Understanding FDI and production networks in East Asia

Willem Thorbecke; Nimesh Salike

doi:10.1111/apel.12147

Understanding FDI and production networks in East Asia

Willem Thorbecke, Nimesh Salike

Department of Economics

Research output: Contribution to journal › Article › peer-review

4 Citations (Scopus)

Abstract

We provide evidence from the electronics industry in East Asia supporting Kojima's (1973) hypothesis that FDI moves from capital-exporting countries' disadvantaged industries into host countries' advantaged industries. These results imply that FDI and trade are complementary, unlike in Mundell's (1957) model where they are substitutes. The results also indicate that exchange rate volatility deters trade, implying that reductions in the service link costs between production blocks can promote fragmentation. These findings imply that host countries in East Asia can receive technology transfers by lowering service link costs.

Original language	English
Pages (from-to)	57-71
Number of pages	15
Journal	Asian-Pacific Economic Literature
Volume	30
Issue number	2
DOIs	https://doi.org/10.1111/apel.12147
Publication status	Published - 1 Nov 2016

Keywords

East Asia
Kojima model
Mundell model
foreign direct investment
production networks
service link cost
trade

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10.1111/apel.12147

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AB - We provide evidence from the electronics industry in East Asia supporting Kojima's (1973) hypothesis that FDI moves from capital-exporting countries' disadvantaged industries into host countries' advantaged industries. These results imply that FDI and trade are complementary, unlike in Mundell's (1957) model where they are substitutes. The results also indicate that exchange rate volatility deters trade, implying that reductions in the service link costs between production blocks can promote fragmentation. These findings imply that host countries in East Asia can receive technology transfers by lowering service link costs.

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KW - Kojima model

KW - Mundell model

KW - foreign direct investment

KW - production networks

KW - service link cost

KW - trade

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Understanding FDI and production networks in East Asia

Abstract

Keywords

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