Factor Prices,Factor Substitution and Exporting in US Manufacturing Affiliates Abroad

This paper uses the unique matched individual parent and affiliate data from the foreign investment survey of the Bureau of Economic Analysis to examine how US firms of different industries and capital intensities at home adapt to lower costs of labour and other host‐country characteristics in their foreign production. We find that foreign affiliates of US multinationals carry their parent firms’ technology with them in producing abroad. That is, affiliates of capital‐intensive parents produce in a relatively capital‐intensive manner wherever they are located. Despite these resemblances to their parents, affiliates produce in a more labour‐intensive manner where labour is cheaper and also where the scale of production is small. We found no evidence that more labour‐intensive firms selected production locations where labour was cheaper. Labour costs dominated the methods of production but not its location. Affiliates that export are more responsive in their factor proportions to the labour costs where they produced than affiliates selling only in their host countries. The probability that an affiliate would export, however, did not seem to be much affected by factor proportions. It was much more closely related to the scale of the affiliate's operations; larger affiliates were more likely to be exporters.     

Exporting behavior of foreign affiliates: Theory and evidence

Firms have increasingly conducted different stages of production in different countries. In particular, they may set up operations in low-cost countries (those operations are referred to as foreign affiliates in those countries) either as platforms for export or serving the growing markets there. What is the exporting behavior of foreign affiliates? In this paper, using data from China, we find that among foreign affiliates exporters are less productive than non-exporters. We then offer a theoretical explanation by incorporating into the standard firm heterogeneity model the possibility that firms could have different stages of production in different countries.     

Export Performance and Access to Intermediate Inputs: The Case of Rules of Origin Liberalisation

Internationally fragmented production processes have highlighted the need of efficient sourcing from foreign suppliers. This paper aims to investigate how exports of final goods are affected by better access to foreign intermediate inputs. In particular, the paper empirically tests whether expanding the set of available intermediate input suppliers through preferential rules of origin liberalisation affects exports of final goods. We exploit the introduction of the southern Mediterranean countries into the Pan‐Euro‐Med zone of diagonal cumulation which meant that foreign intermediate inputs could be used from more countries than before without jeopardising the preferential access to the EU. Using a fixed effects specification that controls for detailed levels of unobserved heterogeneity and multilateral resistance, we examine the effect of the new diagonal cumulation possibilities on southern Mediterranean exports to EU‐15. We find a positive effect on both export intensity, the value of exports, and export diversification, the number of exported products. Being part of the Pan‐Euro‐Med zone of diagonal cumulation is associated with a 20 per cent increase in export intensity and a 5 per cent increase in export diversification.     

Global sourcing,productivity and export intensity

This paper investigates the effect of global sourcing on firm performances by using data on Danish manufacturing firms during the period 1995–2006. The results show that firms with better ex-ante characteristics are more inclined to source intermediate inputs from abroad. The results also show that firms that source from different locations possess different ex-ante characteristics; the most productive source inputs from high-wage countries while capital stock and being an exporter are more important factors when sourcing from low-wage countries. Moreover, controlling for the endogeneity of both the sourcing decision and location by using instrument variable and DiD matching approach, the results seem also to suggest that firms that source inputs from high-wage countries benefited from doing so in terms of higher growth of productivity and export intensity. Firms that source inputs from low-wage countries, on the other hand, seem not to have experienced any significant impact on neither productivity nor export, not even three years after they started to source inputs from these countries.     

Foreign ownership and firm performance in German services

This study provides the first comprehensive analysis of foreign-controlled enterprises in the German service sector based on new micro-data from official German statistics. Various performance measures were examined via comparison of unconditional and conditional means and through use of quantile regression techniques. Foreign-controlled affiliates consistently performed better than German-owned affiliates. In contrast, profitability exhibited precisely the opposite trend. Moreover, labour productivity did not significantly differ when the comparison group consisted of domestically owned affiliates with a high degree of internationalization. A breakdown by country of origin showed that European affiliates pay lower wages and export less relative to non-European affiliates, and US firms have no productivity advantage as in manufacturing.     

Foreign ownership and the export and import propensities of developing‐country firms

This paper uses micro‐data from the World Bank Enterprise Surveys 2002–06 to investigate how foreign ownership affects the likelihood of manufacturers in developing countries to export and/or import either directly or indirectly. Applying propensity score matching to control for differences across firms in terms of labour productivity and other characteristics, we find that foreign ownership raises the propensity of a firm to export by over 17 and the propensity to import by more than 13 percentage points. The effects are even bigger for countries with the lowest per capita income and institutional quality.     

