Estimating the Knowledge-Capital Model of the Multinational Enterprise: Comment

Abstract

and participants of a 2002 American Economics Association session for helpful discussions and comments. We also thank Sarah Lawson for excellent research assistance. All remaining errors or omissions are our own. The views expressed herein are those of the authors and not necessarily those of the National Bureau of Economic Research.

Fragmentation of headquarter services and FDI

“…This is the result found by Markusen and Maskus (1999) and Blonigen, Davies, and Head (2003) who interpreted it as evidence of horizontal FDI. 8 In columns 2 and 4, however, I find that FDI is increasing in the amount of skill available of both countries.…”

“…Vertical FDI, however, exists precisely because very different endowments create factor price differences that cannot be eliminated by the trade in goods. This difference in these two models has been exploited by empirical researchers including Markusen and Maskus (1999) and Blonigen, Davies, and Head (2003), who find that most FDI takes place between countries with similar endowments.…”

“…These results come from OLS estimation of the FDI empirical specification established by Carr, Markusen, and Maskus (2001). I use their graciously-provided data, which is the same data used by Markusen and Maskus (1999) and Blonigen, Davies, and Head (2003). In the interest of space, I…”

“…In the vertical model (Helpman, 1984), FDI occurs when production is fragmented across borders because of international factor price differences. Recently, a body of empirical work has emerged that finds that most FDI takes place between similar countries (see, for example, Markusen and Maskus (1999) or Blonigen, Davies, and Head (2003)). Since similar countries are likely to have similar factor prices, these findings have been interpreted as support for the horizontal model.…”

Vertical foreign direct investment: Evidence from Japanese and U.S. multinational enterprises

“…Prior research, including Carr, Markusen, and Maskus (2001), Braconier, Norbäck, and Urban (2005a), and Davies (2008), shows that multinational activity is positively related to differences in relative skilled-labor abundance across countries, consistent with vertical FDI. In contrast, another set of research such as Brainard (1993Brainard ( , 1997, Maskus (2001, 2002), and Blonigen, Davies, and Head (2003), finds that multinational production is negatively correlated with relative skill differences.…”