2019 Fiscal Year Research-status Report
Does Inward FDI Create Comparative Advantage or is it Attracted to it?
| Project/Area Number |
19K01600
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| Research Institution | Yokohama National University |
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Principal Investigator |
C・R Parsons 横浜国立大学, 大学院国際社会科学研究院, 教授 (10334616)
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| Project Period (FY) |
2019-04-01 – 2022-03-31
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| Keywords | 海外駐在 / comparative advantage / higher income countries / lower income countries |
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| Outline of Annual Research Achievements |
After merging and aggregated the 200,000+ observations from 102 countries from Prof. Doytch`s FDI database with my database of econometrically-estimated RCAs, we estimated (years 2003-2010) several econometric specifications of our main research question.
Ultimately, our results find a very strong positive relationship between FDI and RCA for our subset of 9 lower income countries (China, India,Brazil, Turkey, etc.). However, we found there was no statistically significant relationship in the subsample of 11 higher income host Countries (USA, Canada, Japan, etc.) These results were robust to several variations of the econometric specifications and also in shorter time series which excluded the Global Financial Crisis of 2008 and also to the exclusion of China. Our instrumental variables estimation also did not change the results.
The new results were presented at the Eastern Economic Association Meetings in Boston, Massachusetts, USA on Feb 28, 2020.
Preliminary research results were also presented at the Rutgers University (New Jersey) faculty seminar on Dec 6th, 2019 and the CUNY Queens (NY) faculty seminar on Dec 9th, 2019.
My co-authors and I have submitted (April 2020) this first paper for submission a top-level international peer-reviewed journal this month.
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| Current Status of Research Progress |
Current Status of Research Progress
2: Research has progressed on the whole more than it was originally planned.
Reason
The first goal of the research project has been completed. We found there is a strong positive relationship between RCA and FDI. It appears that the higher the host country`s existing comparative advantage (as measured by the econometrically estimated measure developed by Costinot et al 2012) in a sector, the more FDI which will flow into that sector in that country. However, this only holds for lower income countries. This suggests that FDI does not flow into countries with no existing skill set in this area. Our result is contrary to the prediction of factor-endowment world with internationally mobile capital as posited by Mundell (1957). Our results support the firm-specific view of Casson, Maskus and others. One policy implication is that it would be unwise for lower income countries to try and attract FDI in industries in which they do not have at least a small comparative advantage. It also gives possible support hypotheses of `demonstration effects` (subsequent FDI follows preexisting FDI in that sector) and also agglomeration effects more generally. It is also points to the fact that most FDI in lower income countries is efficienc-seeking and export platform variety, while for higher income countries, the reason for inward FDI are more numerous and include market-seeking motivation.This may explain our `no-result` for the higher income sample. This first paper has just (April 2020) been submitted to a top-level international, refereed journal for consideration.
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| Strategy for Future Research Activity |
We have two future extensions to the research in mind. One plan, already started, is to expand the comparative measures we now have from 2003-2010 up to year 2017 using UN Comtrade data. We also plan to expand the number of countries involved to include Vietnam and other countries not in the current database.
The second idea is to expand on Prof. Doytch`s previous work with FDI and patent data. Prof. Doytch is now in the process of obtaining more patent data, so we may start that work soon. Future plans include attending international conferences to present our work and get feedback as well as travel from and to NY to discuss in person. This will have to wait until travel restrictions due to corona virus are relaxed. Upon completion of this research, we will be prepare for submission to an international journal of the highest caliber. There has also been discussion extending our first results by using spatial econometric methods. We are in discussion with CUNY-Queen Prof. Suleyman to see if this is possible with the dataset and research methodology we have.
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| Causes of Carryover |
I had planned to attend an international conference (WEAI) in March 2020 in Shanghai China. However, because of Covd-19, the conference and my trip was cancelled. If international travel restrictions permit it, I will travel again to CUNY Queens (NY, USA) in Fall of 2020 to continue work on the project. My co-authors and I will consult with Prof. Taspinar who is an expert in Spatial Econometrics. The next paper will control with proximity and neighbor effects. Also, I plan to hire an RA (Fall 2020) to help with data work in expanding the data set to more years and more countries.We hope to present our newest results at the Eastern Economic Association meetings in NY, USA in Feb 2021.
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