IDEAS home Printed from https://ideas.repec.org/a/eee/iburev/v16y2007i6p732-750.html
   My bibliography  Save this article

The sensitivity of U.S. multinational enterprises to political and macroeconomic uncertainty: A sectoral analysis

Author

Listed:
  • Desbordes, Rodolphe

Abstract

This paper confronts two alternative approaches for explaining U.S. foreign direct investment (FDI) pattern in developing countries. According to the real options (RO) approach, FDI in capital-intensive industries should be particularly deterred by political and macroeconomic uncertainty. On the other hand, the supply chain risk management (SCRM) approach puts forward that multinational enterprises in vertically integrated industries are unlikely to locate their foreign activities in risky countries. Thanks to the use of sectoral data, it is demonstrated that the SCRM approach explains much better the pattern of U.S. FDI in developing countries than the RO approach.

Suggested Citation

  • Desbordes, Rodolphe, 2007. "The sensitivity of U.S. multinational enterprises to political and macroeconomic uncertainty: A sectoral analysis," International Business Review, Elsevier, vol. 16(6), pages 732-750, December.
    • Handle: RePEc:eee:iburev:v:16:y:2007:i:6:p:732-750
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0969593107001084
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

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

    References listed on IDEAS

    as
    1. Raff, Horst & Srinivasan, Krishna, 1998. "Tax incentives for import-substituting foreign investment:: Does signaling play a role?," Journal of Public Economics, Elsevier, vol. 67(2), pages 167-193, February.
    2. Joshua Aizenman & Nancy Marion, 1995. "Volatility, Investment and Disappointment Aversion," NBER Working Papers 5386, National Bureau of Economic Research, Inc.
    3. Robert C. Feenstra, 1998. "Integration of Trade and Disintegration of Production in the Global Economy," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 31-50, Fall.
    4. Subramanian Rangan, 1998. "Do Multinationals Operate Flexibly? Theory and Evidence," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 29(2), pages 217-237, June.
    5. Aizenman, Joshua, 2003. "Volatility, employment and the patterns of FDI in emerging markets," Journal of Development Economics, Elsevier, vol. 72(2), pages 585-601, December.
    6. Stevens, Guy V. G., 2000. "Politics, economics and investment:: Explaining plant and equipment spending by US direct investors in Argentina, Brazil and Mexico," Journal of International Money and Finance, Elsevier, vol. 19(2), pages 153-183, April.
    7. Aizenman, Joshua & Marion, Nancy, 2004. "The merits of horizontal versus vertical FDI in the presence of uncertainty," Journal of International Economics, Elsevier, vol. 62(1), pages 125-148, January.
    8. Globerman, Steven & Shapiro, Daniel, 2002. "Global Foreign Direct Investment Flows: The Role of Governance Infrastructure," World Development, Elsevier, vol. 30(11), pages 1899-1919, November.
    9. Hausmann, Ricardo & Fernández-Arias, Eduardo, 2000. "Foreign Direct Investment: Good Cholesterol?," IDB Publications (Working Papers) 1319, Inter-American Development Bank.
    10. Qian, Gongming, 1996. "The effect of multinationality measures upon the risk-return performance of US firms," International Business Review, Elsevier, vol. 5(3), pages 247-265, June.
    11. Kent D Miller, 1992. "A Framework for Integrated Risk Management in International Business," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 23(2), pages 311-331, June.
    12. Bernard, Andrew B. & Jensen, J. Bradford & Schott, Peter K., 2006. "Trade costs, firms and productivity," Journal of Monetary Economics, Elsevier, vol. 53(5), pages 917-937, July.
    13. Steven Globerman & Daniel Shapiro, 2003. "Governance infrastructure and US foreign direct investment," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 34(1), pages 19-39, January.
    14. Severn, Alan K, 1974. "Investor Evaluation of Foreign and Domestic Risk," Journal of Finance, American Finance Association, vol. 29(2), pages 545-550, May.
    15. 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.
    16. Sanjaya Lall & Manuel Albaladejo & Jinkang Zhang, 2004. "Mapping fragmentation: Electronics and automobiles in East Asia and Latin America," Oxford Development Studies, Taylor & Francis Journals, vol. 32(3), pages 407-432.
    17. José Manuel Campa, 1994. "Multinational Investment under Uncertainty in the Chemical Processing Industries," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 25(3), pages 557-578, September.
    18. Stephen J. Kobrin, 1991. "An empirical analysis of the determinants of global integration," Strategic Management Journal, Wiley Blackwell, vol. 12(S1), pages 17-31, June.
