Export platform FDI and firm heterogeneity

Kazunobu Hayakawa and Kiyoyasu Tanaka

No 310, IDE Discussion Papers from Institute of Developing Economies, Japan External Trade Organization(JETRO)

Abstract: This paper investigates theoretically and empirically firms' productivity ranking among traditional horizontal foreign direct investment (HFDI), pure platform FDI (PFDI), and complex platform FDI (CFDI). Using data on Japanese outward FDI, we define firms conducting HFDI or PFDI as those Japanese firms that maintain production affiliates only in the U.S. or Mexico, respectively. The firms for CFDI are defined as having production affiliates in both the U.S. and Mexico. The theoretical illustration shows that the CFDI firms should have the highest productivity when trade costs between the U.S. and Mexico are low. By carefully disentangling firms' self-selection effects from learning-by-investing effects, we find some evidence consistent with this hypothesis for a period of relatively low trade costs. Our results indicate the importance of trade costs in developing countries with neighboring markets in attracting foreign investment by highly productive multinational firms.

Keywords: Mexico; Japan; United States; Foreign investments; Foreign affiliated firm; Exports; Costs; Export platform; FDI; Firm heterogeneity; Trade costs (search for similar items in EconPapers)
JEL-codes: F21 F23 (search for similar items in EconPapers)
Date: 2011-10-01
New Economics Papers: this item is included in nep-dev and nep-int
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Published in IDE Discussion Paper = IDE Discussion Paper, No. 310. 2011-10-01

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