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Industrial Groupings and Strategic FDI: Theory and Evidence

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Author Info
Bruce A. Blonigen
Christopher J. Ellis
Dietrich Fausten
Abstract

We show that industrial ownership structures, such as keiretsu groupings in Japan, may significantly impact firms' incentives to engage in FDI. While the previous literature has mainly focused on the cost of capital advantages enjoyed by keiretsu firms, this paper examines two relatively unexplored channels by which ownership structure matters for FDI incentives. The first channel involves the direct incentives generated via standard product and factor market interactions whereby keiretsu firms with cross-ownership consider more directly the congestion effects of further FDI into a market. The second channel involves the indirect incentives generated by sharing of information across keiretsu firms which reduces entry costs for subsequent FDI. Using data on Japanese FDI activity by both keiretsu and non-keiretsu manufacturing firms, we find evidence to support the importance of the second channel (information-sharing incentives) as an explanation for firm-level FDI patterns, but not for the first channel.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8046.

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Date of creation: Dec 2000
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Handle: RePEc:nbr:nberwo:8046

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Find related papers by JEL classification:
F10 - International Economics - - Trade - - - General
F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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  1. Flath, David, 1996. "The Keiretsu Puzzle," Journal of the Japanese and International Economies, Elsevier, vol. 10(2), pages 101-121, June. [Downloadable!] (restricted)
  2. Ping Lin & Kamal Saggi, 1999. "Incentives for Foreign Direct Investment under Imitation," Canadian Journal of Economics, Canadian Economics Association, vol. 32(5), pages 1275-1298, November. [Downloadable!] (restricted)
  3. Kimura, Yui & Pugel, Thomas A., 1995. "Keiretsu and Japanese direct investment in US manufacturing," Japan and the World Economy, Elsevier, vol. 7(4), pages 481-503, November. [Downloadable!] (restricted)
  4. Feenstra, Robert C. & Rauch, James E., 1999. "Symposium on business and social networks in international trade," Journal of International Economics, Elsevier, vol. 48(1), pages 1-1, June. [Downloadable!] (restricted)
  5. Flath, David, 1993. "Shareholding in the Keiretsu, Japan's Financial Groups," The Review of Economics and Statistics, MIT Press, vol. 75(2), pages 249-57, May. [Downloadable!] (restricted)
  6. Belderbos, Rene & Sleuwaegen, Leo, 1996. "Japanese Firms and the Decision to Invest Abroad: Business Groups and Regional Core Networks," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 214-20, May. [Downloadable!] (restricted)
  7. René Belderbos, 1997. "Antidumping and tariff Jumping: Japanese firms’ DFI in the European union and the United States," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 133(3), pages 419-457, September. [Downloadable!] (restricted)
  8. Hoshi, Takeo & Kashyap, Anil & Scharfstein, David, 1991. "Corporate Structure, Liquidity, and Investment: Evidence from Japanese Industrial Groups," The Quarterly Journal of Economics, MIT Press, vol. 106(1), pages 33-60, February. [Downloadable!] (restricted)
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  9. Bruce A. Blonigen & Robert C. Feenstra, . "Protectionist Threats And Foreign Direct Investment," Department of Economics 96-01, California Davis - Department of Economics. [Downloadable!]
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  10. Feenstra, Robert C. & Hanson, Gordon H., 1997. "Foreign direct investment and relative wages: Evidence from Mexico's maquiladoras," Journal of International Economics, Elsevier, vol. 42(3-4), pages 371-393, May. [Downloadable!] (restricted)
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  11. Suzuki, Kazuyuki, 1993. "R&D spillovers and technology transfer among and within vertical keiretsu groups : Evidence from the Japanese electrical machinery industry," International Journal of Industrial Organization, Elsevier, vol. 11(4), pages 573-591. [Downloadable!] (restricted)
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  1. Bruce A. Blonigen & Rossitza B. Wooster, 2003. "CEO Turnover and Foreign Market Participation," University of Oregon Economics Department Working Papers 2003-24, University of Oregon Economics Department, revised 01 Mar 2003. [Downloadable!]
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  2. Bruce A. Blonigen & Rossitza B. Wooster, 2001. "Networking and Foreign Direct Investment Activity," University of Oregon Economics Department Working Papers 2002-8, University of Oregon Economics Department, revised 01 Sep 2002. [Downloadable!]
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