How Widespread is FDI Fragmentation?

How Widespread is FDI Fragmentation?
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Volume/Issue: Volume 2024 Issue 179
Publication date: August 2024
ISBN: 9798400281211
$20.00
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Topics covered in this book

This title contains information about the following subjects. Click on a subject if you would like to see other titles with the same subjects.

Exports and Imports , Industries - Manufacturing , Demography , Fragmentation , Foreign Direct Investment , FDI fragmentation , host destination , FDI from the US , FDI from China , FDI host destination , Exchange rates , Manufacturing , Trade agreements , Europe , Asia and Pacific , Global , Western Europe

Summary

This paper examines the extent to which FDI has fragmented across countries, the ways it has done so, using a modified gravity approach. The paper finds that FDI fragmentation is, for now, not a widespread phenomenon. Instead, fragmentation is circumscribed in two ways. First, the paper finds that geo-economic fragmentation has occurred only for certain industries that likely have strategic value, including computer manufacturing, information and communications, transport, as well as professional, scientific and technical services. Secondly, fragmentation appears to be more pronounced for outward FDI from the US, notably in a shift of US FDI from China to advanced Europe and the rest of Asia. This shift appears to be driven by both the intensive and extensive margin. Fragmentation is also more pronounced for immediate rather than ultimate FDI, with evidence of ultimate parent companies aligning the geopolitical mix of their intermediaries more closely to that of their final FDI host destinations. Overall, the results suggest that fragmentation, where found, may be a response to targeted policies that have placed curbs on certain types of FDI on national security grounds, rather than an indiscriminate breakup of investment links between non-ally countries.