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

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  • Horst Raff
  • Michael Ryan

Abstract

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.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2006/wp-cesifo-2006-12/cesifo1_wp1874.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1874.

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Date of creation: 2006
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Handle: RePEc:ces:ceswps:_1874

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Keywords: foreign direct investment; productivity; hazard model; Japan; keiretsu;

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References

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  1. Head, Keith & Ries, John, 2003. "Heterogeneity and the FDI versus export decision of Japanese manufacturers," Journal of the Japanese and International Economies, Elsevier, vol. 17(4), pages 448-467, December.
  2. Rafael Rob & Nikolaos Vettas, 2003. "Foreign Direct Investment and Exports with Growing Demand," PIER Working Paper Archive 03-001, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  3. Head, C. Keith & Ries, John C. & Swenson, Deborah L., 1999. "Attracting foreign manufacturing: Investment promotion and agglomeration," Regional Science and Urban Economics, Elsevier, vol. 29(2), pages 197-218, March.
  4. 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.
  5. Horst, Thomas, 1972. "Firm and Industry Determinants of the Decision to Invest Abroad: An Empirical Study," The Review of Economics and Statistics, MIT Press, vol. 54(3), pages 258-66, August.
  6. Bruce A. Blonigen & Christopher J. Ellis & Dietrich Fausten, 2003. "Industrial groupings and foreign direct investment," University of Oregon Economics Department Working Papers 2003-19, University of Oregon Economics Department, revised 01 Mar 2003.
  7. Jean-François Hennart, 1991. "The Transaction Costs Theory of Joint Ventures: An Empirical Study of Japanese Subsidiaries in the United States," Management Science, INFORMS, vol. 37(4), pages 483-497, April.
  8. Len Trevino & John Daniels, 1994. "An empirical assessment of the preconditions of Japanese manufacturing foreign direct investment in the United States," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 130(3), pages 576-599, September.
  9. Baldwin, Richard E. & Ottaviano, Gianmarco I. P., 2001. "Multiproduct multinationals and reciprocal FDI dumping," Journal of International Economics, Elsevier, vol. 54(2), pages 429-448, August.
  10. Kiefer, Nicholas M, 1988. "Economic Duration Data and Hazard Functions," Journal of Economic Literature, American Economic Association, vol. 26(2), pages 646-79, June.
  11. Horstmann, Ignatius J & Markusen, James R, 1987. "Strategic Investments and the Development of Multinationals," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(1), pages 109-21, February.
  12. Lindbeck, Assar & Snower, Dennis, 2003. "The Firm as a Pool of Factor Complementarities," Seminar Papers 725, Stockholm University, Institute for International Economic Studies.
  13. Horst Raff & Michael Ryan & Frank Stähler, 2012. "Firm Productivity and the Foreign-Market Entry Decision," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 21(3), pages 849-871, 09.
  14. Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2003. "Export versus FDI," NBER Working Papers 9439, National Bureau of Economic Research, Inc.
  15. Belderbos, Rene & Sleuwaegen, Leo, 1996. "Japanese Firms and the Decision to Invest Abroad: Business Groups and Regional Core Networks," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 214-20, May.
  16. Markusen, James R., 2002. "Multinational Firms and the Theory of International Trade," MPRA Paper 8380, University Library of Munich, Germany.
  17. Drake, Tracey A. & Caves, Richard E., 1992. "Changing determinants of Japanese foreign investment in the United States," Journal of the Japanese and International Economies, Elsevier, vol. 6(3), pages 228-246, September.
  18. Heckman, James J. & Singer, Burton, 1984. "Econometric duration analysis," Journal of Econometrics, Elsevier, vol. 24(1-2), pages 63-132.
  19. David Greenaway & Richard Kneller, 2007. "Firm heterogeneity, exporting and foreign direct investment," Economic Journal, Royal Economic Society, vol. 117(517), pages F134-F161, 02.
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Citations

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Cited by:
  1. Horst Raff & Michael Ryan & Frank Stähler, 2008. "Whole versus Shared Ownership of Foreign Affiliates," Kiel Working Papers 1433, Kiel Institute for the World Economy.
  2. Davide Sala & Erdal Yalcin, 2010. "Uncertain Productivity Growth and the Choice between FDI and Export," DEGIT Conference Papers c015_030, DEGIT, Dynamics, Economic Growth, and International Trade.
  3. Peiming Wang & Joseph Alba & Donghyun Park, 2013. "Determinants of Different Modes of FDI: Firm-Level Evidence from Japanese FDI into the US," Open Economies Review, Springer, vol. 24(3), pages 425-446, July.
  4. Raff, Horst & Ryan, Michael & Stähler, Frank, 2009. "Whole vs. shared ownership of foreign affiliates," International Journal of Industrial Organization, Elsevier, vol. 27(5), pages 572-581, September.
  5. Elisa Galeotti & Eva Ryšavá, 2008. "The endogeneity problem and fdi in transition: evidence from the privatized glass sector," Prague Economic Papers, University of Economics, Prague, vol. 2008(4), pages 319-339.

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