Networks of foreign affiliates: Evidence from Japanese micro-data

The paper provides evidence of the investment patterns of Japanese multinational enterprises (MNEs) across countries and industries and analyses the main drivers of their location strategies, using detailed micro-data on Japanese parents and their affiliates including the final destination of affiliate sales. The breakdown of affiliate sales by destination market reveals that Japanese MNEs establish services affiliates primarily to maximise proximity to local customers, while foreign affiliates in manufacturing sectors tend to engage more widely with third countries. Yet, some economies emerge as strategic gateways to other destinations in their region. The empirical analysis delves into the drivers of host country attractiveness for FDI seeking new markets, production efficiency and to act as regional or global platforms. Important factors shaping Japanese FDI decisions include trade and investment policies in goods and services, deep FTAs, as well as streamlined customs procedures. Furthermore, well-calibrated rules for digital commerce and investments in digital infrastructure and innovation contribute to attracting MNEs. Overall, the paper stresses the factors behind better integration into global production networks and the policy priorities to attract various types of FDI inflows.     

Transplanting corporate culture across international borders: Foreign direct investment and female employment in Japan

This paper examines the effect of foreign ownership on gender‐related employment outcomes and work practices in Japan. The data indicate that the proportion of females among workers, managers, directors and board members is higher in foreign affiliates than in domestic firms of comparable size operating in the same industry. Foreign affiliates are also more likely to offer flexible working arrangements, telecommuting and childcare subsidies as well as employ foreign workers. These effects are visible almost exclusively in older affiliates. The analysis of foreign acquisitions combining propensity score matching with a difference in differences suggests that increase in the female labour share takes place a few years after the ownership change. All these patterns are in line with the view that it takes time to transplant corporate culture to an overseas affiliate.     

Management practices in U.S. affiliates of foreign-owned firms: Are “they” just like “Us”?

Despite considerable debate about foreign direct investment in the United States, little research has examined the inner workings of U.S. affiliates of foreign-owned firms. This study examines the management practices in 249 U.S. affiliates of foreign-owned firms. Findings show that practices in marketing, human resource management, and manufacturing tend to more closely resemble the practices of local competitors than those of the foreign parent, whereas for practices in financial control the dominant resemblance is to the parent. Furthermore, findings reveal that affiliates are comprised overwhelmingly of Americans, not only at lower levels of the organization but also in key executive positions, although affiliates of Japanese firms stand apart in their greater reliance on expatriates. Foreign affiliates of multinational firms are revealed as differentiated sets of practices, shaped by the interplay of local responsiveness and internal consistency. The findings also make plain that U.S. affiliates of foreign-owned firms are in many ways very much like American firms. © 1995 John Wiley & Sons, Inc.     

Distance and divestment of Korean MNC affiliates: the moderating role of entry mode and experience

In this study, we examine the impact of cross-national distance on the divestment of foreign affiliates. On the basis of the nine dimensions of cross-national distance (Berry et al. 2010. “An Institutional Approach to Cross-National Distance.” Journal of International Business Studies 41 (9): 1460-1480), we empirically examine the impact of each measure of distance on the divestment of affiliates. Using a data set of 1697 multinational corporations (MNCs) headquartered in Korea and their 2435 affiliates in 67 host countries from 2000 to 2010, we find that distance created by economic, financial, political, administrative, cultural, demographic, knowledge and global connectedness leads to the divestment of foreign affiliates. We also find that the positive relationship between cross-national distance and affiliate divestment is likely to become stronger when an MNC enters the host country through a joint venture and weaker for affiliates with greater experience in the host country.     

Foreign affiliates' knowledge sourcing from parent firms

This study investigates the factors that influence the extent to which foreign research and development affiliates source knowledge from their parent firms, by developing theoretical hypotheses that predict patterns of foreign affiliates' knowledge sourcing according to their technological capabilities at multiple levels (firm, industry, and country). We use cross‐border mergers and acquisitions and patent citation data from Fortune Global 500 firms to test our theoretical arguments. The findings suggest that a parent firm's foreign affiliate ownership, industry‐level R&D intensity, and home–host country differences in technological capabilities increase foreign affiliates' knowledge sourcing from their parent firms.     

CUSFTA effects: A joint consideration of trade and multinational activities

This paper estimates the effects of the Canada–US Free Trade Agreement (CUSFTA) on trade, sales of foreign affiliates of multinational enterprises, and total bilateral commerce (aggregate of both trade ands sales of foreign affiliates) in the manufacturing sector. The empirical investigation is carried out over a panel dataset covering the US bilateral transactions with the Organization for Economic Cooperation and Development (OECD) countries for the period 1983–1998. The empirical specification is guided by a gravity-based model that accounts for trade and the operation of foreign affiliates as alternative modes of accessing foreign markets. The results show that the CUSFTA induced an increase in inward and outward trade between the US and Canada, but also led to a significant reduction in sales of their foreign affiliates in the corresponding CUSFTA partner country. This outcome implies that the trade-generating effect of the CUSFTA is overstated.     

Short‐run Strategies for Attracting Foreign Direct Investment

This paper empirically investigates the effectiveness and feasibility of two FDI policies, fiscal incentives and deregulation, aimed at improving the attractiveness of a country in the short run. Using disaggregated data on sales by US MNEs’ foreign affiliates in 43 developed and developing countries over the 1982–94 period, results show that the provision of fiscal incentives or the deregulation of the labour market would exert a positive impact on total FDI. Given the drawbacks frequently associated with the use of incentive packages, economy‐wide policies which ease firing procedures and reduce severance payments would certainly be the best policy option. This paper also highlights the different aggregation and omitted variable biases that have affected results of previous studies and provides some support to recent theoretical models of FDI by showing that third‐country effects and spatial interdependence influence respectively the location of export‐platform FDI and vertical FDI.     

