The knowledge-capital (KC) model of multinational enterprises (MNEs) is now a widely adopted empirical approach to explain the location and production decisions of global firms based on both horizontal and vertical motivations. Although most of the existing studies have focused on highly aggregated national data, we extend this model to sectoral data consisting of broad manufacturing industries and explicitly account for the dynamic nature of international investment data. The empirical results from a dynamic panel data analysis indicate that the predictions of the KC model regarding MNE behavior vary by the type of industry. Production processes in electronics and transportation equipment are more characterized by efficient vertical specialization of research and development activities and assembly, whereas other sectors display more complex motivations. (JEL F14, F23, L23)