Korea Trade Review (무역학회지)

Korea Trade Research Association (한국무역학회)
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An Empirical Analysis of the Bilateral Linkages between Foreign Direct Investment and Global Value Chains

해외직접투자와 글로벌 가치사슬의 양자간 연계성 실증 분석

  • Hyun-Jung Choi (Department of International Trade, Kangwon National University) ;
  • Hyun-Hoon Lee (Department of International Trade, Kangwon National University)
  • 최현정 (강원대학교 국제무역학과) ;
  • 이현훈 (강원대학교 국제무역학과)
  • Received : 2022.08.06
  • Accepted : 2022.08.29
  • Published : 2022.08.30
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Abstract

Although there is growing literature evidence of linkages between global value chains (GVCs) and foreign direct investment (FDI), the results are mixed and ambiguous by geographic dimension, time period and sectoral scope. Moreover, bilateral approaches on these connections have been rarely analyzed. In this context, we investigate the effect of bilateral greenfield FDI and cross-border M&A on GVC linkages between host countries and source countries. We match three-year averages of bilateral FDI and UNCTAD-Eora GVC value-added data from 2005 to 2019 between 37 OECD sources and 176 host countries (37 OECD versus 139 non-OECD countries). In the structural gravity model, the empirical specification includes bilateral and country-period fixed effects and uses a Poisson Pseudo-Maximum Likelihood (PPML) estimator. We find that greenfield and M&A FDI promote forward and backward GVC linkage for all sectors between OECD countries, whereas greenfield FDI promotes backward GVC linkage between OECD and non-OECD countries. In addition, the results indicate that the degree of influence of GVCs by FDI flows is greater for forward GVC than backward GVC among OECD countries.

Keywords

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