The Structure of Multinational
Activity: Evidence from Germany
Abstract:
Recent empirical studies of the determinants of multinational activity across countries have found overwhelming support for a horizontal rather than a vertical model of foreign direct investment (FDI). The majority of these studies use data either originating in or targeted at the United States. This paper presents evidence from a dataset of German inward and outward FDI. The dataset is similar in scope to the widely used U.S. Bureau of Economic Analysis data, making the results comparable to those from previous studies. In addition, a new empirical specification is employed that avoids some of the problems that have plagued these studies. The results provide little indication of vertical multinationals. FDI happens largely between similarly endowed countries. Multinational firms originate in skilled-labor abundant countries, although the evidence is mixed on whether they are also small. A novel result is that German firms invest disproportionately in other European countries, while the reverse is not true.
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