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Contents 1 Foreign Direct Investment and the Multinational Enterprise: An Introduction 1 Steven Brakman and Harry Garretsen 1.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Part I: Theory . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.3 Part II: Empirics . . . . . . . . . . . . . . . . . . . . . . . . 11 2 Trade Costs and Foreign Direct Investment 17 J. Peter Neary 2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . 17 2.2 The Proximity-Concentration Trade-Off . . . . . . . . . . . 19 2.3 Vertical versus Horizontal FDI . . . . . . . . . . . . . . . . 26 2.4 Export-Platform FDI . . . . . . . . . . . . . . . . . . . . . 31 2.5 Cross-Border Mergers and Acquisitions . . . . . . . . . . . 35 2.6 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . 42 3 Investment Liberalization and the Geography of Firm Location 59 iii Anders N. Hoffman and James R. Markusen 3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . 59 3.2 Model Structure . . . . . . . . . . . . . . . . . . . . . . . . 64 3.3 Effects of Investment Liberalization . . . . . . . . . . . . . 73 3.4 Some Relevant Data . . . . . . . . . . . . . . . . . . . . . . 81 3.5 Summary and Conclusions . . . . . . . . . . . . . . . . . . 85 4 Outsourcing, Contracts and Innovation Networks 95 Alireza Naghavi and Gianmarco Ottaviano 4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . 95 4.2 A Model of Product Innovation . . . . . . . . . . . . . . . . 102 4.2.1 Demand . . . . . . . . . . . . . . . . . . . . . . . . 102 4.2.2 Supply . . . . . . . . . . . . . . . . . . . . . . . . 104 4.3 Organization and Product Variety . . . . . . . . . . . . . . . 107 4.3.1 Production . . . . . . . . . . . . . . . . . . . . . . 107 4.3.2 Innovation . . . . . . . . . . . . . . . . . . . . . . 110 4.3.3 Equilibrium . . . . . . . . . . . . . . . . . . . . . . 112 4.3.4 Comparative Statics . . . . . . . . . . . . . . . . . 116 4.4 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . 121 5 Agglomeration and Government Spending 129 Steven Brakman, Harry Garretsen and Charles van Marrewijk 5.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . 129 5.2 Stylized facts about taxation and public spending in the EU . 134 iv 5.3 The Model . . . . . . . . . . . . . . . . . . . . . . . . . . . 138 5.4 Analysis of the symmetric equilibrium for a given level of public goods . . . . . . . . . . . . . . . . . . . . . . . . . . 144 5.5 Break analysis for a given level of public goods . . . . . . . 149 5.6 Simulation results . . . . . . . . . . . . . . . . . . . . . . . 152 5.7 Summary and conclusions . . . . . . . . . . . . . . . . . . 155 6 Transfer Pricing and Enforcement Policy in Oligopolistic Markets 169 Oscar Amerighi 6.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . 169 6.2 The model . . . . . . . . . . . . . . . . . . . . . . . . . . . 175 6.3 Transfer pricing and quantity decisions . . . . . . . . . . . . 181 6.3.1 Equilibrium transfer price . . . . . . . . . . . . . . 182 6.3.2 Equilibrium home sales and exports . . . . . . . . . 184 6.4 Tax competition . . . . . . . . . . . . . . . . . . . . . . . . 189 6.4.1 Symmetric tax rates and enforcement policies . . . . 191 6.4.2 Effects of economic integration . . . . . . . . . . . 194 6.5 Enforcement policy competition . . . . . . . . . . . . . . . 200 6.6 Concluding remarks . . . . . . . . . . . . . . . . . . . . . . 204 7 Gains from Trade and Fragmentation 229 Alan V. Deardorff 7.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . 229 v 7.2 Lessons from the Gains from Trade . . . . . . . . . . . . . 231 7.3 Can Fragmentation Hurt a Country? . . . . . . . . . . . . . 234 7.4 Can Fragmentation Hurt Groups within a Country? . . . . . 