TY  - JOUR
AU  - Alfaro,Laura
AU  - Charlton,Andrew
TI  - Intra-Industry Foreign Direct Investment
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13447
PY  - 2007
Y2  - September 2007
UR  - http://www.nber.org/papers/w13447
L1  - http://www.nber.org/papers/w13447.pdf
N1  - Author contact info:
Laura Alfaro
Harvard Business School
Morgan Hall 263
Soldiers Field
Boston, MA 02163
Tel: 617/495-7981
Fax: 617/496-5985
E-Mail: lalfaro@hbs.edu

Andrew Charlton
London School of Economics
Houghton Street
London, WC2A 2AE, U.K
E-Mail: andrew.h.charlton@gmail.com
AB  - We use a new firm level data set that establishes the location, ownership, and activity of 650,000 multinational subsidiaries -- close to a comprehensive picture of global multinational activity. A number of patterns emerge from the data. Most foreign direct investment (FDI) occurs between rich countries. The share of vertical FDI (subsidiaries which provide inputs to their parent firms) is larger than commonly thought, even within developed countries. More than half of all vertical subsidiaries are only observable at the four-digit level because the inputs they are supplying are so proximate to their parent firms' final good that they appear identical at the two-digit level. We call these proximate subsidiaries 'intra-industry' vertical FDI and find that their location and activity are significantly different to the inter-industry vertical FDI visible at the two-digit level. These subsidiaries are not readily explained by the comparative advantage considerations in traditional models, where firms locate their low skill production stages abroad in low skill countries to take advantage of factor cost differences. We find that overwhelmingly, multinationals tend to own the stages of production proximate to their final production giving rise to a class of high-skill intra-industry vertical FDI.
ER  -