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Effects of Vertical and Horizontal FDI Projects on a Host Country's Economy

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  • Dr Yung-Chul Kwon

Abstract

This paper examines the effects of an FDI on a host country's trade balance and the local-linkages relative to various types of FDI projects, i.e., vertical FDI projects vs. horizontal FDI projects. It was assumed that the effects of FDIs on host country's economy are different with regard to a vertical vs. horizontal FDI project. Based on 108 FDI projects undertaken by Korean firms, it was found that vertical investment projects have a greater effect on both, the export-creation and import-creation than with horizontal investment projects. Horizontal foreign investment projects, however, have a greater effect than vertical foreign investment projects with respect to local linkages. These findings suggest that the host government's policy (e.g. incentives or regulations) towards inward FDIs should be differentiated by the types of FDI projects based on different contributions made to the host country economy.

Suggested Citation

  • Dr Yung-Chul Kwon, 2004. "Effects of Vertical and Horizontal FDI Projects on a Host Country's Economy," Foreign Trade Review, , vol. 39(1), pages 135-144, April.
    • Handle: RePEc:sae:fortra:v:39:y:2004:i:1:p:135-144
    DOI: 10.1177/0015732515040109
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