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Cost Heterogeneity and the Destination of Foreign Direct Investment

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Author Info

  • Seiichi Katayama

    (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)

  • Sajal Lahiri

    (Department of Economics, Southern Illinois University, USA)

  • Eiichi Tomiura

    (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)

Abstract

This paper first of all develops a theoretical model to examine a number of heterogeneous firms' choice between making export-oriented foreign direct investments (FDI) in a host country and making FDI in another country to serve the market there. It is shown that all firms below a critical level of efficiency invest in the first country, and the other relatively more efficient firms invest in the second host country. The hypothesis is tested using firmlevel data on 118,300 Japanese firms covering the entire manufacturing sector. Multinomial logit estimates strongly support our theoretical findings.

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File URL: http://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/dp166.pdf
File Function: First version, 2005
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Bibliographic Info

Paper provided by Research Institute for Economics & Business Administration, Kobe University in its series Discussion Paper Series with number 166.

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Length: 25 pages
Date of creation: Jan 2005
Date of revision:
Handle: RePEc:kob:dpaper:166

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Related research

Keywords: Cost heterogeneity; Oligopoly; Foreign direct Investment; Export-oriented FDI;

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References

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  1. Lahiri, Sajal & Ono, Yoshiyasu, 1988. "Helping Minor Firms Reduces Welfare," Economic Journal, Royal Economic Society, vol. 98(393), pages 1199-1202, December.
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  17. Antràs, Pol & Helpman, Elhanan, 2004. "Global Sourcing," CEPR Discussion Papers 4170, C.E.P.R. Discussion Papers.
  18. Brander, James A. & Spencer, Barbara J., 1987. "Foreign direct investment with unemployment and endogenous taxes and tariffs," Journal of International Economics, Elsevier, vol. 22(3-4), pages 257-279, May.
  19. Motta, Massimo, 1992. "Multinational firms and the tariff-jumping argument : A game theoretic analysis with some unconventional conclusions," European Economic Review, Elsevier, vol. 36(8), pages 1557-1571, December.
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  22. David A. Riker & S. Lael Brainard, 1997. "U.S. Multinationals and Competition from Low Wage Countries," NBER Working Papers 5959, National Bureau of Economic Research, Inc.
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