Industrial Groupings and Strategic FDI: Theory and Evidence

39 Pages Posted: 17 Dec 2000 Last revised: 20 Oct 2010

See all articles by Bruce A. Blonigen

Bruce A. Blonigen

University of Oregon - Department of Economics; National Bureau of Economic Research (NBER)

Christopher J. Ellis

University of Oregon - Department of Economics

Dietrich Fausten

Monash University - Department of Economics

Date Written: December 2000

Abstract

We show that industrial ownership structures, such as keiretsu groupings in Japan, may significantly impact firms' incentives to engage in FDI. While the previous literature has mainly focused on the cost of capital advantages enjoyed by keiretsu firms, this paper examines two relatively unexplored channels by which ownership structure matters for FDI incentives. The first channel involves the direct incentives generated via standard product and factor market interactions whereby keiretsu firms with cross-ownership consider more directly the congestion effects of further FDI into a market. The second channel involves the indirect incentives generated by sharing of information across keiretsu firms which reduces entry costs for subsequent FDI. Using data on Japanese FDI activity by both keiretsu and non-keiretsu manufacturing firms, we find evidence to support the importance of the second channel (information-sharing incentives) as an explanation for firm-level FDI patterns, but not for the first channel.

Suggested Citation

Blonigen, Bruce A. and Ellis, Christopher J. and Fausten, Dietrich, Industrial Groupings and Strategic FDI: Theory and Evidence (December 2000). NBER Working Paper No. w8046, Available at SSRN: https://ssrn.com/abstract=254007

Bruce A. Blonigen (Contact Author)

University of Oregon - Department of Economics ( email )

1285 University of Oregon
Eugene, OR 97403
United States
541-346-4680 (Phone)
541-346-1243 (Fax)

National Bureau of Economic Research (NBER)

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Christopher J. Ellis

University of Oregon - Department of Economics ( email )

Eugene, OR 97403
United States

Dietrich Fausten

Monash University - Department of Economics ( email )

Wellington Road
Clayton, Victoria 3
Australia

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