The location of American and Japanese multinationals in Europe

This paper examines the determinants of location choice of American and Japanese foreign direct investment in European manufacturing industries in the early 1990s. The new data used in this study covers 340 Japanese-owned affiliates and 2,312 US-owned affiliates distributed across 38 regions and 7 member states in the European Union. The statistical analysis finds, most importantly, that the location decisions of US and Japanese MNEs are not the same. The Japanese results are consistent with the behavior that firms consider production-cost factors more important than demand-side factors, suggesting Japanese firms’ motive to establish local production capacity to export within the EU market. On the contrary, both cost-side and demand-side factors are found important determinants of location choices for US firms. The results also suggest that location decisions are industry-specific.

The role of foreign direct investment in the host-country firm selection process: firm-level evidence from Slovenian manufacturing

This paper examines the role of inward foreign direct investment (FDI) in firm selection processes in the Slovenian manufacturing sector in the 1994–2003 period. It adopts the firm dynamics framework that allows testing of selection effects directly by assessing the impact of foreign firms’ activity on the probability of exiting of local firms (crowding out). The results show that intra-industry productivity spillover effects offset only a minor part of the competition pressure which results from foreign firm entry, hence incumbent firms experience a drop in their survival probability upon a foreign firm’s entry within a particular industry. This result is driven by foreign firm entry of the greenfield type, as entry through the acquisition of existing firms has no significant effect. The strength of the crowding-out effect decreases with the incumbent firm’s export propensity. There is no significant evidence that inward FDI would stimulate the selection process through backward linkages in the upstream supplying industries, whereas foreign firms’ activity reduces the exit probability of downstream local customers (through forward linkages).     

Export behavior and productivity growth: Evidence from Italian manufacturing firms

Export Behavior and Productivity Growth: Evidence from Italian Manufacturing Firms. — This paper provides econometric evidence supporting the hypothesis that exporting implies learning effects. Learning-by-exporting is modeled as a change, induced by export behavior, in the stochastic process governing firms’ productivity. Empirically, this is implemented by specifying cross-section regressions of labor productivity growth on measures of export behavior, controlling for past productivity growth and other firms’ characteristics. Using a sample of Italian manufacturing firms, it is found that exporters do not exhibit faster productivity growth. Nevertheless, growth in value added per worker has a positive and significant relation with firms’ export intensity. In other words, only firms substantially involved in exporting have a significantly higher rate of productivity growth. This result suggests that learning-by-exporting is by no means simply the outcome of the presence in the export market.     

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.     

Firm-Specific Characteristics and the Timing of Foreign Direct Investment Projects

This paper uses a proportional hazard model to study foreign direct investment by Japanese manufacturers in Europe between 1970 and 1994. We divide each firm’s investment total into a sequence of individual investment decisions and analyze how firm-specific characteristics affect each decision. We find that total factor productivity is a significant determinant of a firm’s initial and subsequent investments. Parent-firm size does not have a significant influence on the initial decision to invest. Large firms simply have more investments than smaller firms. Other firm-specific characteristics, such as the R&D intensity, export share and keiretsu membership, also play a role in the investment process. JEL no. F23, L20     

Exports versus FDI: do firms use FDI as a mechanism to smooth demand volatility?

In this paper, we first develop a simple two-period model of oligopoly to show that, under demand uncertainty, whether a firm chooses to serve foreign markets by exports or via foreign direct investment (FDI) may depend on demand volatility along with other well-known determinants such as size of market demand and trade costs. Although fast transport such as air shipment is an option for exporting firms to smooth volatile demand in foreign markets, market volatility may systematically trigger the firms to undertake FDI. We then use a rich panel of US firms’ sales to 56 countries between 1999 and 2004 to confront this theoretical prediction and show strong evidence in support of the prediction     

Exporting, capital investment and financial constraints

Many firms cite financial constraints as some of the most important impediments to their investment and growth. Using a unique data set from the Czech Republic this paper investigates the importance of financing constraints in the context of exporters. It finds that exporters are less financially constrained than non-exporters. However, after carefully correcting for possible endogeneity and selection issues, the evidence points to less constrained firms self-selecting into exporting rather than exporting alleviating firms’ financial constraints.     

