Using firm-level data on the sales and sourcing patterns of Japanese affiliates, this paper suggests that very little FDI falls neatly into the standard bins of horizontal, vertical and export-platform FDI. Most affiliates import some intermediates and export some output suggesting a pattern that might be called ‘networked FDI’. This suggests that that the nature of FDI is influenced by ‘regional comparative advantage’ i.e. the proximity of markets and suppliers. The paper also suggests an empirical strategy for testing and classifying the nature of FDI based on firms’ sales and sourcing patterns rather than standard macro-level variables such as market size and income differences.
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