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, or export-platform FDI. Most affiliates import some intermediates and export some output, suggesting a pattern that might be called ‘networked FDI’. This suggests that the nature of FDI is influenced by ‘regional comparative advantage’ i.e. proximity of markets and suppliers. An empirical strategy is suggested for testing and classifying the nature of FDI that is based on firms’ sales and sourcing patterns rather than on standard macro-level variables (market size and income differences).
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