Foreign direct investment productivity premium and foreign affiliates' heterogeneity: A comparison between advanced and emerging market overseas investments in the EU

This paper aims to investigate the existence of productivity heterogeneity among foreign‐owned firms (FOFs) based in the European Union (EU). Using firm‐level data for a sample of FOFs investing in the EU over the period 2006–14, we find that foreign affiliates from advanced countries (AFOFs) show a positive productivity gap compared to foreign affiliates from emerging countries (EFOFs). However, when we consider the type and the motivation of foreign direct investment, our results reveal that, while AFOFs always seem to be more productive than EFOFs in manufacturing sectors, EFOFs appear to enjoy a productivity premium compared to AFOFs in the services, when their activity occurs in the same industry as their parent and they operate in less knowledge‐intensive market sectors.     

Wages and foreign ownership A comparative study of Mexico, Venezuela, and the United States

This paper explores the relationship between wages and foreign investment in Mexico, Venezuela, and the United States. Despite very different economic conditions and levels of development, we find one fact that is robust across all three countries: higher levels of foreign investment are associated with higher wages. However, in Mexico and Venezuela, foreign investment is associated with higher wages only for foreign-owned firms — there is no evidence of wage spillovers leading to higher wages for domestic firms. The lack of spillovers in Mexico and Venezuela is consistent with significant wage differentials between foreign and domestic enterprises. In the United States, where the evidence suggests some wage spillovers from foreign to domestic enterprises, wage differentials are smaller.     

Service Offshoring and Productivity: Evidence from the US

The practice of sourcing service inputs from overseas suppliers has been growing in response to new technologies that have made it possible to trade in some business and computing services that were previously considered non‐tradable. This paper estimates the effects of offshoring on productivity in US manufacturing industries between 1992 and 2000. It finds that service offshoring has a significant positive effect on productivity in the United States, accounting for around 10 per cent of labour productivity growth during this period. Offshoring material inputs also have a positive effect on productivity, but the magnitude is smaller accounting for approximately 5 per cent of productivity growth.     

Intra-Industry Affiliate Trade of Foreign-Owned Companies in Transition Economies: The Importance of Organization of Production

Using a database containing trade and industry variables of foreign-owned companies in the Polish manufacturing industry for the years 1993–2002, we investigate the relationship between the organizational structure of multinational enterprises (MNE) in Poland and the intra-industry trade of their affiliates (IIAT). We find labour intensity; scale economies and absorptive capacity of affiliates are the main explanatory variables for IIAT. Given the overall rise in export and import intensities of foreign affiliates over the period of investigation, our findings suggest that export-platform FDI has become a more important mode of organization for multinational enterprises as Poland has evolved into a relatively stable economic environment where MNEs feel comfortable basing their regional operations.     

Foreign Ownership and the Extensive Margins of Exports: Evidence for Manufacturing Enterprises in Germany

We examine how foreign ownership of a firm affects the variety of goods that the firm exports and the number of countries it trades with. We construct a simple theoretical model of how foreign ownership may affect these extensive margins of exports and take this model to data from Germany, one of the leading actors on the world market for goods. In line with theoretical predictions we find that foreign‐owned firms do export more goods to more countries after controlling for firm size, productivity and industry affiliation. These differences between foreign‐owned firms and domestically controlled firms are highly statistically significant, and they are large from an economic point of view, with foreign‐owned firms exporting up to 39 per cent more goods to up to 31 per cent more countries.     

Efficiency Sorting Among Foreign Affiliates: Evidence From China

This paper uses a large micro‐level data set to investigate the efficiency sorting pattern of foreign affiliates serving different markets. We find systematic differences among the attributes of foreign affiliates serving the local and overseas markets. Affiliates serving only the host country market are the most productive, the most capitalintensive and the most skill‐intensive. Affiliates serving only the international market are the most unskilled and labour‐intensive, the least efficient, pay the lowest wages and invest least in innovation and advertising. Affiliates serving both markets offer high wages and invest most in innovation and advertising. The results also suggest that the most productive affiliates choose to serve the host country market, whereas the least efficient affiliates target the international market.     

Networked FDI: Sales and Sourcing Patterns of Japanese Foreign Affiliates

This paper applies a novel empirical approach to characterising the horizontal‐ness and vertical‐ness of affiliates based on Yeaple's complex FDI concept. In its simplest form, horizontal‐ness is measured as affiliates’ local sales share while their vertical‐ness is measures as their share of non‐local sourcing of intermediates. Japanese affiliates in most sectors and nations are partly vertical and partly horizontal, but those in North American are far more ‘horizontal’ than those in the EU and Asia. Affiliates became more vertical between 1996 and 2005. A four‐way sales and sourcing split (host, home, regional and RoW) suggests that affiliates act as nodes in regional production networks – especially in Asia. We posit several hypotheses that could be tested with our empirical approach.