Review of World Economics

, 147:485

Comparative advantage FDI? A host country perspective

Original Paper

Abstract

Recent empirical studies of the determinants of multinational activity across countries have found overwhelming support for a horizontal rather than a vertical model of foreign direct investment (FDI). They all use US or other developed country data. This paper, in contrast, uses a detailed industry-level data set on FDI in a relatively skilled-labor and capital scarce country, Mexico, to shed light on the determinants of FDI between largely dissimilar countries. The results indicate considerably more support for a comparative advantage motive for FDI, although a market access motive is present as well. The correlation between skill differences and FDI is positive in all industries, but when differences are large, FDI flows into sectors that are intensive in total labor, regardless of skill level. The concentration of multinational activity in (unskilled) labor intensive industries suggests a potential for spillover effects.

Keywords

Foreign direct investment Multinationals Mexico 

JEL Classification

F21 F23 O15 

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Copyright information

© Kiel Institute 2011

Authors and Affiliations

  1. 1.Department of EconomicsColby CollegeWatervilleUSA

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