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.     

Japanese foreign direct investment and regional trade

We examine the relationship between Japanese FDI outflows, domestic and foreign fixed investment, and the exchange rate. The results indicate that aggregate FDI outflows have been driven by investment in Japan and the exchange rate, while the geographic distribution of such investment has been influenced by foreign economic conditions. We also find that FDI outflows have a temporary impact on exports but a permanent effect on imports. We find no evidence that behavior with respect to East Asia differs from that with respect to North America or Europe.     

Foreign outward direct investment and exports in Austrian manufacturing: Substitutes or complements?

Foreign Outward Direct Investment and Exports in Austrian Manufacturing: Substitutes or Complements? — The relationship between foreign outward direct investment and exports is crucial for assessing the impact of increased internationalization by foreign outward direct investment on a country’s welfare. Three models of trade and FDI are reviewed to generate hypotheses on their direct relationship over time as well as on common determinants. The propositions are empirically examined with time-series cross-section data for Austrian manufacturing. The results indicate a significant complementary relationship between FDI and exports in the eighties and early nineties. Moreover, long-run multipliers of exogenously increased FDI and exports are calculated. They are found to be positive but small in magnitude.     

European exports and outward foreign direct investment: A dynamic panel data approach

European Exports and Outward Foreign Direct Investment: A Dynamic Panel Data Approach. — This paper implements a panel data approach for studying the determinants of and relationships between bilateral economic activities in terms of both trade and foreign direct investment between the EU member states. The familiar equation for testing the determinants of bilateral exports is reformulated to reflect recent theoretical work. It is specified as a dynamic panel data model designed to answer questions about their relationship according to changes in different exogenous determinants. Exports and stocks of outward FDI are found to be substitutes with respect to changes in transport costs and complements with respect to most of the other determinants.     

Exchange-rate uncertainty and foreign direct investment in the United States

Zusammenfassung Ungewi?heit über Wechselkurse und Zustrom ausl?ndischer Direkt-investitionen in die Vereinigten Staaten. - In diesem Aufsatz wird zun?chst versucht zu kl?ren, auf welche Weise die Ungewi?heit über die Entwicklung der Wechselkurse die ausl?ndischen Direktinvestitionen beeinflu?t, und danach werden solche Wirkungen auf den Zuflu? ausl?ndischer Direktinvestitionen in die Vereinigten Staaten getestet. Die theoretischen Wirkungen erwarteter Aufwertungen und von Risiken sind im allgemeinen nicht eindeutig und h?ngen von der Produktions- und Absatzstruktur des multinationalen Unternehmens ab. Im empirischen Teil zeigt sich, da? die Zuflüsse von Direktinvestitionen in die Vereinigten Staaten aus fünf anderen L?ndern in signifikantem Ma?e negativ mit einer erwarteten Dollar-Aufwertung und positiv mit einer Erh?hung der Wechselkursvariabilit?t verbunden sind. Dieses Ergebnis ist konsistent mit den drei Typen von multinationalen Unternehmen, die sich in ihrer Produktions- und Absatzstruktur unterscheiden und in dieser Arbeit betrachtet werden.

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Résumé Incertitude de taux de change et investissement direct étranger dans les Etats Unis. - Cet article essaie de classifier les possibilités différentes de l’influence de l’incertitude de taux de change sur l’investissement direct étranger (IDE) et puis teste les effets des influx américains IDE. Les effets théoriques d’une révalorisation attendue aussi bien que du risque sont ambigus et dépendent de la structure de la production et des ventes de l’entreprise multinationale. Empiriquement, les influx américains IDE d’origine de cinq autres pays sont négativement associés avec la révalorisation attendue du dollar et positivement avec la variabilité accrue du taux de change. Cela est consistent avec trois structures spécifiques d’entreprise multinationale analysées dans l’article.

