Vertical foreign direct investment: Evidence from Japanese and U.S. multinational enterprises

Foreign direct investment (FDI) in developing countries has increased since the 1990s, but there is mixed evidence of vertical FDI associated with factor-seeking motives. This paper estimates the vertical motive of offshore production by multinational enterprises (MNEs) by exploiting past schooling characteristics as instruments for skilled-labor abundance in a host country. Using panel data on Japanese and U.S. MNEs in the 1990s, I find that skilled-labor abundance has a significantly negative impact on sales of manufacturing foreign affiliate only for Japanese MNEs. The results suggest that vertical FDI activity was more prevalent in Japanese MNEs than U.S. MNEs. A plausible explanation is that Japanese MNEs might be more vertically integrated with their offshore production than U.S. MNEs. A difference in foreign outsourcing activities could generate the observed deviation between Japanese and U.S. MNEs.     

The complementarity between U.S. foreign direct investment stock and trade

Within a gravity model framework, this paper will establish that trade and foreign direct investment (FDI) are complementary, using trade and FDI stock data on a bilateral basis between the U.S. and 51 other countries over the period 1982 to 1994. U.S. outward FDI is found to have a larger predicted impact on U.S. exports than does inward FDI. On the other hand, inward FDI is found to have a larger predicted impact on U.S. imports than does U.S. outward FDI. These results are directly linked to patterns of intrafirm trade within the multinational enterprise (MNE), a result consistent with the transactions cost theory of MNEs. In addition, a sectoral analysis indicates that U.S. outward FDI in manufacturing has a large predicted impact on both exports and imports, whereas U.S. outward FDI in services has a large predicted impact on U.S. exports but little or no predicted impact on imports. Detailed comments and suggestions were provided by Joe Daniels, Albert Berry, and seminar participants at the University of Toronto, York University, Industry Canada, and the 1999 annual Canadian Economics Association meeting. Research assistance was provided by George Georgopoulos and Anthony Yao. The authors are responsible for any remaining errors.     

Pollution havens,endogenous environmental policy,and foreign direct investment

In an increasingly integrated world economy, countries may have greater incentives to weaken environmental policy as disguised protection intended to give a competitive edge to local firms. This may generate pollution havens as firms relocate in response to different environmental policies. Foreign direct investment (FDI) weakens profit‐shifting policy considerations while increasing environmental damages but, at the same time, may provide external benefits. We derive conditions under which the FDI‐recipient country has an incentive to manipulate its environmental standard to prevent or attract FDI, potentially eliminating or creating pollution havens, in addition to examining the impact of FDI on the equilibrium state of the environment.     

Foreign direct investment and factor prices in U.S. manufacturing

Foreign Direct Investment and Factor Prices in U.S. Manufacturing. —We investigate whether inward foreign direct investment (FDI) can explain part of the increase in relative wages of skilled workers in U.S. manufacturing over the period 1977–1994 by studying the sector bias of the effects of FDI on sector prices and technology. We follow the two-stage mandated-wage approach based on the StolperSamuelson theorem. We find that inward FDI affects the sum of sector prices and productivity depending on the absorptive capacity available in the sector. We also find some evidence that inward FDI has induced a sector bias towards using skilled workers over the period 1977–1994.     

Does Foreign Direct Investment Affect the Growth of Local Firms？ The Case of China＇s Electrical and Electronics Industry

Does foreign direct investment(FDI) into developing countries affect the growth of local firms in host countries? Using a dataset of 38 sectors in China’s electrical and electronics industry,in this paper,we analyze whether FDI has a positive effect on local firms,with technology spillovers,added value and increasing total factor productivity,or a negative, market stealing,effect.Estimating the relationship between growth of local firms and investment of foreign firms,our results show that FDI is likely to have a negative impact on the growth of local firms in sectors with large disparities in technology and less experience in business.Therefore,local firms lacking in technology need to find markets with no competition from foreign firms or determine strategies to compensate technology disparities.     

美国经济波动对中国经济增长的影响及其传导机制研究

在开放经济条件下,一国的经济波动会通过国际贸易、国际投资等资本的跨国流动传导到别的国家。鉴于美国已经成为中国主要的贸易伙伴和FDI来源国,其经济的波动会对中国的经济产生很大的影响,因此本文运用基于VAR模型的广义脉冲响应函数法与方差分解法,在以双边贸易与投资为传导纽带,暗含汇率变化影响的基础上定量分析了美国经济波动对中国经济冲击的长期传导机制和短期动态影响特征。冲击响应分析结果表明,美国经济对中国经济的影响更大,美国经济的波动主要通过影响中国对美国出口的途径对中国经济增长造成冲击;方差分解结果显示,中国经济对美国经济的贡献更大。     

Free Trade Agreements and Foreign Direct Investment: The Role of Endogeneity and Dynamics

This article studies the impact of Free Trade Agreements (FTA) on outbound foreign direct investment (FDI). From one perspective, FTA may promote FDI since FTA aim to promote economic activity between countries. However, lower trade barriers may lower the incentive of firms to conduct FDI. Therefore, the net impact is an empirical question. Using a panel of countries for the years 1990–2006, this article effectively controls for participation in an FTA when analyzing the impact on outbound FDI. The lengthy time series also allows us to examine effectively the dynamic nature of the relationship. Failing to account for endogeneity and dynamics would likely generate inaccurate conclusions regarding the impact of FTA on outbound FDI. Our analysis finds that outbound FDI is either unrelated to participation in an FTA or is negatively affected.     

