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Comparative Advantage, Outward Foreign Direct Investment and Average Industry Productivity: Theory and Evidence

장용준|현혜정
한국경제학회 (The Korean Economic Association)|2015.12|The Korean Economic Review|제31권 제2호|pp. 327-357

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참고문헌

키워드

Firm HeterogeneityComparative AdvantageAggregate ProductivityDirect Investment
주제분류경제학

초록

This paper analyzes the role of comparative advantage in the effects of outward FDI on domestic productivity. In the theoretical framework, we place Helpman, Melitz and Yeaple’s (2004) outward FDI model into Bernard, Redding and Schott’s (2007) framework of international trade with heterogeneous monopolistically competitive firms and comparative advantage and show that the increase in outward FDI raises aggregate productivity in all industries through the intra-sectoral reallocation of firms, but this productivity growth is more prominent in a nation’s comparative advantage industry. Using Korean industry-level data, we empirically test our theoretical predictions using the production function model as a benchmark model, followed by system GMM estimation methods for sensitivity analysis. Our empirical findings also suggest that outward FDI has a positive effect on domestic productivity and this link is more likely to take place in those sectors above average competitiveness measured as export-based revealed comparative advantage.

Abstract

This paper analyzes the role of comparative advantage in the effects of outward FDI on domestic productivity. In the theoretical framework, we place Helpman, Melitz and Yeaple’s (2004) outward FDI model into Bernard, Redding and Schott’s (2007) framework of international trade with heterogeneous monopolistically competitive firms and comparative advantage and show that the increase in outward FDI raises aggregate productivity in all industries through the intra-sectoral reallocation of firms, but this productivity growth is more prominent in a nation’s comparative advantage industry. Using Korean industry-level data, we empirically test our theoretical predictions using the production function model as a benchmark model, followed by system GMM estimation methods for sensitivity analysis. Our empirical findings also suggest that outward FDI has a positive effect on domestic productivity and this link is more likely to take place in those sectors above average competitiveness measured as export-based revealed comparative advantage.

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