Advanced Search
MyIDEAS: Login to save this paper or follow this series

Why do firms invest abroad? An analysis of the motives underlying Foreign Direct Investments

Contents:

Author Info

  • Chiara Franco
  • Francesco Rentocchini

    ()

  • Giuseppe Vittucci Marzetti

    ()

Abstract

Although FDI have been at the forefront of economic debate since a long time, economists have not yet developed a unified framework for their investigation. In this paper, we put forward the idea that an essential point to analyze FDI concerns their underpinning motives. Motives are at the core of FDI and FDI are only but one of different alternative means for firms to grasp an opportunity in a foreign country. We discuss the factors that shape the set of available alternatives and analyze those affecting the decision to engage in FDI (internalization determinants), along with those influencing their localization (local- ization determinants). Starting from Dunning (1993) we put forward a revised taxonomy of FDI motives consistent with this framework { resource seeking, market seeking and non-marketable asset seeking. In order to show its practical implications, we survey common empirical issues on FDI showing how our analysis can shed light on seemingly contradictory empirical results

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.unitn.it/files/17_08_vittucci.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Department of Economics, University of Trento, Italia in its series Department of Economics Working Papers with number 0817.

as in new window
Length:
Date of creation: 2008
Date of revision:
Handle: RePEc:trn:utwpde:0817

Contact details of provider:
Postal: Via Inama 5, 38100 Trento
Phone: +39-461-882201
Fax: +39-461-882222
Web page: http://www.unitn.it/deco
More information through EDIRC

