Kling, Gerhard, Baten, Joerg and Labuske, Kirsten
FDI of German companies during globalization and deglobalization
Open Economies Review, 22, (2), . (doi:10.1007/s11079-009-9122-z).
Based on micro-level data of German companies from 1873 to 1927, we identified horizontal and vertical FDI applying a Knowledge-Capital model and analyzed individual FDI decisions. Our KC model revealed that market-driven FDI predominated; however, wage gaps and differences in human capital stimulated cost-driven FDI flows, which accounted for up to 10% of total FDI. On an individual level, large companies with high profitability conducted more FDI. Higher tariffs after WWI enhanced FDI, as companies could circumvent trade barriers – but declining openness reduced FDI. In spite of disintegration after WWI, the propensity to invest increased due to higher market concentration and firm specific investment patterns - albeit industry agglomeration effects were of minor importance.
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