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The Distribution of Fixed Capital in the Multinational Firm

Author

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  • Alexander Lehmann

    (International Monetary Fund)

Abstract

Based on industry-level data for majority-owned U.S. foreign affiliates in 49 countries, this paper identifies the determinants of the cross-country distribution of fixed capital within multinational companies. Controlling for market size and trade openness, it is shown that U.S.-owned capital stocks are high in countries with a history of high profitability and low earnings variability. Similarly, the formation of fixed capital is encouraged in host countries with low variable costs, low political risks, and open trade regimes. At the same time, capital expenditures in the late 1990s appear to be insensitive to contemporaneous changes in risk and market shares, underlining investors' sluggish response to the changing characteristics of their host markets. These findings underline the importance of risk in deterring fixed capital expenditures in - and by implication capital flows to - developing countries. Copyright 2002, International Monetary Fund

Suggested Citation

  • Alexander Lehmann, 2002. "The Distribution of Fixed Capital in the Multinational Firm," IMF Staff Papers, Palgrave Macmillan, vol. 49(1), pages 1-8.
    • Handle: RePEc:pal:imfstp:v:49:y:2002:i:1:p:8
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    Cited by:

    1. Levy Yeyati, Eduardo & Panizza, Ugo & Stein, Ernesto, 2007. "The cyclical nature of North-South FDI flows," Journal of International Money and Finance, Elsevier, vol. 26(1), pages 104-130, February.
    2. Varum, Celeste & Rocha, Vera Catarina & Valente da Silva, Hélder, 2014. "Economic slowdowns, hazard rates and foreign ownership," International Business Review, Elsevier, vol. 23(4), pages 761-773.

    More about this item

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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