The effect of GVC participation and position on greenfield FDI: an industry-level analysis

This paper investigates the impact of greater involvement in global value chains (GVCs) on inward greenfield Foreign Direct Investment (FDI). The data spans from 2005 to 2015, covers 64 host countries across all regions of the world and utilizes highly detailed transactions-level FDI data. This is one of the few studies examining the effect of GVCs on greenfield FDI, and one of the only studies, to our knowledge, which estimates the effect separately across each industry. We find that in the aggregate , greater involvement in GVCs brings in more greenfield FDI, as has been found in several previous studies. However, when estimating the relationship of each sector separately , the results are mixed across sectors. In more than half of the sectors, there is no correlation. For six of the 15 sectors, there is a statistical relationship, but the signs are mixed (some positive, others negative). Our findings imply that previous aggregate research masks very different conclusions depending on the sector, or even no relationship at all. Policymakers should be wary of assertions that pushing a sector “downstream” of the GVC will increase inward greenfield FDI.