Understanding FDI and production networks in East Asia. (November 2016)

• Record Type: Journal Article
• Authors: Thorbecke, Willem; Salike, Nimesh
• Is Part Of: Asian-Pacific economic literature. Volume 30:Number 2(2016:Nov.)
• Page Start: 57
• Page End: 71
• Publication Date: 2016-11
• Subjects: East Asia -- foreign direct investment -- trade -- production networks -- Kojima model -- Mundell model -- service link cost; Asia -- Economic conditions -- Periodicals; Pacific Area -- Economic conditions -- Periodicals; Asia -- Economic policy -- Periodicals; Pacific Area -- Economic policy -- Periodicals; 330
• DOI: 10.1111/apel.12147
• Languages: English
• ISSNs: 0818-9935

Abstract

Abstract : We provide evidence from the electronics industry in East Asia supporting Kojima's (1973) hypothesis that FDI moves from capital‐exporting countries' disadvantaged industries into host countries' advantaged industries. These results imply that FDI and trade are complementary, unlike in Mundell's (1957) model where they are substitutes. The results also indicate that exchange rate volatility deters trade, implying that reductions in the service link costs between production blocks can promote fragmentation. These findings imply that host countries in East Asia can receive technology transfers by lowering service link costs.