Title: Horizontal and vertical FDI: an analysis of technological determinants

Authors: Chiara Franco

Addresses: Department of Economics, University of Bologna, Strada Maggiore 45, Bologna, Italy

Abstract: The study analyses the role played by technological determinants, using the approach of National System of Innovation (NSI), in enhancing or hampering Foreign Direct Investments (FDI) with different motivations, namely horizontal and vertical FDI. The empirical analysis is carried out using data relative to the final destination of sales of US foreign subsidiaries in 42 host countries grouped according to income criteria. A two step empirical strategy is employed: first, we estimate a benchmark model finding that technological determinants mainly drive HFDI rather than VFDI. Secondly, applying a dynamic panel data approach we take into account that agglomeration economies may play a role as well more than other FDI determinants. Finally, through a sensitivity analysis we account for different ways of measuring HFDI and VFDI finding that measurement issue matters especially to establish which component of NSI results of greater relevance.

Keywords: HFDI; horizontal foreign direct investment; FDI; VFDI; vertical foreign direct investment; technological determinants; national innovation systems; NIS; investment enhancement; investment hampering; final destinations; sales; United States; USA; foreign subsidiaries; host countries; income criteria; benchmark models; panel data; agglomeration economies; sensitivity analysis; investment measurement; technology; globalisation.

DOI: 10.1504/IJTG.2012.048359

International Journal of Technology and Globalisation, 2012 Vol.6 No.3, pp.225 - 254

Available online: 01 Aug 2012 *

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