Interdependence in Multinational Production Networks

33 Pages Posted: 25 Jun 2010

See all articles by Maggie Xiaoyang Chen

Maggie Xiaoyang Chen

George Washington University; George Washington University

Date Written: January 1, 2010

Abstract

The majority of multinational firms today operate a multilateral production network. Most existing empirical analyses have, however, focused on firms' choice between producing at home and investing overseas and assumed that a firm's decision to invest in a foreign country is independent of its locations in third countries. This paper examines the effect of existing production network on multinationals' entry decision. Using detailed French multinational subsidiary level data, the paper finds strong evidence of horizontal and vertical interdependence across multinationals' foreign production locations. There is, however, little evidence of horizontal interdependence between home-country production and foreign investment when the third-country effects are taken into account, constituting a sharp contrast to the conventional emphasis. This result is robust to the various specifications and sensitivity analyses undertaken in the paper, and highlights the importance of investigating the causes and effects of foreign direct investment in the context of multinational production network.

Keywords: Multinational Firm, Production Network, Interdependence, Entry Decision, Trade Cost, Input-Output Linkage

JEL Classification: F23, D21

Suggested Citation

Chen, Maggie Xiaoyang and Chen, Maggie Xiaoyang, Interdependence in Multinational Production Networks (January 1, 2010). Available at SSRN: https://ssrn.com/abstract=1630454 or http://dx.doi.org/10.2139/ssrn.1630454

Maggie Xiaoyang Chen (Contact Author)

George Washington University ( email )

Department of Economics, George Washington Univ.
1922 F Street, Suite 208, NW
Washington, DC 20052
United States
(202) 994-0192 (Phone)
(202) 994-6147 (Fax)

HOME PAGE: http://home.gwu.edu/~xchen

George Washington University ( email )

Department of Economics, George Washington Univ.
1922 F Street, Suite 208, NW
Washington, DC 20052
United States
(202) 994-0192 (Phone)
(202) 994-6147 (Fax)

HOME PAGE: http://home.gwu.edu/~xchen

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