IDEAS home Printed from
   My bibliography  Save this article

Firm-Specific Assets and the Gains from Direct Foreign Investment


  • Horstmann, Ignatius J
  • Markusen, James R


It is widely held that multinational enterprises arise as a consequence of the existence of knowledge-based, firm-specific assets such as superior technology or management know-how. These assets are much like public goods within the firm in that they can be costlessly supplied to additional plants, thus leading to the efficiency of multiplant production. Foreign direct investment then consists of supplying the services of the assets to foreign operations and repatriated earnings are payments for these services. These notions are formalized in a simple model of the multinational enterprise and welfare implications are analyzed. Copyright 1989 by The London School of Economics and Political Science.

Suggested Citation

  • Horstmann, Ignatius J & Markusen, James R, 1989. "Firm-Specific Assets and the Gains from Direct Foreign Investment," Economica, London School of Economics and Political Science, vol. 56(221), pages 41-48, February.
  • Handle: RePEc:bla:econom:v:56:y:1989:i:221:p:41-48

    Download full text from publisher

    File URL:
    File Function: full text
    Download Restriction: Access to full text is restricted to JSTOR subscribers. See for details.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    1. Michael Lechner, 2002. "Some practical issues in the evaluation of heterogeneous labour market programmes by matching methods," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 165(1), pages 59-82.
    2. LaLonde, Robert J, 1986. "Evaluating the Econometric Evaluations of Training Programs with Experimental Data," American Economic Review, American Economic Association, vol. 76(4), pages 604-620, September.
    3. James Heckman & Lance Lochner & Ricardo Cossa, 2002. "Learning-By-Doing Vs. On-the-Job Training: Using Variation Induced by the EITC to Distinguish Between Models of Skill Formation," NBER Working Papers 9083, National Bureau of Economic Research, Inc.
    4. A. Smith, Jeffrey & E. Todd, Petra, 2005. "Does matching overcome LaLonde's critique of nonexperimental estimators?," Journal of Econometrics, Elsevier, vol. 125(1-2), pages 305-353.
    5. Lach, Saul, 2002. "Do R&D Subsidies Stimulate or Displace Private R&D? Evidence from Israel," Journal of Industrial Economics, Wiley Blackwell, vol. 50(4), pages 369-390, December.
    6. James J. Heckman & Hidehiko Ichimura & Petra E. Todd, 1997. "Matching As An Econometric Evaluation Estimator: Evidence from Evaluating a Job Training Programme," Review of Economic Studies, Oxford University Press, vol. 64(4), pages 605-654.
    7. Richard Blundell & Monica Costa Dias, 2000. "Evaluation methods for non-experimental data," Fiscal Studies, Institute for Fiscal Studies, vol. 21(4), pages 427-468, January.
    8. Angrist, Joshua D. & Krueger, Alan B., 1999. "Empirical strategies in labor economics," Handbook of Labor Economics,in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 23, pages 1277-1366 Elsevier.
    9. Ashenfelter, Orley C, 1978. "Estimating the Effect of Training Programs on Earnings," The Review of Economics and Statistics, MIT Press, vol. 60(1), pages 47-57, February.
    10. Hämäläinen, Kari & Ollikainen, Virve, 2004. "Differential Effects of Active Labour Market Programmes in the Early Stages of Young People's Unemployment," Research Reports 115, VATT Institute for Economic Research.
    11. Lechner, Michael, 1999. "Earnings and Employment Effects of Continuous Off-the-Job Training in East Germany after Unification," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(1), pages 74-90, January.
    12. Susan Athey & Guido W. Imbens, 2006. "Identification and Inference in Nonlinear Difference-in-Differences Models," Econometrica, Econometric Society, vol. 74(2), pages 431-497, March.
    13. Robertson, H., 1994. "Wage Subsudies to Encourage the Hiring of Unemployment Insurance Claimants," Papers r-95-1, Gouvernement du Canada - Human Resources Development.
    14. Matz Dahlberg & Anders Forslund, 2005. "Direct Displacement Effects of Labour Market Programmes," Scandinavian Journal of Economics, Wiley Blackwell, vol. 107(3), pages 475-494, September.
    15. James Heckman & Hidehiko Ichimura & Jeffrey Smith & Petra Todd, 1998. "Characterizing Selection Bias Using Experimental Data," Econometrica, Econometric Society, vol. 66(5), pages 1017-1098, September.
    16. Jeffrey Smith, 2000. "A Critical Survey of Empirical Methods for Evaluating Active Labor Market Policies," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 136(III), pages 247-268, September.
    17. Isabel Busom, 2000. "An Empirical Evaluation of The Effects of R&D Subsidies," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 9(2), pages 111-148.
    18. Stephen G. Donald & Kevin Lang, 2007. "Inference with Difference-in-Differences and Other Panel Data," The Review of Economics and Statistics, MIT Press, vol. 89(2), pages 221-233, May.
    19. Venetoklis, Takis, 1999. "Process Evaluation of Business Subsidies in Finland. A Quantitative Approach," Research Reports 58, VATT Institute for Economic Research.
    20. John P Martin, 1998. "What Works Among Active Labour Market Policies: Evidence from OECD Countries' Experiences," RBA Annual Conference Volume,in: Guy Debelle & Jeff Borland (ed.), Unemployment and the Australian Labour Market Reserve Bank of Australia.
    21. Klette, Tor Jakob & Møen, Jarle, 2011. "R&D investment responses to R&D subsidies: A theoretical analysis and a microeconometric study," Discussion Papers 2011/15, Norwegian School of Economics, Department of Business and Management Science.
    22. James J. Heckman, 1995. "Instrumental Variables: A Cautionary Tale," NBER Technical Working Papers 0185, National Bureau of Economic Research, Inc.
    23. Venetoklis, Takis, 2001. "Business Subsidies and Bureaucratic Behaviour - A Revised Approach," Research Reports 83, VATT Institute for Economic Research.
    24. J Richardson, 1998. "Do wage subsidies Enhance Employability? Evidence from Australian Youth," CEP Discussion Papers dp0387, Centre for Economic Performance, LSE.
    25. Heckman, James J & Smith, Jeffrey A, 1999. "The Pre-programme Earnings Dip and the Determinants of Participation in a Social Programme. Implications for Simple Programme Evaluation Strategies," Economic Journal, Royal Economic Society, vol. 109(457), pages 313-348, July.
    26. Venetoklis, Takis, 2001. "Business Subsidies and Bureaucratic Behaviour," Research Reports 79, VATT Institute for Economic Research.
    Full references (including those not matched with items on IDEAS)