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Resumen La incertidumbre de la tasa de cambio e inversiones extrajeras en los EE UU. - En este trabajo se intentan clarificar las formas en las cuales la incertidumbre de la tasa de cambio puede afectar a la inversión extranjera y someter estas hipótesis a un test empírico en el caso de las inversiones extranjeras en los EE UU. Teóricamente los efectos de una revaluación esperada y del riesgo son ambiguos, dependiendo de la estructura de la production y de las ventas de la empresa multinational. Empíricamente las inversiones extranjeras en los EE UU con origen en cinco países resultan estar asociadas negativamente con la revaluación esperada del dólar y positivamente con una más alta variabilidad de la tasa de cambio. Esto es consistente con tres structuras específicas de empresas multinationales tratadas en este trabajo.

     

Cost heterogeneity and the destination of Japanese foreign direct investment: A theoretical and empirical analysis

This paper first of all develops a Cournot oligopolistic model with heterogeneous firms to examine each firm's choice between export-oriented foreign direct investments (FDI) and FDI to serve the host-country market. It is shown that there exist a critical level of efficiency such that all firms below that level choose the former and those above it the latter. The hypothesis is tested using firm-level data on 118,300 Japanese firms covering the entire manufacturing sector. Multinomial logit estimates strongly support our theoretical findings.     

Antidumping and tariff Jumping: Japanese firms’ DFI in the European union and the United States

Antidumping and Tariff Jumping: Japanese Firms’ DFI in the European Union and the United States. — The relationship between EU and US antidumping measures and direct foreign investment (DFI) is examined through a micro-econometrical analysis of Japanese firms’ plant establishments in the electronics industry. After controlling for firm and industry capabilities, market size, transport cost, and product cycle effects, antidumping actions are found to have a substantial positive effect on Japanese DFL EU antidumping is roughly twice as likely to lead to tariffjumping DFI as US antidumping, which is ascribed to marked differences in antidumping procedures. Tariff jumping makes antidumping ineffective in combatting anticompetitive behaviour by foreign firms and may result in increased market concentration.     

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.     

Multinational enterprises, regional economic integration, and export-platform production in the host countries: An empirical analysis for the US and Japanese corporations

Multinational Enterprises, Regional Economic Integration and Export-Platform Production in the Host Countries: An Empirical Analysis for the US and Japanese Corporations. — This paper analyzes determinants of export orientation of overseas affiliates of US and Japanese MNEs for the 1982–1994 period. The author contends that production geared to MNEs’ home market and that production oriented to third-country markets are determined by different factors. The empirical analysis finds the home-market-oriented production concentrated in countries that offer low-cost workforce, enjoy geographical proximity or preferential access to the home market. The location of third-country-market-oriented exports is influenced more by strategic factors such as participation in regional trading blocs and preferential access to major markets than factor costs considerations.     

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.     

Exchange rate movements and foreign direct investment (FDI): Japanese investment in Asia, 1987–2008

The paper estimates the impact of exchange rate movements on foreign direct investment (FDI). By using the panel data of Japanese FDI flows to nine dynamic Asian economies during 1987–2008, the paper finds that (i) FDI declined with a depreciation of the yen against host country currencies; (ii) it increased with exchange rate volatility; and (iii) it was little affected by the Asian financial crisis, especially when disguised financial flows were removed from the data. A novel result concerns the negative response of FDI to the third moment of monthly exchange rate changes: the volume of FDI was smaller when the distribution was positively skewed (i.e., when the yen was biased towards relatively large depreciation shocks). If skewness proxies for expected mean-reverting changes, this supports the idea that source country investors care about the future stream of revenues and returns denominated in their own currency. These results are robust, with other standard control variables having statistically significant coefficients with expected signs.     

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.     

Tax policy on foreign direct investment in the presence of cross-hauling

Tax Policy on Foreign Direct Investment in the Presence of Cross-Hauling. — The authors develop a partial equilibrium model of foreign direct investment (FDI) in which identical foreign firms locate themselves in a host country to compete with internationally mobile domestic firms in non-tradeable oligopolistic markets for two differentiated commodities. The host country, which is small in the market for FDI, uses lumpsum subsidy (tax) to encourage (discourage) FDI. There is unemployment in the host country. Under this framework, the authors analyse the effect of discriminatory and uniform subsidies on the inflow/outflow of domestic and foreign firms and on employment. They also derive some properties of optimal subsidies.     