Related research

Keywords: FDI determinants; FDI motives; Taxonomy; Foreign Direct Investments;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. David L. Carr & James R. Markusen & Keith E. Maskus, 1998. "Estimating the Knowledge-Capital Model of the Multinational Enterprise," NBER Working Papers 6773, National Bureau of Economic Research, Inc.
  2. Georges SIOTIS, 1996. "Foreign Direct Investment Strategies and Firms' Capabilities," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP), Université de Lausanne, Faculté des HEC, DEEP 9626, Université de Lausanne, Faculté des HEC, DEEP.
  3. Barrell, Ray & Pain, Nigel, 1999. "Domestic institutions, agglomerations and foreign direct investment in Europe," European Economic Review, Elsevier, Elsevier, vol. 43(4-6), pages 925-934, April.
  4. David Hummels & Dana Rapoport & Kei-Mu Yi, 1998. "Vertical specialization and the changing nature of world trade," Economic Policy Review, Federal Reserve Bank of New York, Federal Reserve Bank of New York, issue Jun, pages 79-99.
  5. Kenneth A. Froot & Jeremy C. Stein, 1992. "Exchange Rates and Foreign Direct Investment: An Imperfect Capital Markets Approach," NBER Working Papers 2914, National Bureau of Economic Research, Inc.
  6. Goldberg, Linda S. & Kolstad, Charles D., 1994. "Foreign Direct Investment, Exchange Rate Variability and Demand Uncertainty," Working Papers, C.V. Starr Center for Applied Economics, New York University 94-23, C.V. Starr Center for Applied Economics, New York University.
  7. Helpman, Elhanan, 1984. "A Simple Theory of International Trade with Multinational Corporations," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 92(3), pages 451-71, June.
  8. Robert C. Feenstra & Gordon H. Hanson, 1999. "The Impact Of Outsourcing And High-Technology Capital On Wages: Estimates For The United States, 1979-1990," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 114(3), pages 907-940, August.
  9. Bruce A. Blonigen & KaSaundra Tomlin & Wesley W. Wilson, 2001. "Tariff-jumping FDI and Domestic Firms’ Profits," University of Oregon Economics Department Working Papers, University of Oregon Economics Department 2002-5, University of Oregon Economics Department, revised 01 Jun 2002.
  10. Carsten Eckel, 2003. "Fragmentation, Efficiency-Seeking FDI, and Employment," Review of International Economics, Wiley Blackwell, vol. 11(2), pages 317-331, 05.
  11. James R. Markusen & Anthony J. Venables, 1995. "Multinational Firms and The New Trade Theory," NBER Working Papers 5036, National Bureau of Economic Research, Inc.
  12. Gene M. Grossman & Elhanan Helpman & Adam Szeidl, 2005. "Complementarities between Outsourcing and Foreign Sourcing," American Economic Review, American Economic Association, American Economic Association, vol. 95(2), pages 19-24, May.
  13. Keith Head & John Ries & Deborah Swenson, 1994. "Agglomeration Benefits and Location Choice: Evidence from Japanese Manufacturing Investment in the United States," NBER Working Papers 4767, National Bureau of Economic Research, Inc.
  14. Gene M. Grossman & Elhanan Helpman & Adam Szeidl, 2003. "Optimal Integration Strategies for the Multinational Firm," Working Papers, Princeton University, Woodrow Wilson School of Public and International Affairs, Discussion Papers in Economics. 142, Princeton University, Woodrow Wilson School of Public and International Affairs, Discussion Papers in Economics..
  15. Markusen, James R., 1984. "Multinationals, multi-plant economies, and the gains from trade," Journal of International Economics, Elsevier, Elsevier, vol. 16(3-4), pages 205-226, May.
  16. Globerman, Steven & Shapiro, Daniel, 2002. "Global Foreign Direct Investment Flows: The Role of Governance Infrastructure," World Development, Elsevier, Elsevier, vol. 30(11), pages 1899-1919, November.
  17. Michael W. Klein & Eric Rosengren, 1992. "The Real Exchange Rate and Foreign Direct Investment in the United States: Relative Wealth vs. Relative Wage Effects," NBER Working Papers 4192, National Bureau of Economic Research, Inc.
  18. Wheeler, David & Mody, Ashoka, 1992. "International investment location decisions : The case of U.S. firms," Journal of International Economics, Elsevier, Elsevier, vol. 33(1-2), pages 57-76, August.
  19. Sourafel Girma, 2005. "Absorptive Capacity and Productivity Spillovers from FDI: A Threshold Regression Analysis," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 67(3), pages 281-306, 06.
  20. Karolina Ekholm & Rikard Forslid & James R. Markusen, 2007. "Export-Platform Foreign Direct Investment," Journal of the European Economic Association, MIT Press, MIT Press, vol. 5(4), pages 776-795, 06.
