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Reading the Footprints: how foreign investors shape countries' participation in global value chains

Christian Buelens and Marcel Tirpák

No 2060, Working Paper Series from European Central Bank

Abstract: We show that traditional gravity variables play a significant role in explaining trade flows related to global value chain participation We find evidence that cooperation costs – measured by linguistic and geographical proximity – are more relevant for trade that reflects cross-border production sharing. Applying an augmented gravity model framework to a newly-constructed dataset we find a positive association between bilateral FDI stock and both gross bilateral trade and the bilateral import-content of exports. We confirm this finding using an empirical case study on central and eastern European countries, which from a global perspective stand out both in terms of degree of global value chain-participation and size of inward FDI stock. Overall, we show that foreign investors play an active role in shaping host economies' export structure and their participation in international production networks. Policies that attract foreign direct investment would therefore constitute an indirect way to deepen a GVC-participation. JEL Classification: F14, F15, F21, L22

Keywords: foreign direct investment; global value chains; gravity model; value added trade (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-int
Date: 2017-05
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