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Foreign Direct Investment in Producer Services: Theory and Empirical Evidence

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  • Horst Raff
  • Marc von der Ruhr

Abstract

This paper examines the pattern of foreign direct investment (FDI) in producer services. We develop a model of FDI in these services and test its predictions using panel data on U.S.FDI in 25 host countries from 1976 to 1995. We find evidence that, in addition to governmental and cultural barriers, producer-service firms may face informational barriers to entry into foreign markets. The presence of such barriers provides a possible explanation for the observation that producer-service FDI tends to follow FDI by downstream industries.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2001/wp-cesifo-2001-10/cesifo_wp598.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 598.

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Date of creation: 2001
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Handle: RePEc:ces:ceswps:_598

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  1. Savin, N Eugene & White, Kenneth J, 1978. "Testing for Autocorrelation with Missing Observations," Econometrica, Econometric Society, vol. 46(1), pages 59-67, January.
  2. Markusen, James R, 1989. "Trade in Producer Services and in Other Specialized Intermediate Inputs," American Economic Review, American Economic Association, vol. 79(1), pages 85-95, March.
  3. Fukao, Kyoji & Ito, Keiko, 2000. "Foreign Direct Investment and Service Trade: The Case of Japan," Discussion Paper Series a394, Institute of Economic Research, Hitotsubashi University.
  4. Vern Terpstra & Chwo-Ming Yu, 1988. "Determinants of Foreign Investment of U.S. Advertising Agencies," Journal of International Business Studies, Palgrave Macmillan, vol. 19(1), pages 33-46, March.
  5. Kyle Bagwell, 1986. "Informational Product Differentiation as a Barrier to Entry," Discussion Papers 711, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  6. Ethier, Wilfred J, 1986. "The Multinational Firm," The Quarterly Journal of Economics, MIT Press, vol. 101(4), pages 805-33, November.
  7. Head, Keith & Ries, John & Swenson, Deborah, 1995. "Agglomeration benefits and location choice: Evidence from Japanese manufacturing investments in the United States," Journal of International Economics, Elsevier, vol. 38(3-4), pages 223-247, May.
  8. James R. Markusen, 1995. "The Boundaries of Multinational Enterprises and the Theory of International Trade," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 169-189, Spring.
  9. James R. Markusen & Anthony J. Venables, 1997. "Foreign Direct Investment as a Catalyst for Industrial Development," NBER Working Papers 6241, National Bureau of Economic Research, Inc.
  10. Schmalensee, Richard, 1982. "Product Differentiation Advantages of Pioneering Brands," American Economic Review, American Economic Association, vol. 72(3), pages 349-65, June.
  11. Raff, Horst & Kim, Young-Han, 1999. "Optimal export policy in the presence of informational barriers to entry and imperfect competition," Journal of International Economics, Elsevier, vol. 49(1), pages 99-123, October.
  12. 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.
  13. Francois, Joseph F, 1990. "Producer Services, Scale, and the Division of Labor," Oxford Economic Papers, Oxford University Press, vol. 42(4), pages 715-29, October.
  14. Joseph F. Francois, 1990. "Trade in Producer Services and Returns Due to Specialization under Monopolistic Competition," Canadian Journal of Economics, Canadian Economics Association, vol. 23(1), pages 109-24, February.
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Cited by:
  1. Van Long, Ngo & Riezman, Raymond & Soubeyran, Antoine, 2005. "Fragmentation and services," The North American Journal of Economics and Finance, Elsevier, vol. 16(1), pages 137-152, March.
  2. Joseph F. Francois & B. Hoekman, 2009. "Services Trade and Policy," wiiw Working Papers 60, The Vienna Institute for International Economic Studies, wiiw.
  3. Markus Kelle & Jörn Kleinert & Horst Raff & Farid Toubal, 2012. "Cross-Border and Foreign-Affiliate Sales of Services: Evidence From German Micro-Data," Kiel Working Papers 1771, Kiel Institute for the World Economy.
  4. Ishikawa, Jota & Morita, Hodaka & Mukunoki, Hiroshi, 2010. "FDI in Post-Production Services and Product Market Competition," CCES Discussion Paper Series 29, Center for Research on Contemporary Economic Systems, Graduate School of Economics, Hitotsubashi University.
  5. Ngo Van Long & Ray Riezman & Antoine Soubeyran, 2001. "Fragmentation, Outsourcing and the Service Sector," CIRANO Working Papers 2001s-43, CIRANO.
  6. John P. Weche Geluebcke, 2011. "Foreign Ownership and Firm Performance in German Services: First Evidence based on Official Statistics," Working Paper Series in Economics 213, University of Lüneburg, Institute of Economics.
  7. repec:mrq:igeawp:0501 is not listed on IDEAS
  8. Joseph Daniels & Walid Hejazi & Marc von der Ruhr, 2005. "Regional vs. Global Financing Strategies for U.S. MNEs," Working Papers and Research 0511, Marquette University, Center for Global and Economic Studies and Department of Economics.

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