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

    Cited by:

    1. Edward Manderson & Richard Kneller, 2012. "Environmental Regulations, Outward FDI and Heterogeneous Firms: Are Countries Used as Pollution Havens?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 51(3), pages 317-352, March.
    2. Jun Du & Yama Temouri, 2015. "High-growth firms and productivity: evidence from the United Kingdom," Small Business Economics, Springer, vol. 44(1), pages 123-143, January.
    3. repec:eee:iburev:v:27:y:2018:i:1:p:231-245 is not listed on IDEAS
    4. Gilroy, Bernard Michael, 1999. "Beschäftigungswirkungen multinationaler Unternehmungen
      [Employment effects of multinational enterprises]
      ," MPRA Paper 21079, University Library of Munich, Germany.
    5. Forssbæck , Jens & Oxelheim, Lars, 2008. "Financial Determinants of Foreign Direct Investment," Working Paper Series 741, Research Institute of Industrial Economics.
    6. Aitken, Brian & Harrison, Ann & DEC, 1994. "Do domestic firms benefit from foreign direct investment? Evidence from panel data," Policy Research Working Paper Series 1248, The World Bank.
    7. Marek Kapička, 2012. "How Important Is Technology Capital for the United States?," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(2), pages 218-248, April.
    8. Hagen, James M., 1997. "Food Processing Firms And Foreign Production Incentives," Working Papers 14314, University of Minnesota, The Food Industry Center.
    9. Taotao Chen & Ari Kokko & Patrik Gustavsson Tingvall, 2011. "FDI and spillovers in China: non-linearity and absorptive capacity," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 9(1), pages 1-22.
    10. Linda S. Goldberg, 2004. "Financial-sector foreign direct investment and host countries: new and old lessons," Staff Reports 183, Federal Reserve Bank of New York.
    11. Forssbæck, Jens & Oxelheim, Lars, 2011. "Corporate financial determinants of foreign direct investment," The Quarterly Review of Economics and Finance, Elsevier, vol. 51(3), pages 269-282, June.
    12. Gerda Dewit, 1998. "Risky Business: Intra-Firm Trade with Foreign Commercial Risk and Asymmetric Insurance," Working Papers 9808, Business School - Economics, University of Glasgow.
    13. Eskeland, Gunnar S. & Harrison, Ann E., 2003. "Moving to greener pastures? Multinationals and the pollution haven hypothesis," Journal of Development Economics, Elsevier, vol. 70(1), pages 1-23, February.
    14. Linda S. Goldberg, 2007. "Financial sector FDI and host countries: new and old lessons," Economic Policy Review, Federal Reserve Bank of New York, issue Mar, pages 1-17.
    15. Konan, Denise Eby, 2000. "The Vertical Multinational Enterprise and International Trade," Review of International Economics, Wiley Blackwell, vol. 8(1), pages 113-125, February.
    16. Gilroy, Bernard Michael, 1998. "International Competitiveness, Multinational Enterprise Technology Clubs and the Government Interface," MPRA Paper 17983, University Library of Munich, Germany.
    17. Janis Kapler, "undated". "The Theory of the Firm, the Theory of Competition and the Transnational Corporation," Working Papers 6, University of Massachusetts Boston, Economics Department.
    18. Leung, W. -F., 1998. "A model of coexistence of international joint ventures and foreign wholly-owned subsidiaries," Japan and the World Economy, Elsevier, vol. 10(2), pages 233-252, April.
    19. Halaszovich, Tilo F. & Lundan, Sarianna M., 2016. "The moderating role of local embeddedness on the performance of foreign and domestic firms in emerging markets," International Business Review, Elsevier, vol. 25(5), pages 1136-1148.
    20. Lawrence Kaufmann, 1997. "A Model of Spillovers Through Labor Recruitment," International Economic Journal, Taylor & Francis Journals, vol. 11(3), pages 13-33.
    21. Michael Fung, 1994. "Technology policies, technology transfer by multinational enterprises and R&D activities in LDCs," Open Economies Review, Springer, vol. 5(3), pages 275-287, July.

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:econom:v:56:y:1989:i:221:p:41-48. 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: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum). General contact details of provider: .

    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.

    We have no references for this item. You can help adding them by using 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.