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Foreign Direct Investment in Producer Services: Theory and Empirical Evidence

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Author Info
Raff, Horst
von der Ruhr, Marc

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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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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 598.

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

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Find related papers by JEL classification:
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Grossman, Gene M & Horn, Henrik, 1988. "Infant-Industry Protection Reconsidered: The Case of Informational Barriers to Entry," The Quarterly Journal of Economics, MIT Press, vol. 103(4), pages 767-87, November. [Downloadable!] (restricted)
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  2. Markusen, James R, 1995. "The Boundaries of Multinational Enterprises and the Theory of International Trade," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 169-89, Spring. [Downloadable!] (restricted)
  3. 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. [Downloadable!] (restricted)
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  4. 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. [Downloadable!] (restricted)
  5. Markusen, James R. & Venables, Anthony J., 1999. "Foreign direct investment as a catalyst for industrial development," European Economic Review, Elsevier, vol. 43(2), pages 335-356, February. [Downloadable!] (restricted)
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  6. Kyoji Fukao & Keiko Ito, 2000. "Foreign Direct Investment and Service Trade: The Case of Japan," Discussion Paper Series a394, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
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  7. Joseph F. Francois, 1993. "Explaining The Pattern Of Trade In Producer Services," International Economic Journal, Korean International Economic Association, vol. 7(3), pages 23-31, October. [Downloadable!] (restricted)
  8. Savin, N Eugene & White, Kenneth J, 1978. "Testing for Autocorrelation with Missing Observations," Econometrica, Econometric Society, vol. 46(1), pages 59-67, January. [Downloadable!] (restricted)
  9. Joseph F. Francois, 1995. "Dynamic Effects Of Trade In Financial Services," International Economic Journal, Korean International Economic Association, vol. 9(3), pages 1-14, October. [Downloadable!] (restricted)
  10. 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. [Downloadable!] (restricted)
  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. [Downloadable!] (restricted)
  12. Bagwell, Kyle, 1990. "Informational product differentiation as a barrier to entry," International Journal of Industrial Organization, Elsevier, vol. 8(2), pages 207-223, June. [Downloadable!] (restricted)
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  13. Ethier, Wilfred J, 1986. "The Multinational Firm," The Quarterly Journal of Economics, MIT Press, vol. 101(4), pages 805-33, November. [Downloadable!] (restricted)
  14. 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. [Downloadable!] (restricted)
  15. Ignatius Horstmann & James R. Markusen, 1987. "Licensing versus Direct Investment: A Model of Internalization by the Multinational Enterprise," Canadian Journal of Economics, Canadian Economics Association, vol. 20(3), pages 464-81, August. [Downloadable!] (restricted)
  16. Markusen, James & Rutherford, Thomas F. & Tarr, David, 2000. "Foreign direct investment in services and the domestic market for expertise," Policy Research Working Paper Series 2413, The World Bank. [Downloadable!]
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  17. Claudia M. Buch, 1999. "Why Do Banks Go Abroad? — Evidence from German Data," Kiel Working Papers 948, Kiel Institute for the World Economy. [Downloadable!]
  18. Schmalensee, Richard, 1982. "Product Differentiation Advantages of Pioneering Brands," American Economic Review, American Economic Association, vol. 72(3), pages 349-65, June. [Downloadable!] (restricted)
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  19. 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. [Downloadable!] (restricted)
  20. Bagwell, Kyle, 1991. "Optimal Export Policy for a New-Product Monopoly," American Economic Review, American Economic Association, vol. 81(5), pages 1156-69, December. [Downloadable!] (restricted)
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  21. Joseph Farrell, 1986. "Moral Hazard as an Entry Barrier," RAND Journal of Economics, The RAND Corporation, vol. 17(3), pages 440-449, Autumn. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Rashmi Banga, 2005. "Trade and foreign direct investment in services: A review," Indian Council for Research on International Economic Relations, New Delhi Working Papers 154, Indian Council for Research on International Economic Relations, New Delhi, India. [Downloadable!]
  2. Ngo Van Long & Ray Riezman & Antoine Soubeyran, 2001. "Fragmentation, Outsourcing and the Service Sector," CIRANO Working Papers 2001s-43, CIRANO. [Downloadable!]
  3. Jota Ishikawa & Hodaka Morita & Hiroshi Mukunoki, 2008. "FDI in Post-Production Services and Product Market Competition," Global COE Hi-Stat Discussion Paper Series gd08-004, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
    Other versions:
  4. 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, Department of Economics. [Downloadable!]
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