238 7.5 Can Fragmentation Hurt the World? . . . . . . . . . . . . . 240 7.6 Should We Care about the World ? . . . . . . . . . . . . . . 245 7.7 Conclusion? . . . . . . . . . . . . . . . . . . . . . . . . . . 249 8 Spacey Parents: Spatial Autoregressive Patterns in Inbound FDI255 Bruce A. Blonigen, Ronald B. Davies, Helen T. Naughton, and Glen R. Waddell 8.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . 255 8.2 A Simple Model of the Multinational Firm . . . . . . . . . . 258 8.3 Empirical Methodology and Data . . . . . . . . . . . . . . . 264 8.3.1 Empirical Specification . . . . . . . . . . . . . . . . 264 8.3.2 Data . . . . . . . . . . . . . . . . . . . . . . . . . . 269 8.4 Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272 8.4.1 OECD Results . . . . . . . . . . . . . . . . . . . . 272 8.4.2 Robustness to Alternative Weighting Schemes . . . . 274 8.4.3 European Results . . . . . . . . . . . . . . . . . . . 277 8.5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . 280 9 Do Italian firms improve their performance at home by investing abroad? 291 Giorgio Barba Navaretti and Davide Castellani 9.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . 291 vi 9.2 Analysing the performance of investing firms: the issue . . . 295 9.2.1 Analytical issues . . . . . . . . . . . . . . . . . . . 295 9.2.2 The empirical setting . . . . . . . . . . . . . . . . . 298 9.3 The evaluation problem: propensity score matching and differencein- difference estimators . . . . . . . . . . . . . . . . . . . . 302 9.4 Data and description of the sample . . . . . . . . . . . . . . 306 9.5 Construction of the counterfactual . . . . . . . . . . . . . . 309 9.6 The effects of investing abroad: results . . . . . . . . . . . . 313 9.7 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . 315 10 Is Human Capital Losing from Outsourcing? Evidence for Austria and Poland 325 Andzelika Lorentowicz, Dalia Marin, and Alexander Raubold 10.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . 325 10.2 The Framework . . . . . . . . . . . . . . . . . . . . . . . . 330 10.3 The Empirical Model . . . . . . . . . . . . . . . . . . . . . 333 10.4 Outsourcing in Austria . . . . . . . . . . . . . . . . . . . . 335 10.4.1 Data and Variables . . . . . . . . . . . . . . . . . . 336 10.4.2 Empirical Results . . . . . . . . . . . . . . . . . . . 337 10.5 Multinational Outsourcing to Poland . . . . . . . . . . . . . 342 10.5.1 Data and Variables . . . . . . . . . . . . . . . . . . 342 10.5.2 Empirical Results . . . . . . . . . . . . . . . . . . . 344 10.5.3 Robustness . . . . . . . . . . . . . . . . . . . . . . 347 vii 10.6 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . 349 10.6.1 Data . . . . . . . . . . . . . . . . . . . . . . . . . . 350 10.6.2 Tables . . . . . . . . . . . . . . . . . . . . . . . . . 353 11 Is it strategic to attract the service activities of multinational firms ? Some empirical evidence. 361 Fabrice Defever 11.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . 361 11.2 Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 365 11.2.1 Description of the database . . . . . . . . . . . . . . 365 11.2.2 The five functions considered . . . . . . . . . . . . 366 11.2.3 Job creation by multinational firms . . . . . . . . . 367 11.3 Econometric Model . . . . . . . . . . . . . . . . . . . . . . 370 11.4 Dependent and independent variable . . . . . . . . . . . . . 372 11.4.1 Construction of the dependent variable . . . . . . . 372 11.4.2 The independent variables . . . . . . . . . . . . . . 373 11.5 Econometric test . . . . . . . . . . . . . . . . . . . . . . . 374 11.6 Implications for policy makers . . . . . . . . . . . . . . . . 377 viii
Library of Congress Subject Headings for this publication:
Investments, Foreign.
International business enterprises.