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Complex Vertical FDI and Firm Heterogeneity: Evidence from East Asia
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Abstract
In this paper we statistically test the validity of the mechanics of complex VFDI in Japanese
machinery FDI to East Asia; we do this by estimating a multiple-spatial lag model. From the
theoretical point of view, in complex VFDI, the production activity of affiliates in a given country
is positively related to that in neighboring countries which have large differences in factor prices
with the given country. Our empirical results show that such mechanics of complex VFDI work
in Japanese FDI to East Asia, and that they work more strongly in the MNEs with higher
productivity. These results have an important implication for the policies of developing countries
in attracting FDI.Third-country Effects, Complex VFDI, Spatial Lag Model, East Asia, Foreign Investments