DP8963 Networked FDI: Sales and Sourcing Patterns of Japanese Foreign Affiliates

Author(s): Richard Baldwin, Toshihiro Okubo
Publication Date: May 2012
Date Revised: July 2013
Keyword(s): complex FDI, Japanese foreign affiliates, multinationals, networked FDI, sales, sourcing, vertical and horizontal FDI
JEL(s): F21, F23
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=8963

This paper applies a novel empirical approach to characterising the horizontal-ness and vertical-ness of affiliates based on Yeaple?s complex FDI concept. In its simplest form, horizontal-ness is measured as affiliates? local sales share while their vertical-ness is measures as their share of non-local sourcing of intermediates. Japanese affiliates in most sectors and nations are partly vertical and partly horizontal but those in North American are far more ?horizontal? than those in the EU and Asia. Affiliates became more vertical between 1996 and 2005. A four-way sales and sourcing split (host, home, regional and RoW) suggests that affiliates act as nodes in regional production networks ? especially in Asia. We posit several hypotheses that could be tested with our empirical approach.