South Africa government's support of the automotive industry: prospects of the productive asset allowance

In 2000 the South African Government introduced an investment incentive for the automotive industry, the Productive Asset Allowance (PAA). This was intended to support the objectives of the Motor Industry Development Programme (MIDP). This paper presents an empirical assessment of the PAA's prospects for supporting the competitiveness of South Africa's automotive industry. It provides a historical overview of the MIDP and the introduction of the PAA and analyses industry performance data on investment and competitiveness from 1998 to 2004. The findings reveal that while the industry succeeded in increasing exports, the share of domestically produced vehicles in the local market decreased. Moreover, investment in R&D, as an indicator for future competitiveness, was insignificant. The offer of a generic investment incentive like the PAA seems to have a significant and positive effect on industry investment, but limited ability to support long-term industry competitiveness through R&D and innovation.     

Exports and Productivity Growth: First Evidence from a Continuous Treatment Approach

A recent survey of 54 micro-econometric studies reveals that exporting firms are more productive than non-exporters. However, previous empirical studies show that exporting does not necessarily improve productivity. One possible reason for this result is that most previous studies are restricted to analysing the relationship between a firm’s export status and the growth of its labour productivity, using the firms’ export status as a binary treatment variable and comparing the performance of exporting and non-exporting firms. In this paper, we apply the newly developed generalised propensity score (GPS) methodology that allows for continuous treatment, that is, different levels of the firms’ export activities. Using the GPS method and a large panel data set for German manufacturing firms, we estimate the relationship between a firm’s export-sales ratio and its labour productivity growth rate. We find that there is a causal effect of firms’ export activities on labour productivity growth. However, exporting improves labour productivity growth only within a sub-interval of the range of firms’ export-sales ratios. JEL no.  F14, F23, L60     

The performance of black-owned commercial banks: A comparative analysis

The objective of this study was to examine performance differences among black banks of different asset sizes, as compared with average nonminority banks of similar asset size from 1985 to 1991. The study found that large black banks with assets over $50 million outperformed smaller black banks with assets less than $50 million in terms of return on assets (ROA) and return on owners’ equity. Also, when compared with average nonminority banks with assets less than $300 million, the large black banks exhibited a statistically significant higher ROA than average nonminority banks in 1985 through 1987. However, the differences were found to be statistically insignificant in terms of return on owners’ equity (ROE) during the study period. Regression results show that provision for loan loss, high liquidity, and investment in treasury and government securities continue to impact negatively on small black banks’ performance but these factors have no statistically significant impact on large black banks’ performance.     

Investment project efficiency forecasting when considering buffering factors for negative external effects

A modification of the classical method for assessing net present value is offered in the paper as a method to assess investment project efficiency. This modification of the project realization efficiency includes a contractor company’s financial position indicator and other factors to buffer negative external effects.     

Do all networks facilitate international commerce? US law firms and the international market for corporate control

This paper estimates the effects of several American law firms' international networks of offices on the total value of overseas mergers and acquisitions (M&A) by US corporations. Nowadays many nations can review proposed mergers and US law firms help clients overcome such regulatory hurdles, effectively greasing the market for corporate control. However, they can also oppose transactions that are inimical to their clients' interests. I present evidence that suggests that Baker & McKenzie—the US law firm with the most overseas offices—has facilitated such transactions, whereas the combined effect of the next five largest American law firms has tended to reduce such M&A. J. Japanese Int. Economies 17 (4) (2003) 520–537.     

Openness, Investment and Growth

In the empirical growth literature both investment and opennessto international trade have been identified as important determinantsof growth. These relationships appear to be robust in a numberof specifications. However, Sachs and Warner claim that opennessis such an important determinant of investment that the coefficienton investment will be insignificant in growth regressions, whichalready account for openness. I re-examine this result and canonly support it if I use their model specification and estimationmethod. I suggest that their ordinary least squares estimationsuffers from both endogeneity and omitted variable bias. Usingpanel data analysis, I show that ignoring unobserved country-specificeffects and endogeneity problems cause investment to be insignificant.Estimating the model with the Blundell and Bond system generalmethod of moments estimator, which allows me to address theomitted variable as well as the endogeneity bias, I find thatinvestment is significant in the Sachs–Warner model despitecontrolling for openness. Thus, my regressions confirm thatopenness has a significant, positive effect on income. However,this variable is not so important that it drives investmentout of the model. My re-examination of the Sachs–Warnermodel shows that results from single cross-country growth regressionscan be misleading when unobserved country-specific effects andendogeneity problems are ignored.     

