Multinational Investors as Export Superstars: How Emerging-Market Governments Can Reshape Comparative Advantage

Caroline Freund () and Theodore Moran

No WP17-1, Working Paper Series from Peterson Institute for International Economics

Abstract: This paper investigates three cases—Malaysia, Costa Rica, and Morocco—in which host authorities were successful in using foreign direct investment to change the export profile of the domestic economy. Each case highlights the importance of first-mover firms, and clusters of follower firms, in oligopolistic industries, whose emergence changes the revealed comparative advantage of the domestic economy. The results from these three cases are shown to be consistent with a broader body of econometric analysis. An important implication is that small emerging markets may be better equipped to transform their production structures and stimulate exports with foreign direct investment than by promoting broad domestic entrepreneurship. The authors find that policy changes in the host country can have very large effects if they alter the entry of multinationals or the behavior of large firms.

Keywords: Foreign direct investment; development; integration; supply chains (search for similar items in EconPapers)
JEL-codes: F12 F23 (search for similar items in EconPapers)
Date: 2017-01
New Economics Papers: this item is included in nep-int and nep-sea
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