The Vertical Investment Controversy: Re-Estimating the Knowledge-Capital Model for Different Types of FDI

U. of Nottingham Working Paper No. 2005-03

22 Pages Posted: 3 Aug 2005

See all articles by Ingo Geishecker

Ingo Geishecker

Free University of Berlin (FUB) - Department of Business and Economics

Holger Görg

University of Kiel; Kiel Institute for the World Economy

Date Written: 2005

Abstract

The knowledge-capital model acknowledges that FDI has both vertical as well as horizontal elements. However, there is much controversy with regard to the empirical relevance of vertical FDI. We re-investigate this issue by looking at FDI at a more disaggregated level, using data on bilateral FDI in manufacturing and services for a number of industrialised countries. Our results are strongly supportive of a vertical FDI component within manufacturing. However, for service FDI our estimation results only give support to horizontal FDI. These findings clearly indicate that, once we take the heterogeneity in types of FDI into account, we can draw a more differentiated picture than previous studies providing evidence for vertical investment in manufacturing but not in services FDI.

Keywords: Knowledge capital model, Services FDI, Vertical Investment

JEL Classification: F23

Suggested Citation

Geishecker, Ingo and Gorg, Holger, The Vertical Investment Controversy: Re-Estimating the Knowledge-Capital Model for Different Types of FDI (2005). U. of Nottingham Working Paper No. 2005-03, Available at SSRN: https://ssrn.com/abstract=764424 or http://dx.doi.org/10.2139/ssrn.764424

Ingo Geishecker (Contact Author)

Free University of Berlin (FUB) - Department of Business and Economics ( email )

Boltzmannstrasse 20
D-14195 Berlin, 14195
Germany

Holger Gorg

University of Kiel ( email )

Olshausenstr. 40
D-24118 Kiel, Schleswig-Holstein 24118
Germany

Kiel Institute for the World Economy ( email )

P.O. Box 4309
Kiel, Schleswig-Hosltein D-24100
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