Industrial Groupings and Strategic FDI: Theory and Evidence

Bruce Blonigen, Christopher J. Ellis and Dietrich Fausten

No 8046, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: F10 F21 (search for similar items in EconPapers)
Date: 2000-12
Note: ITI
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published as Blonigen, Bruce A., Christopher J. Ellis and Dietrich Fausten. "Industrial Groupings And Strategic FDI," Japan and the World Economy, 2005, v17(2,Apr), 125-150.

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