By Kenneth A. Froot
Chapters hide such themes as theoretical money owed of FDI styles, the expansion of firm agencies, and the FDI studies of Japan, the us, and chosen constructing international locations. This quantity will curiosity economists, executive officers, and enterprise humans fascinated by FDI today.
Read Online or Download Foreign Direct Investment (National Bureau of Economic Research Project Report) PDF
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Extra resources for Foreign Direct Investment (National Bureau of Economic Research Project Report)
This question would of course be easier to answer if we knew why so much investment is now taking place and what its future prospects are. 4 Studying the Issue What approach is most likely to help us answer the key questions just described? The standard answer is theoretical analysis of the basic motives for multinational enterprise, backed by econometric testing of hypotheses. There are, however, two difficulties with this standard approach. First, the theoretical analysis of the boundaries of the firm-what the question of multinational enterprise is really about-is a deep issue, one on which economists have made only modest progress.
On the other hand, it is not certain either: the conceptual foundations of discussion about FDI are fuzzy enough to allow many hypotheses. 32 Edward M. Graham and Paul R. Krugman Available empirical evidence does not confirm the critics’ fears. Studies by Graham and Krugman (1991) and by Julius (1990) basically find that foreignowned firms behave very similarly to domestically owned firms in the same industry. They pay similar wages, engage in similar amounts of R&D, and so on. The only clear difference is a tendency to buy inputs from home suppliers, leading to a higher import propensity on the part of foreign-owned manufacturing firms.
S. tax reform in 1986 removed this bias. Scholes and Wolfson point out that the timing of these changes helps explain the end of the 1978-81 FDI surge and the onset of the post-1986 surge. If this explanation has any validity, it should have some explanatory power across industries. For a variety of reasons, effective rates of corporate taxation vary considerably across industries; the Scholes-Wolfsonargument says, counterintuitively,that foreign ownership should be larger in industries with relative high effective tax rates.