Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/102184
Authors: 
Martínez-San Román, Valeriano
Bengoa, Marta
Sánchez-Robles, Blanca
Year of Publication: 
2014
Series/Report no.: 
CESifo Working Paper 4867
Abstract: 
This paper intends to combine two fields in the economic literature by examining empirically the FDI pattern –horizontal versus vertical– within the European Union and the relevance of trade integration as a potential determinant of investment flows over the period 1995-2009. We capture trade integration by estimating the magnitude and evolution of the home bias or border effect rather than by using other indicators such as the openness rate or the existence of tariffs and non-tariff barriers. We find that, for the particular case of the EU, it is not possible to strictly discriminate between horizontal or vertical FDI. The market-seeking strategy appears to be more important than factor-proportion related motivations; however, the robust relationship of complementarity between trade integration and FDI provides at least one argument in support of vertical FDI and suggests that the vertical model cannot be dismissed entirely.
Subjects: 
international trade
FDI
gravity model
home bias
border effect
European Union
JEL: 
F10
F14
F15
F21
Document Type: 
Working Paper

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