    19. David L Levy, 1995. "International Sourcing and Supply Chain Stability," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 26(2), pages 343-360, June.
    20. Michael M. Knetter & Matthew J. Slaughter, 1999. "Measuring Product-Market Integration," NBER Working Papers 6969, National Bureau of Economic Research, Inc.
    21. Serven, Luis, 1997. "Irreversibility, Uncertainty and Private Investment: Analytical Issues and Some Lessons for Africa," Journal of African Economies, Centre for the Study of African Economies, vol. 6(3), pages 229-268, Supplemen.
    22. Breusch, T S & Pagan, A R, 1979. "A Simple Test for Heteroscedasticity and Random Coefficient Variation," Econometrica, Econometric Society, vol. 47(5), pages 1287-1294, September.
    23. Oetzel, Jennifer, 2005. "Smaller may be beautiful but is it more risky? Assessing and managing political and economic risk in Costa Rica," International Business Review, Elsevier, vol. 14(6), pages 765-790, December.
    24. Gordon H. Hanson & Raymond J. Mataloni, Jr. & Matthew J. Slaughter, 2001. "Expansion Strategies of U.S. Multinational Firms," NBER Working Papers 8433, National Bureau of Economic Research, Inc.
    25. Eckhard Janeba, 2000. "Tax Competition When Governments Lack Commitment: Excess Capacity as a Countervailing Threat," American Economic Review, American Economic Association, vol. 90(5), pages 1508-1519, December.
    26. Shang-Jin Wei, 2000. "How Taxing is Corruption on International Investors?," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 1-11, February.
    27. Richard W Moxon, 1975. "The Motivation for Investment in Offshore Plants: The Case of the U.S. Electronics Industry," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 6(1), pages 51-66, March.
    28. Helpman, Elhanan, 1984. "A Simple Theory of International Trade with Multinational Corporations," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 451-471, June.
    29. Head, Keith & Ries, John & Swenson, Deborah, 1995. "Agglomeration benefits and location choice: Evidence from Japanese manufacturing investments in the United States," Journal of International Economics, Elsevier, vol. 38(3-4), pages 223-247, May.
    30. Mr. Alexander Lehmann, 1999. "Country Risks and the Investment Activity of U.S. Multinationals in Developing Countries," IMF Working Papers 1999/133, International Monetary Fund.
    31. Ramey, Garey & Ramey, Valerie A, 1995. "Cross-Country Evidence on the Link between Volatility and Growth," American Economic Review, American Economic Association, vol. 85(5), pages 1138-1151, December.
    32. Ashoka Mody & Krishna Srinivasan, 1998. "Japanese and United States Firms as Foreign Investors: Do they march to the same tune?," Canadian Journal of Economics, Canadian Economics Association, vol. 31(4), pages 778-799, November.
    33. Raj Aggarwal, 1980. "Investment Performance of U.S.-Based Multinational Companies: Comments and a Perspective on International Diversification of Real Assets," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 11(1), pages 98-104, March.
    34. Pietra Rivoli & Eugene Salorio, 1996. "Foreign Direct Investment and Investment under Uncertainty," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 27(2), pages 335-357, June.
    35. James R. Markusen, 1990. "First Mover Advantages, Blockaded Entry, And the Economics of Uneven Development," NBER Working Papers 3284, National Bureau of Economic Research, Inc.
    36. Alan M Rugman, 1976. "Risk Reduction by International Diversification," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 7(2), pages 75-80, June.
    37. Masaaki Kotabe & K Scott Swan, 1994. "Offshore Sourcing: Reaction, Maturation, and Consolidation of U.S. Multinationals," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 25(1), pages 115-140, March.
    38. Kent D Miller & Jeffrey J Reuer, 1998. "Firm Strategy and Economic Exposure to Foreign Exchange Rate Movements," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 29(3), pages 493-513, September.
    39. Ike Mathur & Kyran Hanagan, 1983. "Are Multinational Corporations Superior Investment Vehicles for Achieving International Diversification?," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 14(3), pages 135-146, September.
    40. Wheeler, David & Mody, Ashoka, 1992. "International investment location decisions : The case of U.S. firms," Journal of International Economics, Elsevier, vol. 33(1-2), pages 57-76, August.
    41. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
    42. Pahud de Mortanges, Charles & Allers, Vivian, 1996. "Political risk assessment: Theory and the experience of Dutch firms," International Business Review, Elsevier, vol. 5(3), pages 303-318, June.
    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


