When “Face to Face” Matters: Do Italian FDI in Business Services “Follow” FDI in Manufacturing?
Massimo Armenise1, Ilaria Cingottini1, Giorgia Giovannetti2, Margherita Velucchi3
1ICE and Fondazione Manlio Masi, Rome, Italy; 2Department of Economics, European University Institute and ICE, Firenze, Italy; 3Department of Statistics, University of Firenze and European University Institute, Firenze, Italy

The aim of this paper is to describe the location decisions of Italian Business Services firms in the international fragmentation of production. We study the main advantages of business service offshoring, stressing the role of different typologies of services and dividing those that need a “face to face” relationships from those that can be provided at a distance, for instance by broad band, intrinsically “impersonal”. From the last available input output tables for the Italian economy (INSI), we propose a new measure of downstreaming demand, to account for the potential demand stimulated by manufacturing firms investing abroad. We use a Rubin Causal Model (Pearle, 2000), subsumed by the structural equation model (SEM). The results show that (i) the likelihood of FDI in business services is higher in high income countries (while that of FDI in manufacturing is related to cost saving investments); (ii) distance matters; (iii) market potential is relevant in enhancing the likelihood of investing for both firms in manufacturing and in business services; (iv) FDI in business services do not seem to follow FDI in manufacturing but for few “face to face” services. To explain the results we further analyze the role played by the peculiar nature of Italian small and medium manufacturing firms. These firms tend to invest abroad mainly for cost saving and they tend to remain in markets geographically close (European Union or other central European countries). The policy implications of this results show that in Italy skilled workers in the business services sector seem to be sheltered from competition of low costs countries.

Keywords: FDI; Offshoring; Causal models; Structural equation models

Biography: Margherita Velucchi is Adjunct Professor at Department of Statistics of University of Firenze (Italy) and at New York University. She has a fellowship in the European Report on Development at European University Institute (Fiesole, Italy). She has a degree in Statistics and a Ph.D. in Economics from the University of Siena (Italy). She is specialized in financial econometrics, business demography and applied international economics.