 1983–1994 (1984–1994) and 22 (17) home countries/regions in the case of pledged (realized) FDI. The results indicate that bilateral trade, cultural differences, and relative real changes in market size, wage rates, and exchange rates are important determinants of pledged FDI, and that bilateral trade, relative changes in wage rates and exchange rates affect realized FDI.     

Patterns and determinants of international fragmentation of production: Evidence from outward processing trade between the EU and Central Eastern European countries

Patterns and Determinants of International Fragmentation of Production: Evidence from Outward Processing Trade between the EU and Central Eastern European Countries. — In this paper we investigate a specific form of international fragmentation of production, that is, the form giving rise to international trade for reasons of processing. Data on textile and apparel trade between EU countries and Central European countries show that the magnitude of trade for reasons of processing greatly overshadows that of final trade. The industry appears to be affected by a process of international fragmentation whose understanding requires a new definition of the concept of comparative advantage. Our analysis suggests that this fragmentation is activated by labor cost differentials as well as by reasons of geographic and cultural proximity.     

Vertical foreign direct investment: Evidence from Japanese and U.S. multinational enterprises

Foreign direct investment (FDI) in developing countries has increased since the 1990s, but there is mixed evidence of vertical FDI associated with factor-seeking motives. This paper estimates the vertical motive of offshore production by multinational enterprises (MNEs) by exploiting past schooling characteristics as instruments for skilled-labor abundance in a host country. Using panel data on Japanese and U.S. MNEs in the 1990s, I find that skilled-labor abundance has a significantly negative impact on sales of manufacturing foreign affiliate only for Japanese MNEs. The results suggest that vertical FDI activity was more prevalent in Japanese MNEs than U.S. MNEs. A plausible explanation is that Japanese MNEs might be more vertically integrated with their offshore production than U.S. MNEs. A difference in foreign outsourcing activities could generate the observed deviation between Japanese and U.S. MNEs.     

Japanese foreign direct investment and regional trade

We examine the relationship between Japanese FDI outflows, domestic and foreign fixed investment, and the exchange rate. The results indicate that aggregate FDI outflows have been driven by investment in Japan and the exchange rate, while the geographic distribution of such investment has been influenced by foreign economic conditions. We also find that FDI outflows have a temporary impact on exports but a permanent effect on imports. We find no evidence that behavior with respect to East Asia differs from that with respect to North America or Europe.     

An empirical assessment of the preconditions of Japanese manufacturing foreign direct investment in the United States

An Empirical Assessment of the Preconditions of Japanese Manufacturing Foreign Direct Investment in the United States. — This study undertook a multivariate regression analysis of Japanese foreign direct investment in the US (FDIUS), based on firm- and industry-specific data. Firm size was a positive and significant explanatory variable of firms’ completed transactions as well as their additions to investment value. Firms’ overall profit was a positive and significant indicator of firms’ addition to investment value, but not their completed transactions. Firms’ return on assets was generally a positive, albeit insignificant indicator of FDIUS. Three industry-specific variables (prior exports to the US, industry concentration, and technological intensity) were examined and all were positive but insignificant indicators of FDIUS.     

The effect of foreign competition on UK employment and wages: Evidence from firm-level panel data

The Effect of Foreign Competition on UK Employment and Wages: Evidence from Firm-Level Panel Data. —This paper contributes to the sparse empirical literature on the effects of foreign competition on domestic employment and wages. The authors estimate a structural labour demand equation on UK firm-level panel data between 1982 and 1989 and several wage equations. When they restrict the sample to the manufacturing sector only, they find for the unionized firms that foreign competition has a negative effect on both wages and on employment. However, when UK manufacturing firms face only a few rivals, foreign competition has a positive effect on wages, but no effect on employment.     

Global outsourcing or foreign direct investment: Why apple chose outsourcing for the iPod

A simple model is presented, where a firm's productivity is endogenized by its R&D investment. It shows that the most productive firms may prefer international outsourcing to foreign direct investment (FDI) in industries with a high innovation share. The high innovation share motivates the firms to economize on organizational cost in order to save resources for R&D investment, making outsourcing preferable to FDI because the former incurs a smaller organizational cost. This model helps explain why Apple Inc., belonging to the electronics industry, which has a particularly high innovation share, launched its innovative iPod through international outsourcing instead of FDI.     

Exchange rate expectations and foreign direct investment flows

Exchange Rate Expectations and Foreign Direct Investment Flows. — Theories about exchange rate expectations are difficult to check empirically. We study FDI data to find indirect evidence on the formation of exchange rate expectations by foreign direct investors. Using panel data techniques on exchange rate movements and FDI flows from the United States to 20 OECD countries we find that skewness of devaluations has a robust positive impact on FDI flows while average devaluation and its volatility do not. We view this evidence as consistent with the hypothesis that relatively large exchange rate movements generate mean-reverting long-run expectations. This finding is consistent with survey-based evidence on exchange rate expectations.     

Multinational firms, market integration, and trade structure: What remains of the standard-goods hypothesis?

Multinational Firms, Market Integration, and Trade Structure: What Remains of the Standard-Goods Hypothesis? — In extending traditional empirical trade models to multinational firms, this paper shows the effect of the transfer of firm-specific technology and intangible assets by these firms on the structure of host countries. For Belgium, a small open economy with a large presence of foreign multinationals, this effect is of crucial importance and previous studies appeared to have produced biased results by neglecting it. The econometric results show how the large multinational presence induced by the European integration has shifted Belgium’s trade structure towards differentiated products, thereby challenging the standard-goods hypothesis which states that small countries tend to specialize in nondifferentiated products. Spain and Ireland have witnessed an increase in foreign direct investment and a shift in trade structure similar to Belgium after joining the EC.     

