{
  "title": "How Widespread is FDI Fragmentation?",
  "publication": "IMF Working Papers, August 16, 2024",
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  "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.",
  "sections": [
    {
      "heading": "Summary findings",
      "content": "- The paper examines the extent to which FDI has fragmented across countries, and the ways it has done so, using a modified gravity approach.\n- The paper finds that FDI fragmentation is, for now, not a widespread phenomenon.\n- Fragmentation is circumscribed in two ways:\n  - Geo-economic fragmentation has occurred only for certain industries that likely have strategic value.\n  - Fragmentation appears to be more pronounced for outward FDI from the US, notably a shift of US FDI from China to advanced Europe and the rest of Asia.\n- The US shift appears to be driven by both the intensive and extensive margin.\n- Fragmentation is 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.\n- 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."
    },
    {
      "heading": "Industries where geo-economic fragmentation is observed",
      "content": "- Computer manufacturing\n- Information and communications\n- Transport\n- Professional, scientific and technical services"
    },
    {
      "heading": "Geographic and directional patterns",
      "content": "- Fragmentation more pronounced for outward FDI from the US.\n- Notable reallocation: US FDI shifted from China to advanced Europe and the rest of Asia.\n- Fragmentation effects differ by margin:\n  - Both intensive margin (changes in amount per existing relationship) and extensive margin (changes in the number of relationships) contribute to the observed US shift."
    },
    {
      "heading": "Immediate versus ultimate FDI",
      "content": "- Fragmentation is more pronounced for immediate FDI than for ultimate FDI.\n- Ultimate parent companies tend to align the geopolitical composition of their intermediaries more closely with that of their final FDI host destinations."
    },
    {
      "heading": "Policy interpretation",
      "content": "- Evidence is consistent with fragmentation responding to targeted national security–driven policies that curb certain types of FDI.\n- Results do not support a view of an indiscriminate breakup of investment links between non-ally countries."
    },
    {
      "heading": "Subjects and keywords",
      "content": "- Subjects: Balance of payments, Economic sectors, Exchange rates, Foreign direct investment, Foreign exchange, International trade, Manufacturing, Population and demographics, Trade agreements\n- Keywords: Asia and Pacific, Europe, Exchange rates, FDI fragmentation, FDI from China, FDI from the US, FDI host destination, Foreign Direct Investment, Fragmentation, Global, host destination, Manufacturing, Trade agreements, Western Europe\n\nIMF Working Papers — How Widespread is FDI Fragmentation?\n\n---\n\n Content in this bundle\n\n- Working Paper\n  - Working Paper (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Working Paper (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2024/08/16/how-widespread-is-fdi-fragmentation-551132"
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    "Authors: Joanne Tan",
    "Published: August 16, 2024",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9798400281211.001",
    "The paper examines the extent to which FDI has fragmented across countries, and the ways it has done so, using a modified gravity approach.",
    "The paper finds that FDI fragmentation is, for now, not a widespread phenomenon.",
    "Fragmentation is circumscribed in two ways:",
    "The US shift appears to be driven by both the intensive and extensive margin.",
    "Fragmentation is 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.",
    "Computer manufacturing",
    "Information and communications",
    "Transport",
    "Professional, scientific and technical services",
    "Fragmentation more pronounced for outward FDI from the US.",
    "Notable reallocation: US FDI shifted from China to advanced Europe and the rest of Asia.",
    "Fragmentation effects differ by margin:",
    "Fragmentation is more pronounced for immediate FDI than for ultimate FDI.",
    "Ultimate parent companies tend to align the geopolitical composition of their intermediaries more closely with that of their final FDI host destinations.",
    "Evidence is consistent with fragmentation responding to targeted national security–driven policies that curb certain types of FDI.",
    "Results do not support a view of an indiscriminate breakup of investment links between non-ally countries.",
    "Subjects: Balance of payments, Economic sectors, Exchange rates, Foreign direct investment, Foreign exchange, International trade, Manufacturing, Population and demographics, Trade agreements",
    "Keywords: Asia and Pacific, Europe, Exchange rates, FDI fragmentation, FDI from China, FDI from the US, FDI host destination, Foreign Direct Investment, Fragmentation, Global, host destination, Manufacturing, Trade agreements, Western Europe",
    "**Working Paper**"
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