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Implications of Foreign Direct Investment, Capital Formation and its Structure for Global Value Chains

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  • Amat Adarov

    (The Vienna Institute for International Economic Studies, wiiw)

  • Robert Stehrer

    (The Vienna Institute for International Economic Studies, wiiw)

Abstract

In the age of globalisation, international trade and foreign direct investment (FDI) have become integral elements of cross-country production sharing. In this paper we empirically assess the impact of FDI, as well as capital dynamics and structure, on the formation of global value chains (GVC) and trade in value added at country and sectoral levels based on a database constructed for a sample of European countries over the period 2000-2014. The analysis reveals that inward FDI is especially conducive to the formation of backward linkages while outward FDI facilitates forward GVC participation, especially in high-tech manufacturing sectors. A particularly robust influence of FDI and capital accumulation on GVC integration is identified in the textile and clothing industry. While capital accumulation in general intensifies GVC linkages for most sectors, ICT capital appears to be especially instrumental for backward integration of electrical and transportation equipment sectors. Disclaimer Financial support from the Joint Research Centre (JRC) of the European Commission is gratefully acknowledged (grant contract number 936041 - 2018 A8 AT).

Suggested Citation

  • Amat Adarov & Robert Stehrer, 2019. "Implications of Foreign Direct Investment, Capital Formation and its Structure for Global Value Chains," wiiw Working Papers 170, The Vienna Institute for International Economic Studies, wiiw.
    • Handle: RePEc:wii:wpaper:170
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    More about this item

    Keywords

    global value chains; value added trade; foreign direct investment; capital; capital composition; gravity model; fractional response model;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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