Horizontal and vertical intra-industry trade between Eastern Europe and the European union

Horizontal and Vertical Intra-Industry Trade Between Eastern Europe and the European Union. — The share of intra-industry trade (IIT) in total trade between central and east European nations and the EU is broken down into various components. Vertical IIT is found to account for 80 to 90 percent of total IIT. Controlling for country-specific effects, it is positively associated with product differentiation, labor intensity of production, economies of scale, and foreign direct investment (FDI). Horizontal IIT is also positively correlated with FDI and product differentiation; however, a significant negative relationship is found for scale and labor intensity.     

The role of foreign direct investment in Indonesia's manufacturing exports

This article examines whether foreign direct investment (FDI) has contributed to the changing structure of Indonesia's manufacturing exports. It uses industry-level data from 1990 to 2008, classified by factor intensity. Our analysis reveals that FDI promotes exports in most panel observations, especially exports from physical-capital-intensive (PCI), human-capital-intensive (HCI) and technology-intensive (TI) industries. Yet by applying a differentiated cross-section-effect model, we determine that the export-generating potential of FDI is stronger in PCI, HCI and TI industries than in natural-resource-intensive or unskilled-labour-intensive industries, in which Indonesia has a comparative advantage. We also assess the influence of other determinants of export performance – namely, private domestic capital investment, GDP growth and exchange rates. Our findings have implications for policymakers seeking to sustain Indonesia's export performance.     

Inward and outward foreign direct investment and poverty: East Asia vs. Latin America

Using panel data of 12 middle-income countries in East Asia as well as Latin America, this paper examines how openness in general and outward FDI in particular affects poverty. While economic growth and trade openness are found to be associated with lower poverty, both outward and inward FDI adversely affect the mean income of the poorest quintile of the population. The results hold in both regions, though the Latin American countries seem to be in a somewhat less favorable situation.     

Guangdong: A catalyst for economic growth and exports in hunan province

This paper uses the concept of Granger-causality to analyze the link between export expansion in the rapidly growing Guangdong province and GDP growth and exports in Hunan, its adjacent northwest neighbor province. Data cover the 1978 to 2001 period. A long-run equilibrium relationship is found between the variables and a long-run positive causality is detected from export expansion in Guangdong to both GDP growth and exports in Hunan. Hence, the results seem to support the unbalanced regional development policy implemented by the central government in the late 1970s and early 1980s.     

Trade effects of foreign direct investment: Evidence for Taiwan with four ASEAN countries

Trade Effects of Foreign Direct Investment: Evidence for Taiwan with Four ASEAN Countries. —This paper examines the trade effects of foreign direct investment (FDI) between Taiwan and each of the following four ASEAN countries: Indonesia, Malaysia, the Philippines, and Thailand. Regression results show that Taiwan's outward FDI has a significant positive effect on exports to and imports from the host country, whereas no such effects were consistently found for inward FDI from the same country.     

Multinational enterprises, regional economic integration, and export-platform production in the host countries: An empirical analysis for the US and Japanese corporations

Multinational Enterprises, Regional Economic Integration and Export-Platform Production in the Host Countries: An Empirical Analysis for the US and Japanese Corporations. — This paper analyzes determinants of export orientation of overseas affiliates of US and Japanese MNEs for the 1982–1994 period. The author contends that production geared to MNEs’ home market and that production oriented to third-country markets are determined by different factors. The empirical analysis finds the home-market-oriented production concentrated in countries that offer low-cost workforce, enjoy geographical proximity or preferential access to the home market. The location of third-country-market-oriented exports is influenced more by strategic factors such as participation in regional trading blocs and preferential access to major markets than factor costs considerations.     

How international outsourcing drives up Eastern European wages

How International Outsourcing Drives Up Eastern European Wages. — This paper analyzes the effects of intermediate goods trade on the development of real wages in Central and Eastern European manufacturing. The empirical findings show that world exports in intermediate goods of the CEEC exhibit a negative impact on wages, and imports a positive one. Since 1993, intermediate goods trade between the EU and the CEEC accounted for an increase in wages being most pronounced in Slovakia, Poland and the Czech Republic.     

Tax policy on foreign direct investment in the presence of cross-hauling

Tax Policy on Foreign Direct Investment in the Presence of Cross-Hauling. — The authors develop a partial equilibrium model of foreign direct investment (FDI) in which identical foreign firms locate themselves in a host country to compete with internationally mobile domestic firms in non-tradeable oligopolistic markets for two differentiated commodities. The host country, which is small in the market for FDI, uses lumpsum subsidy (tax) to encourage (discourage) FDI. There is unemployment in the host country. Under this framework, the authors analyse the effect of discriminatory and uniform subsidies on the inflow/outflow of domestic and foreign firms and on employment. They also derive some properties of optimal subsidies.     

Eastern European trade and the Austrian labour market

Eastern European Trade and the Austrian Labour Market. — Recent years have seen a major break in trade relations between Western and Eastern European countries. Austria experienced a large bilateral trade creation with these countries. In this paper, the authors take a closer look at the impact this trade growth had on the Austrian labour market. To differentiate as far as possible between different segments of the labour market, they concentrate on unemployment experience and wage growth for a panel of individual workers in Austrian industry. The results show rather small employment effects, the impact on wage growth is more pronounced with interesting modifications for mobile and immobile workers.