Complementarity of Horizontal and Vertical Multinational Activities

This paper explores the multinational activities of the Japanese automobile industry by focusing on the vertical production structure of a firm. The main objective of this paper is to analyze the effects of horizontal multinational activities on vertical multinational activities. First, we construct a theoretical model to predict whether an increase in horizontal multinational activity leads to an increase in existing vertical multinational activity. This result mainly comes from the increased flow of intermediate products. Second, we test a theoretical model by applying annual data from Japanese automobile industry for 1982 to 1997. The estimated results provide a complementary relationship between horizontal and vertical multinational activities, thereby supporting the results of the theoretical model.