Cost Heterogeneity and the Destination of Foreign Direct Investment

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Cost Heterogeneity and the Destination of Foreign Direct Investment

Author Info

Seiichi Katayama (Research Institute for Economics and Business Administration, Kobe University)
Sajal Lahiri (Department of Economics, Southern Illinois University)
Eiichi Tomiura (Research Institute for Economics and Business Administration, Kobe University)

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Sajal Lahiri

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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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
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Handle: RePEc:kob:dpaper:166

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Find related papers by JEL classification:
F2 - International Economics - - International Factor Movements and International Business
H2 - Public Economics - - Taxation, Subsidies, and Revenue

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