Self-Selection and Post-Entry Effects of Exports: Evidence from Italian Manufacturing Firms

Our paper adds empirical evidence on the causal effects of exporting on firms’ performances. Using a rich database on Italian manufacturing firms, we test the self-selection and the post-entry effects hypotheses with respect to various firms’ characteristics. Our analysis supports the idea that the superior performance of the exporters is due not only to a market selection mechanism, but also to efficiency improvements following the export activity. We find heterogeneous post-entry effects with respect to characteristics as geographical location, size and sector. To test the post-entry hypothesis we implement the propensity score matching and differences-in-differences techniques. JEL no.  D24, F14, O31     

Leverage, performance and capital adequacy ratio in Taiwan's banking industry

We examine the relation between firms’ financial structures and their risky investment strategies in Taiwan's banking industry. Regressions cover two subperiods: before the first financial reform (1996–2000) and after the first financial reform (2001–2006), to address the impacts of the first financial reform on banking firms’ financial structures. Our first result demonstrates that the restrictions on CAR have indeed affected firms’ risky investment strategies, as market share and leverage are positively related. Second, the firm performance is significantly and positively related to firm size, leverage and financial cost. Finally, the regression results show that financial structures for banking firms are positively related to the states of business cycle (i.e., cyclical). The positive signs coincide with Proposition 4 in our analytical model.     

Financing minority economic development

Conclusions A close analysis of the capital-asset pricing model’s assumptions and implications for efficient allocation of resources to investment in capital assets can form the basis for changes in the way capital markets are regulated by the federal government and in taxing policy of the government. In particular, our analysis indicates that the value of currently marketed assets can be increased by the inclusion in portfolios of currently nonmarketed assets.Moreover, the value of nonmarketed assets emerges as a significant instrumental variable for policy makers.The government can increase the value of all currently marketed assets by increasing positive changes in the value of nonmarketed assets.This might be accomplished by requiring by legislation or rule, for example, that a certain proportion of the listed securities on any exchange be comprised of the securities of black firms and other firms whose securities are not now marketed.The government might want, by tax incentive, to promote investment in firms with nonmarketed assets.It might want to increase the funding level of institutions such as MESBIC’S supplying equality finance to small black firms.     

Assessing foreign direct investment relationships between China,Japan, and the United States

China has received enormous inflows of foreign direct investment (FDI) in recent years, including significant flows from Japan and the US. We examine these investment flows in detail to gain perspectives on their relative importance for the three countries involved. We also analyze the industrial composition of FDI flows over time. American FDI flows to China have been less concentrated in manufacturing than average for investors in China while Japan's FDI flows have been much more concentrated in manufacturing, particularly in transport, electrical and machinery industries in recent years. Using survey data from American and Japanese affiliates, we compare the employment patterns and sales destinations of American and Japanese affiliates in China. We find a much higher degree of export-orientation for Japanese affiliates than American affiliates, with the latter tending to make the vast majority of their sales in the Chinese market. Over time, however, we find a tendency towards convergence in the sales destinations of Japanese and American affiliates.     

Japanese Banks’ monitoring activities and the performance of borrower firms: 1981–1996

We construct an index measure that quantitatively describes the monitoring activities of Japanese banks. Using micro data on Japanese banks and borrower firms, we examine the effects of bank monitoring on the profitability of borrower firms. We find significant positive effects in the periods 1986–1991 and 1992–1996, although there is no significant effect in the period 1981–1985. We also examine how banks’ monitoring affects borrowers. The results show that the positive effects of banks’ monitoring on borrowers’ profitability are mostly caused by screening effects, not performance-improving effects.

Investment responses to Japanese tax reforms: A cross-industry comparison

This paper examines the investment responses to past Japanese tax reforms for individual industries. To identify the tax effect, this paper estimates investment functions by using a covariate of the change in tax-adjusted q caused by tax reform. This method alleviates the measurement error problem and enables the derivation of estimates indicating the valid adjustment cost of investment. Moreover, the findings suggest that firms’ investment responded significantly to tax reforms in the 1980s in general. Also, investments of only a few industries responded to those in the late 1990s, implying that the manner of investment response slightly differs among industries.     

Lumpy investments, factor adjustments, and labour productivity

This paper describes firms’ output and factor demandsbefore, during, and after episodes of lumpy investment. By usinga rich employer–employee panel data set for two manufacturingindustries and one service industry, we focus on simultaneousvariations in output, capital, materials, man hours, labourproductivity, and the skill composition and hourly cost of labour.Investment spikes are followed by roughly proportional changesin sales, labour, and materials, and significant increases incapital intensity. The changes in labour productivity that areassociated with the investment spikes are small, which indicatesthat productivity improvements are not related to instantaneoustechnological change through investment spikes. Focusing onsectoral differences, capital adjustments are found to be smootherin the service industry than in the two manufacturing industrieswhich may be related to differences in labour intensities betweenthe industries.