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A A D I T YA M AT T O O A N D A R V I N D S U B R A M A N I A N
FIGURE 2. Defying Comparative Advantage: Foreign Direct Investment, 2003–07
FDI outflows to OECD countries as a share of GDP (percent)
0.05
SGP
0.04
IRL
ISR ESP
GBR
0.03 FRA
0.02
DEU
PRT
0.01 IND
PHL IDN
0.00 7
8
CHN
ZAF BRA MEX BGR HUN PAN ARG MYS THA TUR POL
SAU KOR
ITA
USA
JPN
ROM CHL
9 10 log per capita GDP (2003 PPP dollars)
11
Sources: Thomson Financial SDC Platinum database and Financial Times FDI Intelligence database. Note: GDP, gross domestic product; PPP, purchasing power parity. The figure plots FDI outflows from a country to OECD countries as a share of its GDP (averaged over the period 2003–07) against its per capita income. The sample comprises selected industrial and emerging-market countries. The economies shown are ARG, Argentina; BRA, Brazil; CHL, Chile; CHN, China; DEU, Germany; ESP, Spain; FRA, France; GBR, United Kingdom; HUN, Hungary; IDN, Indonesia; IND, India; IRL, Ireland; ISR, Israel; ITA, Italy; JPN, Japan; KOR, Republic of Korea; MEX, Mexico; MUS, Mauritius; MYS, Malaysia; PAK, Pakistan; PHL, the Philippines; POL, Poland; PRT, Portugal; ROM, Romania; SAU, Saudi Arabia; SGP, Singapore; THA, Thailand; TUR, Turkey; USA, United States; and ZAF, South Africa.
emphasized the impact of direct and indirect imports from industrial countries. There is also a large literature documenting the effects of inward FDI (Borensztein, De Gregorio, and Lee 1998; Haskel, Pereira, and Slaughter 2002). Recently, Hausmann, Hwang, and Rodrik (2007) looked at the effects of the sophistication of a country’s export profile on its own growth (see also Burgess and Venables 2004). In a similar vein, Feenstra and Kee (2004) examine whether diversity of export production can have productivity-enhancing effects. The effects of outward flows of FDI and skilled exports, and of the destination of these flows, have received less attention. Why should the destination of trade and FDI flows matter? Javorcik (2004) has shown that selling to foreign-owned firms located in a country has positive upstream productivity effects because of the possibility of induced technological and managerial improvements. In principle, these benefits can also arise from sales to foreign firms located abroad. Recently, De Loecker (2007), working with microdata on Slovenian firms, has demonstrated that productivity gains are higher for firms exporting toward high-income regions. Moreover, exports of goods to high-income destinations are frequently associated with participation in global production chains that confer important benefits (Hoekman and Javorcik 2006).