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Foreign Direct Investment in Producer Services: Theory and Empirical Evidence

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  • Horst Raff
  • Marc von der Ruhr

Abstract

This paper examines the pattern of foreign direct investment (FDI) in producer services. Specifically we construct a model to explain the stylized fact that producer-service FDI tends to follow FDI by downstream industries. Our point is that this may be the result of informational barriers to entry into foreign markets. The preconditions of the model are shown to be consistent with panel data on U.S. FDI in 25 host countries from 1976 to 1995.

Suggested Citation

  • Horst Raff & Marc von der Ruhr, 2007. "Foreign Direct Investment in Producer Services: Theory and Empirical Evidence," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, vol. 53(3), pages 299-321.
    • Handle: RePEc:aeq:aeqaeq:v53_y2007_i3_q3_p299-321
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    2. Markusen, James R. & Venables, Anthony J., 1999. "Foreign direct investment as a catalyst for industrial development," European Economic Review, Elsevier, vol. 43(2), pages 335-356, February.
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    Cited by:

    1. Joseph Francois & Bernard Hoekman, 2010. "Services Trade and Policy," Journal of Economic Literature, American Economic Association, vol. 48(3), pages 642-692, September.
    2. Van Long, Ngo & Riezman, Raymond & Soubeyran, Antoine, 2005. "Fragmentation and services," The North American Journal of Economics and Finance, Elsevier, vol. 16(1), pages 137-152, March.
    3. Ishikawa, Jota & Morita, Hodaka & Mukunoki, Hiroshi, 2010. "FDI in post-production services and product market competition," Journal of International Economics, Elsevier, vol. 82(1), pages 73-84, September.
    4. Paul J. J. Welfens & Fabian J. Baier, 2018. "BREXIT and Foreign Direct Investment: Key Issues and New Empirical Findings," IJFS, MDPI, vol. 6(2), pages 1-21, April.
    5. John P. Weche Geluebcke, 2011. "Foreign Ownership and Firm Performance in German Services: First Evidence based on Official Statistics," Working Paper Series in Economics 213, University of Lüneburg, Institute of Economics.
    6. Markus Kelle & Jörn Kleinert & Horst Raff & Farid Toubal, 2013. "Cross-border and Foreign Affiliate Sales of Services: Evidence from German Microdata," The World Economy, Wiley Blackwell, vol. 36(11), pages 1373-1392, November.
    7. Giuliano CONTI & Alessia LO TURCO & Daniela MAGGIONI, 2010. "Backward linkages and the export;performance of business services.;Evidence from a sample of Italian firms," Working Papers 352, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
    8. Bhabani Shankar Nayak & Dominik Scheib, 2020. "Cultural logic of German foreign direct investment (FDI) in service sector," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 9(1), pages 1-13, December.
    9. Ngo Van Long & Ray Riezman & Antoine Soubeyran, 2001. "Fragmentation, Outsourcing and the Service Sector," CIRANO Working Papers 2001s-43, CIRANO.
    10. Lale Berko¨z & Engin Eyuboglu, 2007. "Intrametropolitan Location of Producer-service FDI in Istanbul," European Planning Studies, Taylor & Francis Journals, vol. 15(3), pages 357-381, April.
    11. Xu, Helian & Cheng, Long, 2016. "The QAP weighted network analysis method and its application in international services trade," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 448(C), pages 91-101.
    12. Basuil, Dynah A. & Datta, Deepak K., 2019. "Effects of Firm-specific and Country-specific Advantages on Relative Acquisition Size in Service Sector Cross-Border Acquisitions: An Empirical Examination," Journal of International Management, Elsevier, vol. 25(1), pages 66-80.
    13. Joseph Daniels & Walid Hejazi & Marc von der Ruhr, 2005. "Regional vs. Global Financing Strategies for U.S. MNEs," Working Papers and Research 0511, Marquette University, Center for Global and Economic Studies and Department of Economics.
    14. Bala Ramasamy & Matthew Yeung, 2010. "The Determinants of Foreign Direct Investment in Services," The World Economy, Wiley Blackwell, vol. 33(4), pages 573-596, April.

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    More about this item

    Keywords

    foreign direct investment; producer services; multinational enterprises;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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