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Global Fixed Capital Investment by Multinational Firms

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  • Ren� BELDERBOS
  • FUKAO Kyoji
  • ITO Keiko
  • Wilko LETTERIE

Abstract

This paper develops and tests a simple model of the simultaneous determination of gross fixed capital formation by multinational Japanese firms in home and host countries. We treat multinational firms as multi-product firms, choosing optimal investment locations and production scale for each product. We test the predictions of the model on a unique dataset covering 1707 fixed capital investment decisions by (affiliates of) Japanese multinational firms in the manufacturing sector based on research conducted in 1996 and 1997. We find that the rate of investment is not only determined by factors affecting the return on investment levels in a country (e.g. effective demand and wages), but also by wage levels in other countries in which the firm operates manufacturing affiliates. Firms facing global liquidity constraints show systematically lower investment ratios, suggesting that financing constraints are another source of interaction between investments.

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  • Ren� BELDERBOS & FUKAO Kyoji & ITO Keiko & Wilko LETTERIE, 2010. "Global Fixed Capital Investment by Multinational Firms," Discussion papers 10044, Research Institute of Economy, Trade and Industry (RIETI).
    • Handle: RePEc:eti:dpaper:10044
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    Cited by:

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    2. Devereux, Michael P. & Fuest, Clemens & Lockwood, Ben, 2015. "The taxation of foreign profits: A unified view," Journal of Public Economics, Elsevier, vol. 125(C), pages 83-97.
    3. René Belderbos & Bart Leten & Shinya Suzuki, 2017. "Scientific research, firm heterogeneity, and foreign R&D locations of multinational firms," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 26(3), pages 691-711, September.
    4. René BELDERBOS & FUKAO Kyoji & IKEUCHI Kenta & KIM Young Gak & KWON Hyeog Ug, 2022. "Does Industry Agglomeration Attract Productive Firms? The role of product markets in adverse selection," Discussion papers 22105, Research Institute of Economy, Trade and Industry (RIETI).
    5. René Belderbos & Tony W. Tong & Shubin Wu, 2020. "Portfolio configuration and foreign entry decisions: A juxtaposition of real options and risk diversification theories," Strategic Management Journal, Wiley Blackwell, vol. 41(7), pages 1191-1209, July.
    6. René Belderbos, 2006. "R&D Activities in East Asia by Japanese, European, and US Multinationals," Microeconomics Working Papers 21887, East Asian Bureau of Economic Research.
    7. Teresa Sastre & Laura Heras Recuero, 2019. "Domestic and foreign investment in advanced economies. The role of industry integration," Working Papers 1933, Banco de España.

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