  21. Bruce A. Blonigen, 2005. "A Review of the Empirical Literature on FDI Determinants," NBER Working Papers 11299, National Bureau of Economic Research, Inc.
  22. Kinoshita, Yuko & Campos, Nauro F., 2004. "Estimating the Determinants of Foreign Direct Investment Inflows: How Important are Sampling and Omitted Variable Biases?," BOFIT Discussion Papers, Bank of Finland, Institute for Economies in Transition 10/2004, Bank of Finland, Institute for Economies in Transition.
  23. Gonzalez-Diaz, Manuel & Arrunada, Benito & Fernandez, Alberto, 2000. "Causes of subcontracting: evidence from panel data on construction firms," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 42(2), pages 167-187, June.
  24. Hart, Oliver D. & Moore, John, 1990. "Property Rights and the Nature of the Firm," Scholarly Articles 3448675, Harvard University Department of Economics.
  25. James R. Markusen & Anthony J. Venables, 1996. "The Theory of Endowment, Intra-Industry, and Multinational Trade," NBER Working Papers 5529, National Bureau of Economic Research, Inc.
  26. Benassy-Quere, AgnEs & Fontagne, Lionel & LahrEche-Revil, Amina, 2001. "Exchange-Rate Strategies in the Competition for Attracting Foreign Direct Investment," Journal of the Japanese and International Economies, Elsevier, vol. 15(2), pages 178-198, June.
  27. Antràs, Pol & Helpman, Elhanan, 2004. "Global Sourcing," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4170, C.E.P.R. Discussion Papers.
  28. Keith E. Maskus, 1993. "Intellectual property rights and the Uruguay Round," Economic Review, Federal Reserve Bank of Kansas City, issue Q I, pages 10-25.
  29. Kumar, Nagesh, 2001. "Determinants of location of overseas R&D activity of multinational enterprises: the case of US and Japanese corporations1," Research Policy, Elsevier, Elsevier, vol. 30(1), pages 159-174, January.
  30. Bjorvatn, Kjetil & Eckel, Carsten, 2006. "Technology sourcing and strategic foreign direct investment," Munich Reprints in Economics, University of Munich, Department of Economics 20269, University of Munich, Department of Economics.
  31. David Hummels, 2007. "Transportation Costs and International Trade in the Second Era of Globalization," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 21(3), pages 131-154, Summer.
  32. Cantwell, John & Janne, Odile, 1999. "Technological globalisation and innovative centres: the role of corporate technological leadership and locational hierarchy1," Research Policy, Elsevier, Elsevier, vol. 28(2-3), pages 119-144, March.
  33. Ignatius J. Horstmann & James R. Markusen, 1990. "Endogenous Market Structures in International Trade," NBER Working Papers 3283, National Bureau of Economic Research, Inc.
  34. Buckley, Peter J & Casson, Mark, 1981. "The Optimal Timing of a Foreign Direct Investment," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 91(361), pages 75-87, March.
  35. Cantwell, John, 1995. "The Globalisation of Technology: What Remains of the Product Cycle Model?," Cambridge Journal of Economics, Oxford University Press, Oxford University Press, vol. 19(1), pages 155-74, February.
  36. Urata, Shujiro & Kawai, Hiroki, 2000. " The Determinants of the Location of Foreign Direct Investment by Japanese Small and Medium-Sized Enterprises," Small Business Economics, Springer, Springer, vol. 15(2), pages 79-103, September.
  37. Markusen, James R & Maskus, Keith E, 2002. "Discriminating among Alternative Theories of the Multinational Enterprise," Review of International Economics, Wiley Blackwell, vol. 10(4), pages 694-707, November.
  38. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," NBER Working Papers 10480, National Bureau of Economic Research, Inc.
  39. Robert C. Feenstra & Gordon H. Hanson, 2004. "Ownership and Control in Outsourcing to China: Estimating the Property-Rights Theory of the Firm," NBER Working Papers 10198, National Bureau of Economic Research, Inc.
  40. Walter Kuemmerle, 1999. "The Drivers of Foreign Direct Investment into Research and Development: An Empirical Investigation," Journal of International Business Studies, Palgrave Macmillan, vol. 30(1), pages 1-24, March.
  41. Peter Nunnenkamp, 2002. "Determinants of FDI in Developing Countries: Has Globalization Changed the Rules of the Game?," Kiel Working Papers 1122, Kiel Institute for the World Economy.
  42. Mary Amiti & Shang-Jin Wei, 2006. "Service Offshoring and Productivity: Evidence from the United States," NBER Working Papers 11926, National Bureau of Economic Research, Inc.
  43. Bruno Van Pottelsberghe De La Potterie & Frank Lichtenberg, 2001. "Does Foreign Direct Investment Transfer Technology Across Borders?," The Review of Economics and Statistics, MIT Press, vol. 83(3), pages 490-497, August.
