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The indirect effects of foreign direct investment on trade: A network perspective

Metulini, Rodolfo and Riccaboni, Massimo and Sgrignoli, Paolo and Zhu, Zhen The indirect effects of foreign direct investment on trade: A network perspective. The World Economy, 40 (10). pp. 2193-2225. ISSN 0378-5920 (2017)

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The relationship between international trade and foreign direct investment (FDI) is one of the main features of globalisation. In this paper, we investigate the effects of FDI on trade from a network perspective, since FDI takes not only direct but also indirect channels from origin to destination countries because of firms’ incentive to reduce tax burden, to minimise coordination costs and to break barriers to market entry. We use a unique data set of international corporate control as a measure of stock FDI to construct a corporate control network (CCN), where the nodes are the countries and the edges are the corporate control relationships. Network measures, as the shortest path length and the communicability, are then computed on the CCN to capture the indirect channel of FDI. Empirically, we find that corporate control has a positive effect on trade both directly and indirectly. The result is robust with different specifications and estimation strategies. Hence, our paper provides strong empirical evidence of the indirect effects of FDI on trade. Moreover, we identify a number of interplaying factors such as regional trade agreements and the region of Asia. We also find that the indirect effects are more pronounced for the manufacturing sector than for primary sectors such as oil extraction and agriculture.

Item Type: Article
Identification Number: 10.1111/twec.12504
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HF Commerce
Research Area: Economics and Institutional Change
Depositing User: Caterina Tangheroni
Date Deposited: 28 Dec 2017 11:06
Last Modified: 28 Dec 2017 11:06
URI: http://eprints.imtlucca.it/id/eprint/3852

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