Hunting High and Low for Vertical FDI
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Date
2002-08-01
Authors
Davies, Ronald B.
Journal Title
Journal ISSN
Volume Title
Publisher
University of Oregon, Dept. of Economics
Abstract
Recently the two dominant models of foreign direct investment (FDI), the horizontal and vertical models, have been synthesized into the knowledge capital (KK) model. Empirical tests, however, have found that the horizontal model cannot be rejected in favor of the KK model. This paper suggests that this is because the empirical specifications used do not allow the vertical aspects of FDI to manifest themselves. By extending the specification, I find evidence of vertical FDI. In particular, when I use the stock of FDI as my measure of FDI activity I can reject the horizontal model in favor of the KK model and identify countries for which FDI is dominated by vertical investment.
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Keywords
Knowledge capital, Horizontal investment, Vertical investment, Foreign direct investment, International economics, Trade negotiations