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Monitoring Costs and the Mode of International Investment

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  • Chu-Chia S. Lin

    (National Cheng-Chi University)

  • Ivan Png

    (National University of Singapore)

Abstract

Our central proposition is that monitoring costs increase with physical distance, and hence, direct investments located further from the foreign investor's home base should be more likely formed as joint ventures. Tests on a data set of Taiwanese direct investments in Mainland China provide robust support to the hypothesis. A project that was located 1000 kilometers further away was 13--17% more likely to be formed as a joint venture. Copyright 2003, Oxford University Press.

(This abstract was borrowed from another version of this item.)

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File URL: http://128.118.178.162/eps/it/papers/0210/0210004.pdf
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Bibliographic Info

Paper provided by EconWPA in its series International Trade with number 0210004.

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Length: 26 pages
Date of creation: 08 Oct 2002
Date of revision:
Handle: RePEc:wpa:wuwpit:0210004

Note: Type of Document - pdf; prepared on Windows-PC; to print on HP; pages: 26
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Web page: http://128.118.178.162

Related research

Keywords: contract; vertical integration; opportunism; international investment; China;

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References

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  1. Keith D Brouthers & Lance Eliot Brouthers, 2001. "Explaining the National Cultural Distance Paradox," Journal of International Business Studies, Palgrave Macmillan, vol. 32(1), pages 177-189, March.
  2. Hart, Oliver D. & Moore, John, 1990. "Property Rights and the Nature of the Firm," Scholarly Articles 3448675, Harvard University Department of Economics.
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  5. Thomas N. Hubbard, 2000. "The Demand For Monitoring Technologies: The Case Of Trucking," The Quarterly Journal of Economics, MIT Press, vol. 115(2), pages 533-560, May.
  6. Hennart, J.-F.M.A., 1991. "The transaction costs theory of joint ventures : an empirical study of Japanese subsidiaries in the United States," Open Access publications from Tilburg University urn:nbn:nl:ui:12-175820, Tilburg University.
  7. Brickley, James A. & Dark, Frederick H., 1987. "The choice of organizational form The case of franchising," Journal of Financial Economics, Elsevier, vol. 18(2), pages 401-420, June.
  8. Elizabeth S. Laderman & Ronald H. Schmidt & Gary C. Zimmerman, 1991. "Location, branching, and bank portfolio diversification: the case of agricultural lending," Economic Review, Federal Reserve Bank of San Francisco, issue Win, pages 24-38.
  9. Litwack, John M. & Qian, Yingyi, 1998. "Balanced or Unbalanced Development: Special Economic Zones as Catalysts for Transition," Journal of Comparative Economics, Elsevier, vol. 26(1), pages 117-141, March.
  10. Bruce Kogut & Harbir Singh, 1988. "The Effect of National Culture on the Choice of Entry Mode," Journal of International Business Studies, Palgrave Macmillan, vol. 19(3), pages 411-432, September.
  11. Ji Li & Kevin Lam & Gongming Qian, 2001. "Does Culture Affect Behavior and Performance of Firms? The Case of Joint Ventures in China," Journal of International Business Studies, Palgrave Macmillan, vol. 32(1), pages 115-131, March.
  12. Gomes-Casseres, Benjamin, 1989. "Ownership structures of foreign subsidiaries : Theory and evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 11(1), pages 1-25, January.
  13. Hanson, Gordon H, 1995. "Incomplete Contracts, Risk, and Ownership," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(2), pages 341-63, May.
  14. Karin Fladmoe-Lindquist & Laurent L. Jacque, 1995. "Control Modes in International Service Operations: The Propensity to Franchise," Management Science, INFORMS, vol. 41(7), pages 1238-1249, July.
  15. Lafontaine, Francine & Slade, Margaret E., 1996. "Retail contracting and costly monitoring: Theory and evidence," European Economic Review, Elsevier, vol. 40(3-5), pages 923-932, April.
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Citations

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Cited by:
  1. Grossman, Gene M. & Helpman, Elhanan, 2004. "Managerial incentives and the international organization of production," Journal of International Economics, Elsevier, vol. 63(2), pages 237-262, July.
  2. Mugele, Christian & Schnitzer, Monika, 2008. "Organization of multinational activities and ownership structure," Munich Reprints in Economics 19200, University of Munich, Department of Economics.
  3. Noriyuki Yanagawa, 2008. "Financial Imperfection and Outsourcing Decision," CARF F-Series CARF-F-134, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
  4. Chen, George Shih-Ku, 2009. "Agglomeration economies and the location of Taiwanese investment in China," MPRA Paper 13896, University Library of Munich, Germany.
  5. Robert C. Feenstra & Gordon H. Hanson, 2005. "Ownership and Control in Outsourcing to China: Estimating the Property-Rights Theory of the Firm," The Quarterly Journal of Economics, MIT Press, vol. 120(2), pages 729-761, May.
  6. Chong-En Bai & Zhigang Tao & Changqi Wu, 2003. "Revenue Sharing and Control Rights in Team Production: Theories and Evidence from Joint Ventures.," William Davidson Institute Working Papers Series 2003-563, William Davidson Institute at the University of Michigan.
  7. Noriyuki Yanagawa, 2008. "Financial Imperfection and Outsourcing Decision," CIRJE F-Series CIRJE-F-586, CIRJE, Faculty of Economics, University of Tokyo.
  8. Du, Julan & Lu, Yi & Tao, Zhigang, 2008. "Economic institutions and FDI location choice: Evidence from US multinationals in China," Journal of Comparative Economics, Elsevier, vol. 36(3), pages 412-429, September.

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