Revisiting the relationship between comparative advantage and FDI using global greenfield FDI data
Craig R. Parsons et al.
Abstract
Purpose We examine the relationship between comparative advantage and Foreign Direct Investment (FDI) using a unique proprietary worldwide data set of transaction-level greenfield FDI deals for the period 2003–2017, sourced from fDi Markets (Financial Times), across 17 major industries. Design/methodology/approach We construct regression-based measures of comparative advantage based on a novel methodology. Findings Contrary to the predictions of the “factor-proportions” view, we find that overall greenfield manufacturing FDI is positively correlated with comparative advantage. This supports the “firm-specific” view. However, we find that this relationship holds solely, but strongly, for lower-income countries and not for higher-income countries. This is the first worldwide test of a research question that has remained unresolved since the 1970s. Research limitations/implications This study is limited to greenfield FDI and does not include M&A-type FDI. Thus, the results are useful in answering questions related to job-creation and new capital infusions to the host country via FDI. Practical implications Besides casting light on the above theoretical discussion, our results can serve as a guide for policymakers seeking to attract more FDI in key sectors. Social implications The relationship holds solely, but strongly, for lower-income countries and not for higher-income countries. Originality/value This is the first worldwide test of a research question that has remained unresolved since the 1970s.
Evidence weight
Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40
| F · citation impact | 0.50 × 0.4 = 0.20 |
| M · momentum | 0.50 × 0.15 = 0.07 |
| V · venue signal | 0.50 × 0.05 = 0.03 |
| R · text relevance † | 0.50 × 0.4 = 0.20 |
† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.