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Outward Direct Investment and the U.S. Economy

Robert Lipsey

No 4691, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Investment in production outside the United States is a method by which U.S. firms raise their shares in foreign markets and defend them against foreign rivals from the host countries and from other countries. The investing firms are exploiting their firm-specific assets such as proprietary technologies, patents, or skills in advertising or marketing, and the opportunity to produce abroad raises the value of these assets and encourages firms' investment in them by extending the range of markets and the length of time over which they can be exploited. Overseas production has contributed to the ability of American multinationals to retain world market shares in the face of the long- term decline in the share of the U.S. as a country and short-term changes such as exchange rate fluctuations. It has performed the same functions for Swedish firms and, more recently, for Japanese firms. Within U.S. multinationals, those with higher shares of their production overseas have higher employment at home relative to home production. Foreign production appears to require larger numbers of employees in headquarters activities such as R&D and supervision.

JEL-codes: F21 F23 (search for similar items in EconPapers)
Date: 1994-03
Note: ITI
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Published as M. Feldstein, J. Hines, R. Hubbard, eds. The Effects of Taxation on Multinational Corporations, University of Chicago Press, 1995, pp. 7-33
Published as Outward Direct Investment and the U.S. Economy , Robert E. Lipsey. in The Effects of Taxation on Multinational Corporations , Feldstein, Hines, and Hubbard. 1995

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