FDI, Trade Integration and the Border Effect: Evidence from the European Union

Valeriano Martinez-San Roman, Marta Bengoa and Blanca Sanchez-Robles

No 4867, CESifo Working Paper Series from CESifo

Abstract: This paper intends to combine two fields in the economic literature by examining empirically the FDI pattern –horizontal versus vertical– within the European Union and the relevance of trade integration as a potential determinant of investment flows over the period 1995-2009. We capture trade integration by estimating the magnitude and evolution of the home bias or border effect rather than by using other indicators such as the openness rate or the existence of tariffs and non-tariff barriers. We find that, for the particular case of the EU, it is not possible to strictly discriminate between horizontal or vertical FDI. The market-seeking strategy appears to be more important than factor-proportion related motivations; however, the robust relationship of complementarity between trade integration and FDI provides at least one argument in support of vertical FDI and suggests that the vertical model cannot be dismissed entirely.

Keywords: international trade; FDI; gravity model; home bias; border effect; European Union (search for similar items in EconPapers)
JEL-codes: F10 F14 F15 F21 (search for similar items in EconPapers)
Date: 2014
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.cesifo.org/DocDL/cesifo1_wp4867.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_4867

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().