Population Problems of the Countries of Asia

Abstract

This study seeks to explain the variation in U.S. foreign direct investment (FDI) in Latin America and Asia. The analysis focuses on 19 Latin American and Asian countries for the period of 1979–1999. The results show that the variation in the U.S. FDI can largely be attributed to the differences in fundamental economic and social factors such as market size, gross domestic product (GDP) growth, macro-economic stability, the degree of trade openness, and both school enrollment and infrastructure availability. Separating the data into two time periods reveals interesting results about the location decisions for U.S. investors. In addition, the results from the comparison between the two regions show that Latin American countries clearly attract U.S. FDI for different reasons than Asian countries.     

International Technology Diffusion: Effects of Trade and FDI

There has been little analysis of the effect of inward FDI on international R&D diffusion, especially in LDCs, although FDI has become the core of international production and LDCs have been receiving an increasing share of world FDI over the past few decades. Using data from 57 countries from 1988 to 2001, we find that both FDI and trade serve as important channels of international technology diffusion. However, there exist heterogeneous effects of FDI in DCs and LDCs. For inward FDI to promote technology diffusion in LDCs, a certain threshold of human capital has to be reached.     

The impact of mandated employment verification systems on state‐level employment by foreign affiliates

Faced with diminishing prospects for a comprehensive immigration reform at the federal level, states have started to take immigration matters into their own hands. For example, many states have been mandating the use of employment verification (E‐Verify) systems to confirm work eligibility. Some of the consequences of these E‐Verify mandates remain unclear. In this article, we focus on the effect of anti‐illegal immigrant laws on foreign investment. Specifically, we exploit the state‐level and time variation in the enactment and implementation of E‐Verify mandates to explore if punitive measures against the firm impact states' ability to attract foreign direct investment (FDI). We quantify FDI through the employment by U.S. affiliates owned by foreign firms. Our results suggest that E‐Verify mandates adversely affect employment among these majority‐owned U.S. affiliates and, therefore, work against states trying to attract FDI.     

Local labor market conditions and foreign direct investment flows in the U.S.

This study evaluates the impact of industry and state-specific economic conditions on inward Foreign Direct Investment (FDI) in several states in the U.S. FDI inflows in the U.S. are attracted by high industry and state specific labor productivity, and also by high state spending on education. Multinational companies seem to highly value a productive and educated labor force.     

Trade regimes and spillover effects of FDI: Evidence from Uruguay

Trade Regimes and Spillover Effects of FDI: Evidence from Uruguay. — This paper examines differences in the character and impact of FDI entering Uruguay during import substitution, pursued until 1973, and the subsequent more outwardoriented trade regime. Regression analysis shows that the labor productivity of local firms is positively related to the presence of older import-substituting MNCs in their industry. The presence of foreign affiliates established after 1973 has no apparent impact on local productivity, but seems to raise the likelihood that local firms engage in exporting. This may be a sign of export spillovers, indicating that local firms may pick up some exportrelated skills from the operations of outward-oriented foreign MNCs.     

对发展中国家的贸易与美国制造业的就业变动

本文利用1997～2006年美国制造业的面板数据,从静态和动态的角度实证检验了美国制造业与发展中国家的进、出口贸易对美国制造业就业总量的影响。估计结果表明,考虑进、出口贸易对技术创新的驱动作用以后,进、出口贸易对就业的影响与理论预期存在不一致性,进口贸易不仅没有通过替代国内生产而减少劳动密集制造部门对劳动力的需求,反而促进了该部门的就业增长;出口贸易也没有通过产出扩大效应而增加劳动密集制造部门对劳动力的需求,出口贸易对就业的促进效应仅仅体现在技术密集制造部门。由于美国劳动力市场中存在价格效应、规模效应和劳动力需求的趋势效应,与发展中国家的进、出口贸易对美国制造业就业的影响呈现明显的滞后性和动态调整特征。     

The effects of regional trade agreements on FDI by its origin and type: Evidence from U.S. multinational enterprises activities

The effects of regional trade agreements (RTAs) on foreign direct investment (FDI) depend on both the origin and type of FDI. To estimate the various effects of RTAs, I differentiate between various types of FDI by using data on the sales destinations of foreign subsidiaries of U.S. multinational enterprises (MNEs), while also addressing the endogeneity of RTA formation. Consistent with the theory of MNEs, I find that RTAs reduce horizontal FDI from intra-RTA countries and increase export-platform and total FDI from extra-RTA countries. Moreover, the overall effects of RTAs are positive for extra-RTA FDI, but inconclusive for intra-RTA FDI. The results also support the effect of integrated markets’ economies of scale in inducing extra-RTA FDI.     