    Cited by:

    1. Gordon Sirr & John Garvey & Liam A. Gallagher, 2017. "Bilateral Investment Treaties and Foreign Direct Investment: Evidence of Asymmetric Effects on Vertical and Horizontal Investments," Development Policy Review, Overseas Development Institute, vol. 35(1), pages 93-113, January.
    2. Valeria Arza & Elisa Giuliani & Federica Nieri, 2019. "DRIFTING ON A CALMA CHICHA AFTER COUNTLESS STORMS: How macroeconomic uncertainty affects firms' de cisions to innovate in emerging countries," Discussion Papers 2019/251, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    3. Celine Azemar & Julia Darby & Rodolphe Desbordes & Ian Wooton, 2012. "Market Familiarity and the Location of South and North MNEs," Economics and Politics, Wiley Blackwell, vol. 24(3), pages 307-345, November.
    4. Wu, Desheng & Olson, David L., 2008. "Supply chain risk, simulation, and vendor selection," International Journal of Production Economics, Elsevier, vol. 114(2), pages 646-655, August.
    5. Wooton, Ian & Darby, Julia & Desbordes, Rodolphe, 2009. "Does Public Governance Always Matter? How Experience of Poor Institutional Quality Influences FDI to the South," CEPR Discussion Papers 7533, C.E.P.R. Discussion Papers.
    6. Burcak Polat, 2017. "Financial components of FDI and choice of capital structure: an analysis for 30 OECD countries," Applied Economics, Taylor & Francis Journals, vol. 49(19), pages 1901-1912, April.
    7. Wang, Chengqi & Hong, Junjie & Kafouros, Mario & Boateng, Agyenim, 2012. "What drives outward FDI of Chinese firms? Testing the explanatory power of three theoretical frameworks," International Business Review, Elsevier, vol. 21(3), pages 425-438.
    8. Stoian, Carmen & Filippaios, Fragkiskos, 2008. "Dunning's eclectic paradigm: A holistic, yet context specific framework for analysing the determinants of outward FDI: Evidence from international Greek investments," International Business Review, Elsevier, vol. 17(3), pages 349-367, June.
    9. Tailan Chi & Jing Li & Lenos G Trigeorgis & Andrianos E Tsekrekos, 2019. "Real options theory in international business," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 50(4), pages 525-553, June.
    10. Konara, Palitha, 2020. "The role of language connectedness in reducing home bias in trade, investment, information, and people flows," Research in International Business and Finance, Elsevier, vol. 52(C).
    11. Zwinkels, Remco C.J. & Beugelsdijk, Sjoerd, 2010. "Gravity equations: Workhorse or Trojan horse in explaining trade and FDI patterns across time and space?," International Business Review, Elsevier, vol. 19(1), pages 102-115, February.
    12. Eduardsen, Jonas & Marinova, Svetla, 2020. "Internationalisation and risk: Literature review, integrative framework and research agenda," International Business Review, Elsevier, vol. 29(3).
    13. Zhu, Ying & Sardana, Deepak, 2020. "Multinational enterprises’ risk mitigation strategies in emerging markets: A political coalition perspective," Journal of World Business, Elsevier, vol. 55(2).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Céline Azémar & Rodolphe Desbordes, 2010. "Short‐run Strategies for Attracting Foreign Direct Investment," The World Economy, Wiley Blackwell, vol. 33(7), pages 928-957, July.
    2. Céline Azémar & Rodolphe Desbordes, 2009. "Public Governance, Health and Foreign Direct Investment in Sub-Saharan Africa," Journal of African Economies, Centre for the Study of African Economies, vol. 18(4), pages 667-709, August.
    3. Aizenman, Joshua & Marion, Nancy, 2004. "The merits of horizontal versus vertical FDI in the presence of uncertainty," Journal of International Economics, Elsevier, vol. 62(1), pages 125-148, January.
    4. Caroline T Witte & Martijn J Burger & Elena I Ianchovichina & Enrico Pennings, 2017. "Dodging bullets: The heterogeneous effect of political violence on greenfield FDI," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 48(7), pages 862-892, September.
