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Outward Direct Investment and the U.S. Economy

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  • Robert E. Lipsey

Abstract

Investment in production outside the United States is a method by which U.S. firms raise their shares in foreign markets and defend them against foreign rivals from the host countries and from other countries. The investing firms are exploiting their firm-specific assets such as proprietary technologies, patents, or skills in advertising or marketing, and the opportunity to produce abroad raises the value of these assets and encourages firms' investment in them by extending the range of markets and the length of time over which they can be exploited. Overseas production has contributed to the ability of American multinationals to retain world market shares in the face of the long- term decline in the share of the U.S. as a country and short-term changes such as exchange rate fluctuations. It has performed the same functions for Swedish firms and, more recently, for Japanese firms. Within U.S. multinationals, those with higher shares of their production overseas have higher employment at home relative to home production. Foreign production appears to require larger numbers of employees in headquarters activities such as R&D and supervision.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4691.

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Date of creation: Mar 1994
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Publication status: published as M. Feldstein, J. Hines, R. Hubbard, eds. The Effects of Taxation on Multinational Corporations, University of Chicago Press, 1995, pp. 7-33
Handle: RePEc:nbr:nberwo:4691

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  1. Robert E. Lipsey & Mario Schimberni & Robert V. Lindsay, 1988. "Changing Patterns of International Investment in and by the United States," NBER Chapters, in: The United States in the World Economy, pages 475-558 National Bureau of Economic Research, Inc.
  2. Alan K. Severn, 1972. "Investment And Financial Behavior Of American Direct Investors In Manufacturing," NBER Chapters, in: International Mobility and Movement of Capital, pages 367-396 National Bureau of Economic Research, Inc.
  3. Irving B. Kravis & Robert E. Lipsey, 1988. "The Effect of Multinational Firms' Operations on Their Domestic Employment," NBER Working Papers 2760, National Bureau of Economic Research, Inc.
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