Industrial groupings and strategic FDI |
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| Affiliation: | 1. Department of Economics, University of Oregon, Eugene, OR 97403-1285, USA;2. Department of Economics, Monash University, Clayton 3168, Vic., Australia;1. University of Portsmouth, Portsmouth Business School, Richmond Building, Portland Street, Portsmouth PO1 3DE, United Kingdom;2. Heinrich-Heine-University Duesseldorf, Department of Economics, Universitaetsstrasse 1, 40225 Duesseldorf, Germany;1. Department of Epidemiology & Population Health, School of Public Health & Information Sciences, James Graham Brown Cancer Center, University of Louisville, Louisville, KY;2. Cancer Prevention Institute of California, Fremont;3. Division of Epidemiology, Department of Health Research and Policy, and Stanford Cancer Institute, Stanford University School of Medicine, Stanford, CA;4. H. Lee Moffit Cancer Center & Research Institute, Tampa, FL;5. Department of Biology, University of Colorado, Colorado Springs, Colorado Springs;6. Department of Bioinformatics and Biostatistics, School of Public Health & Information Sciences, James Graham Brown Cancer Center, University of Louisville, Louisville, KY;7. Department of Medicine-Oncology and Hematology, School of Medicine, James Graham Brown Cancer Center, University of Louisville, Louisville, KY;8. Department of Internal Medicine, University of Utah, Salt Lake City |
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| Abstract: | We show that industrial ownership structures, such as keiretsu groupings in Japan, may significantly impact firms’ incentives to engage in foreign direct investment (FDI). While the previous literature has mainly focused on the cost of capital advantages enjoyed by keiretsu firms, this paper examines two relatively unexplored channels by which ownership structure matters for FDI incentives. The first channel involves the direct incentives generated via standard product and factor market interactions whereby keiretsu firms with cross-ownership consider more directly the congestion effects of further FDI into a market. The second channel involves the indirect incentives generated by sharing of information across keiretsu firms which reduces entry costs of subsequent FDI. We find that keiretsu firms are more aggressive than non-keiretsu firms in their FDI strategies, that is, for any given parameter values they undertake FDI with a higher probability than independent firms. Furthermore, keiretsu firms adopt a more aggressive investment strategy against independent rivals than amongst themselves. |
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