    5. Fung , K.C. & Korhonen, Iikka & Li, Ke & Ng, Francis, 2008. "China and central and eastern European countries : regional networks, global supply chain, or international competitors?," Policy Research Working Paper Series 4689, The World Bank.
    6. Fung , K.C. & Korhonen, Iikka & Li, Ke & Ng, Francis, 2008. "China and central and eastern European countries : regional networks, global supply chain, or international competitors?," Policy Research Working Paper Series 4689, The World Bank.
    7. Eduardsen, Jonas & Marinova, Svetla, 2020. "Internationalisation and risk: Literature review, integrative framework and research agenda," International Business Review, Elsevier, vol. 29(3).
    8. repec:zbw:bofitp:2008_009 is not listed on IDEAS
    9. Gossel, Sean Joss, 2018. "FDI, democracy and corruption in Sub-Saharan Africa," Journal of Policy Modeling, Elsevier, vol. 40(4), pages 647-662.
    10. Sarker, Bibhuti & Serieux, John, 2023. "Multilevel determinants of FDI: A regional comparative analysis," Economic Systems, Elsevier, vol. 47(3).
    11. Chiara Franco & Francesco Rentocchini & Giuseppe Vittucci Marzetti, 2008. "Why do firms invest abroad? An analysis of the motives underlying Foreign Direct Investments," Department of Economics Working Papers 0817, Department of Economics, University of Trento, Italia.
    12. Belkacem Laabas and Walid Abdmoulah, "undated". "Determinants of Arab Intraregional Foreign Direct Investments," API-Working Paper Series 0905, Arab Planning Institute - Kuwait, Information Center.
    13. Yao, Shujie & Wang, Pan & Zhang, Jing & Ou, Jinghua, 2016. "Dynamic relationship between China's inward and outward foreign direct investments," China Economic Review, Elsevier, vol. 40(C), pages 54-70.
    14. Duong, Nguyen Minh Huy, 2015. "An Investigation of the Determinants of US FDI in Developed Countries, 1982-2010," MPRA Paper 66518, University Library of Munich, Germany.
    15. Busse, Matthias & Hefeker, Carsten, 2007. "Political risk, institutions and foreign direct investment," European Journal of Political Economy, Elsevier, vol. 23(2), pages 397-415, June.
    16. Desbordes, Rodolphe & Vicard, Vincent, 2009. "Foreign direct investment and bilateral investment treaties: An international political perspective," Journal of Comparative Economics, Elsevier, vol. 37(3), pages 372-386, September.
    17. Kolstad, Ivar & Villanger, Espen, 2008. "Determinants of foreign direct investment in services," European Journal of Political Economy, Elsevier, vol. 24(2), pages 518-533, June.
    18. Bersan Haliti & Safet Merovci, 2020. "The Impact of the Investment Environment on Foreign Direct Investment (FDI) in the European Transition Economies," Economic Alternatives, University of National and World Economy, Sofia, Bulgaria, issue 1, pages 138-147, March.
    19. Arjun Bhardwaj & Joerg Dietz & Paul W. Beamish, 2007. "Host country cultural influences on foreign direct investment," Management International Review, Springer, vol. 47(1), pages 29-50, February.
    20. Steven Poelhekke & Frederick Van der Ploeg, 2008. "Growth, Foreign Direct Investment and Urban Concentrations: Unbundling Spatial Lags," CESifo Working Paper Series 2474, CESifo.
    21. Disdier, Anne-Celia & Mayer, Thierry, 2004. "How different is Eastern Europe? Structure and determinants of location choices by French firms in Eastern and Western Europe," Journal of Comparative Economics, Elsevier, vol. 32(2), pages 280-296, June.

    Corrections

    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:eee:iburev:v:16:y:2007:i:6:p:732-750. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/wps/find/journaldescription.cws_home/133/description#description .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.