美国对华直接投资对中国技术进步和产业竞争力的影响

20世纪90年代以来美国对华投资发展迅速,投资规模不断扩大,在华子公司引进技术的水平也呈不断提高态势。从美国对华投资的特点来看,其主要集中在技术密集型和资本密集型产业。而且,美国对华投资以市场寻求型为主,研发当地化以适应国内市场的需求就成为其必然选择。本文将在简述美国对华投资企业技术特点的基础上,分析其对中国技术进步以及产业竞争力提升的影响,为中国在引资过程中趋利避害提供理论参考。     

Impact of international development aid on FDI along the Belt and Road

Both IDA and FDI are very important external financing channels for B&R countries. Considering B&R countries as the sample, this paper analyzes the impact of the IDA received by B&R countries on their FDI from both theoretical and empirical perspectives. Based on the different research objectives and data availability, the empirical analysis is considered as two sections. In the time series analysis, we use VECM model and the impulse response function to test the dynamic effects of different types of IDA on the FDI from the perspective of donor countries, and find that whether in the short, medium or long term, the complementary factor form of the aid to the recipient countries can promote FDI, and the material capital form of the aid to the recipient countries can crowd out their FDI. In the panel regression analysis, we examine the overall impact of the total amount of IDA accepted by the B&R recipient countries on FDI, including the direct impact of IDA on FDI and the moderating effects of institutional environment. Considering the direct impact, the results of the fixed effect regression analysis confirm the significantly negative effects of total IDA accepted by B&R recipient countries on their FDI. In the regression analysis of controlling endogeneity problem, the product terms of IDA variables and institutional environment variables are added to the regression models, and the results show that the institutional environment has significantly positive moderating effects in the process of IDA influencing FDI, indicating that the interaction between IDA and institutional environment helps to improve the impact of IDA on FDI and increase the attractiveness of recipient countries to FDI.     

Exchange rate expectations and foreign direct investment flows

Exchange Rate Expectations and Foreign Direct Investment Flows. — Theories about exchange rate expectations are difficult to check empirically. We study FDI data to find indirect evidence on the formation of exchange rate expectations by foreign direct investors. Using panel data techniques on exchange rate movements and FDI flows from the United States to 20 OECD countries we find that skewness of devaluations has a robust positive impact on FDI flows while average devaluation and its volatility do not. We view this evidence as consistent with the hypothesis that relatively large exchange rate movements generate mean-reverting long-run expectations. This finding is consistent with survey-based evidence on exchange rate expectations.     

The trade balance effects of U.S. foreign direct investment in Mexico

This paper examines the effect of U.S. foreign direct investment (FDI) in Mexico on U.S. exports to and imports from Mexico. The rise of intrafirm exports and imports following U.S. FDI in Mexico suggests that FDI affects trade flows. Empirical estimation proceeds with tests for stationarity and cointegration. The finding of cointegration among the variables leads to estimation of the hypothesized relationships with a vector error-correction model. Impulse response functions and variance decomposition reveal that FDI leads to increased exports and imports during the time period considered.     

Can foreign direct investment promote BIT signing?

Compared to the vast number of previous studies on the impact of bilateral investment treaties (BITs) on Foreign Direct Investment (FDI), this paper empirically analyses how previous FDI affects BIT signing by using annual data covering 258 countries for the period 2002–2012. We find that the likelihood of signing BITs between two countries is higher when the country-pair has a larger sum of FDI stock and a larger FDI difference, and this effect is more pronounced in middle- and low-income countries than high-income countries. Further research finds that the institutional gap is an important factor that can enhance the positive impact of FDI stock/ FDI difference on the signing of BITs. The contribution of this research lies in providing a benchmark for incorporating more economic variables into the understanding of the determinants of BIT signing. In particular, the role of FDI should be given more attention.     

Foreign direct investment and productivity spillovers: Evidence from the Spanish experience

Foreign Direct Investment and Productivity Spillovers: Evidence from the Spanish Experience. — The aim of this paper is to analyse the impact of foreign direct investment (FDI) on firms’ productivity using a panel of Spanish manufacturing firms for the period 1990–1998. Firstly, we show that for countries, like Spain, that are undergoing significant structural changes over the period in question it is important to control for both time-invariant as well as time-variant sectoral characteristics. Secondly, we confirm previous findings that one needs to take into account the “absorptive capacity” of firms when considering whether they are able to avail of externalities associated with FDI presence. For the Spanish case we find that only firms with sufficient levels of such capacity experience positive spillovers.