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Cost Heterogeneity and the Destination of Foreign Direct Investment

Author

Listed:
  • Seiichi Katayama

    (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)

  • Sajal Lahiri

    (Department of Economics, Southern Illinois University, USA)

  • Eiichi Tomiura

    (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)

Abstract

This paper first of all develops a theoretical model to examine a number of heterogeneous firms' choice between making export-oriented foreign direct investments (FDI) in a host country and making FDI in another country to serve the market there. It is shown that all firms below a critical level of efficiency invest in the first country, and the other relatively more efficient firms invest in the second host country. The hypothesis is tested using firmlevel data on 118,300 Japanese firms covering the entire manufacturing sector. Multinomial logit estimates strongly support our theoretical findings.

Suggested Citation

  • Seiichi Katayama & Sajal Lahiri & Eiichi Tomiura, 2005. "Cost Heterogeneity and the Destination of Foreign Direct Investment," Discussion Paper Series 166, Research Institute for Economics & Business Administration, Kobe University.
  • Handle: RePEc:kob:dpaper:166
    as

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    File URL: http://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/dp166.pdf
    File Function: First version, 2005
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Cost heterogeneity; Oligopoly; Foreign direct Investment; Export-oriented FDI;

    JEL classification:

    • F2 - International Economics - - International Factor Movements and International Business
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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