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Global Fixed Capital Investment by Multinational Firms

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  • Ren� BELDERBOS
  • FUKAO Kyoji
  • ITO Keiko
  • Wilko LETTERIE

Abstract

This paper develops and tests a simple model of the simultaneous determination of gross fixed capital formation by multinational Japanese firms in home and host countries. We treat multinational firms as multi-product firms, choosing optimal investment locations and production scale for each product. We test the predictions of the model on a unique dataset covering 1707 fixed capital investment decisions by (affiliates of) Japanese multinational firms in the manufacturing sector based on research conducted in 1996 and 1997. We find that the rate of investment is not only determined by factors affecting the return on investment levels in a country (e.g. effective demand and wages), but also by wage levels in other countries in which the firm operates manufacturing affiliates. Firms facing global liquidity constraints show systematically lower investment ratios, suggesting that financing constraints are another source of interaction between investments.

Suggested Citation

  • Ren� BELDERBOS & FUKAO Kyoji & ITO Keiko & Wilko LETTERIE, 2010. "Global Fixed Capital Investment by Multinational Firms," Discussion papers 10044, Research Institute of Economy, Trade and Industry (RIETI).
  • Handle: RePEc:eti:dpaper:10044
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    References listed on IDEAS

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    1. Blomstrom, Magnus & Fors, Gunnar & Lipsey, Robert E, 1997. "Foreign Direct Investment and Employment: Home Country Experience in the United States and Sweden," Economic Journal, Royal Economic Society, vol. 107(445), pages 1787-1797, November.
    2. Magnus Blomstrom & Denise Konan & Robert E. Lipsey, 2000. "FDI in the Restructuring of the Japanese Economy," NBER Working Papers 7693, National Bureau of Economic Research, Inc.
    3. René Belderbos & Jianglei Zou, 2007. "On the growth of foreign affiliates: multinational plant networks, joint ventures, and flexibility," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 38(7), pages 1095-1112, December.
    4. René Belderbos, 1992. "Large multinational enterprises based in a small economy: Effects on domestic investment," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), pages 543-557.
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    Cited by:

    1. Lapatinas, Athanasios, 2015. "Multinational versus national firms on capital adjustment costs: A structural approach," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 9, pages 1-22.
    2. Devereux, Michael P. & Fuest, Clemens & Lockwood, Ben, 2015. "The taxation of foreign profits: A unified view," Journal of Public Economics, Elsevier, vol. 125(C), pages 83-97.
    3. René Belderbos, 2006. "R&D Activities in East Asia by Japanese, European, and US Multinationals," Microeconomics Working Papers 21887, East Asian Bureau of Economic Research.

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