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Determinants of Different Modes of FDI: Firm-Level Evidence from Japanese FDI into the US

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  • Peiming Wang

    ()

  • Joseph Alba

    ()

  • Donghyun Park

    ()

Abstract

There are four major modes through which firms undertake foreign direct investment (FDI) – merger and acquisition (M&A), joint venture (JV), new plant (NP) and others (O). The four modes of FDI are distinct from each other, and each has its own unique advantages and disadvantages. While a large and growing empirical literature examines the determinants of FDI, very few studies examine the determinants of different modes of FDI. The central objective of this paper is to empirically analyze the extent to which the determinants of FDI such as firm size influences the choice of one mode of FDI over another. Our analysis follows a stylized two-stage investment process. First, we look at the probability of whether a Japanese firm is willing to undertake FDI in the US. Second, for firms that are willing to undertake FDI, we analyze which mode of FDI - i.e. M&A, joint venture, new plant or other FDI – they will undertake. The second stage is the innovation of this paper and its contribution to the FDI literature. Copyright Springer Science+Business Media New York 2013

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Bibliographic Info

Article provided by Springer in its journal Open Economies Review.

Volume (Year): 24 (2013)
Issue (Month): 3 (July)
Pages: 425-446

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Handle: RePEc:kap:openec:v:24:y:2013:i:3:p:425-446

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Web page: http://www.springerlink.com/link.asp?id=100323

Related research

Keywords: FDI; Merger and acquisition; Joint venture; New plant; Multinomial logit model; F21; F23;

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  1. Caves, Richard E, 1971. "International Corporations: The Industrial Economics of Foreign Investment," Economica, London School of Economics and Political Science, vol. 38(149), pages 1-27, February.
  2. Mara Faccio & Ronald W. Masulis, 2005. "The Choice of Payment Method in European Mergers and Acquisitions," Journal of Finance, American Finance Association, vol. 60(3), pages 1345-1388, 06.
  3. Bruce Blonigen, 2005. "A Review of the Empirical Literature on FDI Determinants," Atlantic Economic Journal, International Atlantic Economic Society, vol. 33(4), pages 383-403, December.
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  8. Dixit, A., 1988. "Entry And Exit Decisions Under Uncertainty," Papers 91, Princeton, Department of Economics - Financial Research Center.
  9. Miao Wang, 2009. "Manufacturing FDI and economic growth: evidence from Asian economies," Applied Economics, Taylor & Francis Journals, vol. 41(8), pages 991-1002.
  10. Mullahy, John, 1986. "Specification and testing of some modified count data models," Journal of Econometrics, Elsevier, vol. 33(3), pages 341-365, December.
  11. Gibson, Michael S, 1995. "Can Bank Health Affect Investment? Evidence from Japan," The Journal of Business, University of Chicago Press, vol. 68(3), pages 281-308, July.
  12. Blomstrom, Magnus & Lipsey, Robert E, 1991. " Firm Size and Foreign Operations of Multinationals," Scandinavian Journal of Economics, Wiley Blackwell, vol. 93(1), pages 101-07.
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