Horizontal vs. Vertical Interdependence in Multinational Activity

This paper sheds light on interdependencies in multinational activity that are brought about by (horizontal) trade in final goods and (vertical) trade in intermediate goods (within and between host countries). We use a panel data set of US foreign affiliate sales to 16 developed countries in seven industries over the period 1983–2000, distinguish between horizontal and vertical interdependence in multinational enterprise activity and allow for both market size (demand)-related as well as remainder linkage effects. Evidence suggests that vertical interdependence is somewhat more important than horizontal interdependence and, hence, vertical motives of multinational activity tend to dominate horizontal ones