  44. Long, Ngo Van, 2005. "Outsourcing and technology spillovers," International Review of Economics & Finance, Elsevier, Elsevier, vol. 14(3), pages 297-304.
  45. Yeaple, Stephen Ross, 2003. "The complex integration strategies of multinationals and cross country dependencies in the structure of foreign direct investment," Journal of International Economics, Elsevier, Elsevier, vol. 60(2), pages 293-314, August.
  46. Thomas Doring & Jan Schnellenbach, 2006. "What do we know about geographical knowledge spillovers and regional growth?: A survey of the literature," Regional Studies, Taylor & Francis Journals, Taylor & Francis Journals, vol. 40(3), pages 375-395.
  47. Damien NEVEN & George SIOTIS, 1995. "Technology Sourcing and FDI in the EC : An Empirical Evaluation," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP), Université de Lausanne, Faculté des HEC, DEEP 9508, Université de Lausanne, Faculté des HEC, DEEP.
  48. Campa, Joe Manuel, 1993. "Entry by Foreign Firms in the United States under Exchange Rate Uncertainty," The Review of Economics and Statistics, MIT Press, vol. 75(4), pages 614-22, November.
  49. Jagdish Bhagwati & Arvind Panagariya & T. N. Srinivasan, 2004. "The Muddles over Outsourcing," International Trade, EconWPA 0408004, EconWPA.
  50. repec:hrv:faseco:4784029 is not listed on IDEAS
  51. Cushman, David O, 1985. "Real Exchange Rate Risk, Expectations, and the Level of Direct Investment," The Review of Economics and Statistics, MIT Press, vol. 67(2), pages 297-308, May.
  52. Nigel Driffield & James H. Love, 2006. "Does The Motivation for Foreign Direct Investment Affect Productivity Spillovers to the Domestic Sector?," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, Duncker & Humblot, Berlin, vol. 52(1), pages 3-27.
  53. Dunning, John H., 2000. "The eclectic paradigm as an envelope for economic and business theories of MNE activity," International Business Review, Elsevier, Elsevier, vol. 9(2), pages 163-190, April.
  54. Blonigen, Bruce A, 1997. "Firm-Specific Assets and the Link between Exchange Rates and Foreign Direct Investment," American Economic Review, American Economic Association, American Economic Association, vol. 87(3), pages 447-65, June.
  55. John H Dunning, 1998. "Location and the Multinational Enterprise: A Neglected Factor?," Journal of International Business Studies, Palgrave Macmillan, vol. 29(1), pages 45-66, March.
  56. Barrell, Ray & Pain, Nigel, 1998. "Real Exchange Rates, Agglomerations, and Irreversibilities: Macroeconomic Policy and FDI in EMU," Oxford Review of Economic Policy, Oxford University Press, Oxford University Press, vol. 14(3), pages 152-67, Autumn.
  57. Nigel Driffield & James H Love, 2007. "Linking FDI motivation and host economy productivity effects: conceptual and empirical analysis," Journal of International Business Studies, Palgrave Macmillan, vol. 38(3), pages 460-473, May.
  58. Gene M. Grossman & Elhanan Helpman, 2002. "Integration Versus Outsourcing In Industry Equilibrium," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 117(1), pages 85-120, February.
  59. Zanfei, Antonello, 2000. "Transnational Firms and the Changing Organisation of Innovative Activities," Cambridge Journal of Economics, Oxford University Press, Oxford University Press, vol. 24(5), pages 515-42, September.
  60. Amy Jocelyn Glass, 2004. "Outsourcing under Imperfect Protection of Intellectual Property," Review of International Economics, Wiley Blackwell, vol. 12(5), pages 867-884, November.
  61. Fosfuri, Andrea & Motta, Massimo, 1999. " Multinationals without Advantages," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 101(4), pages 617-30, December.
  62. Williamson, Oliver E, 1979. "Transaction-Cost Economics: The Governance of Contractural Relations," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 22(2), pages 233-61, October.
  63. Narula ,Rajneesh & Marin ,Anabel, 2005. "Exploring the relationship between direct and indirect spillovers from FDI in Argentina," Research Memorandum, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT) 024, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
  64. 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.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Groh, Alexander P. & Wich, Matthias, 2009. "A composite measure to determine a host country's attractiveness for foreign direct investment," IESE Research Papers, IESE Business School D/833, IESE Business School.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:trn:utwpde:0817. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Luciano Andreozzi).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.