DP7596 A Touch of Sophistication: FDI and Unit Values of Exports

Author(s): Torfinn Harding, Beata Javorcik
Publication Date: December 2009
Keyword(s): exports, FDI, industrial policy, investment promotion, quality, unit values
JEL(s): F10, F21, F23, L52
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=7596

The debate on trade and growth increasingly focuses on the composition of exports. Exports of more "sophisticated" products appear to be positively correlated with growth, and upgrading the quality of exports is high on the policy agenda of many countries. This study presents evidence suggesting that attracting inflows of FDI offers potential for upgrading a country?s export basket. The empirical analysis relates unit values of exports measured at the 4-digit SITC level to data on sectors treated by investment promotion agencies as priority in their efforts to attract FDI. The sample covers 116 countries over the period 1984-2000. The findings are consistent with a positive effect of FDI on unit values of exports in developing countries. However, such a relationship is less evident in developed countries. These results suggest that FDI can help bridge gaps in production and marketing techniques between developing and high income economies.