Reconsidering the Backward Vertical Linkages of Foreign Affiliates: Evidence from Japanese Multinationals

This paper examines the determinants of the backward vertical linkages of Japanese foreign affiliates in manufacturing for the period 1994-2000, focusing on the local backward linkages, or local procurements in the host country. Our major findings are twofold. First, the unobserved affiliate-specific characteristics explain the large part of the variation of the backward linkages among foreign affiliates. Second, the experience of the affiliate has positive and sometimes non-linear impacts on local procurements for the affiliates, especially in Southeast Asia and China.