The determinants of Korean foreign direct investment in manufacturing industries

Zusammenfassung Die Bestimmungsgründe für koreanische direkte Auslandsinvestitionen in der Verarbeitenden Industrie. - Der Autor liefert eine empirische Analyse der Bestimmungsgründe für die direkten Auslandsinvestitionen koreanischer Finnen in der Verarbeitenden Industrie und benutzt dabei firmenbezogene Daten. Es zeigt sich, da? es ?u?erst unterschiedliche Motive für diese Direktinvestitionen gibt, je nachdem, ob sie in entwickelten oder in weniger entwickelten L?ndern stattfinden. Einerseits sind die Auslandsinvestitionen ein Weg, um die Produktionskosten zu minimieren, die sich aus nichttarif?ren Handelsschranken entwickelter L?nder ergeben, andererseits dienen sie dazu, die niedrigen Arbeitskosten in Entwicklungsl?ndern zu nutzen.

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Résumé Les facteurs déterminants des investissments directs étrangers coréens dans l’industrie manufacturière. - En utilisant des données du niveau de l’entreprise, cette étude donne une analyse empirique des facteurs déterminants des investissements directs étrangers coréens en ce qui concerne les industries manufacturières. L’auteur prouve qu’il y assez de motivations différentes pour les investissements directs coréens dans des activités de production qui sont basées dans deux régions différentes, c’est à dire dans les pays développés et moins développés. Il trouve que les investissements directs étrangers coréens sont une méthode de minimiser les co?ts de production qui sont les résultats des barrières de commerce non-tarifaires établies par des pays développés ou une méthode d'exploiter la main d’œuvre bon marché dans des pays moins développés.

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Resumen Las determinantes de la inversión extranjera directa coreana en la industria manufacturera. - En este trabajo se provee un análisis empírico de las determinantes de la inversión extranjera directa de empresas coreanas en la industria manufacturera utilizando datos a nivel de empresa. Se provee evidencia en favor de que las inversiones directas de industrials coreanos en actividades manufactureras en dos regiones, en los países desarrollados y en los en desarrollo, responden a motivaciones muy diversas. Se encuentra que la inversion extranjera directa coreana es una manera de minimizar el costo de productión, ya sea evitando las barreras no arancelarias al comercio exterior en los países desarrollados o explotando la mano de obra barata en los países en desarrollo.

     

The role of foreign direct investment in Indonesia's manufacturing exports

This article examines whether foreign direct investment (FDI) has contributed to the changing structure of Indonesia's manufacturing exports. It uses industry-level data from 1990 to 2008, classified by factor intensity. Our analysis reveals that FDI promotes exports in most panel observations, especially exports from physical-capital-intensive (PCI), human-capital-intensive (HCI) and technology-intensive (TI) industries. Yet by applying a differentiated cross-section-effect model, we determine that the export-generating potential of FDI is stronger in PCI, HCI and TI industries than in natural-resource-intensive or unskilled-labour-intensive industries, in which Indonesia has a comparative advantage. We also assess the influence of other determinants of export performance – namely, private domestic capital investment, GDP growth and exchange rates. Our findings have implications for policymakers seeking to sustain Indonesia's export performance.     

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.     

Country characteristics and foreign direct investment in China: A panel data analysis

Country Characteristics and Foreign Direct Investment in China: A Panel Data Analysis. — In this paper an error-components model is developed to analyze the economic, political and cultural determinants of both pledged and realized FDI in China which has recently become the second largest host country for FDI. The panel data cover the period 1983–1994 (1984–1994) and 22 (17) home countries/regions in the case of pledged (realized) FDI. The results indicate that bilateral trade, cultural differences, and relative real changes in market size, wage rates, and exchange rates are important determinants of pledged FDI, and that bilateral trade, relative changes in wage rates and exchange rates affect realized FDI.