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Industrial Groupings and Strategic FDI: Theory and Evidence

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  • 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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Bibliographic Info

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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Publication status: published as Blonigen, Bruce A., Christopher J. Ellis and Dietrich Fausten. "Industrial Groupings And Strategic FDI," Japan and the World Economy, 2005, v17(2,Apr), 125-150.
Handle: RePEc:nbr:nberwo:8046

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  1. 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, Springer, vol. 133(3), pages 419-457, September.
  2. Feenstra, Robert C. & Rauch, James E., 1999. "Symposium on business and social networks in international trade," Journal of International Economics, Elsevier, Elsevier, vol. 48(1), pages 1-1, June.
  3. Takeo Hoshi & Anil Kashyap & David Scharfstein, 1989. "Corporate structure, liquidity, and investment: evidence from Japanese industrial groups," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 82, Board of Governors of the Federal Reserve System (U.S.).
  4. 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.
  5. Bruce A. Blonigen & Robert C. Feenstra, 1996. "Protectionist Threats and Foreign Direct Investment," NBER Working Papers 5475, National Bureau of Economic Research, Inc.
  6. James A. Dorn, 1999. "Introduction," Cato Journal, Cato Journal, Cato Institute, vol. 18(3), pages 311-320, Winter.
  7. Feenstra, Robert C. & Hanson, Gordon H., 1997. "Foreign direct investment and relative wages: Evidence from Mexico's maquiladoras," Journal of International Economics, Elsevier, Elsevier, vol. 42(3-4), pages 371-393, May.
  8. 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, Elsevier, vol. 11(4), pages 573-591.
  9. 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.
  10. Ping Lin & Kamal Saggi, 1999. "Incentives for Foreign Direct Investment under Imitation," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 32(5), pages 1275-1298, November.
  11. Christopher J. Ellis & Dietrich Fausten, 2002. "Strategic FDI and industrial ownership structure," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 35(3), pages 476-494, August.
  12. Kogut, Bruce & Chang, Sea Jin, 1996. "Platform Investments and Volatility Exchange Rates: Direct Investment in the U.S. by Japanese Electronic Companies," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 221-31, May.
  13. Flath, David, 1996. "The Keiretsu Puzzle," Journal of the Japanese and International Economies, Elsevier, vol. 10(2), pages 101-121, June.
  14. Kimura, Yui & Pugel, Thomas A., 1995. "Keiretsu and Japanese direct investment in US manufacturing," Japan and the World Economy, Elsevier, Elsevier, vol. 7(4), pages 481-503, November.
  15. Hennart, J.-F. & Park, Y.R., 1994. "Location, governance and strategic determinants of Japanese manufacturing investment in the United States," Open Access publications from Tilburg University urn:nbn:nl:ui:12-174010, Tilburg University.
  16. Kogut, Bruce & Chang, Sea Jin, 1991. "Technological Capabilities and Japanese Foreign Direct Investment in the United States," The Review of Economics and Statistics, MIT Press, vol. 73(3), pages 401-13, August.
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Cited by:
  1. Bruce A. Blonigen & Rossitza B. Wooster, 2003. "CEO Turnover and Foreign Market Participation," University of Oregon Economics Department Working Papers, University of Oregon Economics Department 2003-24, University of Oregon Economics Department, revised 01 Mar 2003.
  2. Koki Arai, 2004. "An Airline Merger in Japan: A Case Study Revealing Principles of Japanese Merger Control," Journal of Industry, Competition and Trade, Springer, Springer, vol. 4(3), pages 207-222, 09.

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