The choice between standard and non-standard FDI production strategies for Taiwanese multinationals

Hui-Lin Lin, Yi-Chi Hsiao and Eric Lin

Research Policy, 2015, vol. 44, issue 1, 283-293

Abstract: In modeling the foreign direct investment (FDI) behavior of firms, existing studies tend to classify multinational enterprises’ (MNEs) production activities into two broad strategies, namely, standard vertical integration and horizontal integration. In practice, the production behavior of multinational enterprises is much more complex. Based on the production relations between parent firms and their foreign subsidiaries, this study divides MNEs’ production behavior into five strategies: vertical integration, foreign concentration, home concentration, horizontal integration, and heterogeneous horizontal integration. We then propose three sets of interesting hypotheses associated with the five different production strategies. A uniquely compiled firm-level data set of Taiwanese manufacturing firms over the 2004–2007 period is adopted to empirically verify the proposed hypotheses. The empirical estimates are in general consistent with the proposed predictions and suggest that the various production behaviors of MNEs depend on the foreign market size, trade costs, factor advantage, fixed investment costs and firm characteristics. Moreover, each production strategy is influenced by different determinants as implied by our hypotheses.

Keywords: FDI; Vertical integration; Horizontal integration; Multinomial logit model (search for similar items in EconPapers)
JEL-codes: F21 F23 O32 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:respol:v:44:y:2015:i:1:p:283-293

DOI: 10.1016/j.respol.2014.06.005

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