Determinants of Different Modes of Japanese Foreign Direct Investment in the United States

27 Pages Posted: 4 Jun 2010

See all articles by Joseph D. Alba

Joseph D. Alba

Nanyang Technological University

Donghyun Park

Asian Development Bank - Economic Research

Peiming Wang

Auckland University of Technology - Department of Finance

Date Written: March 2010

Abstract

There are four major modes through which firms undertake foreign direct investment (FDI): merger and acquisition (M&A), joint venture, new plant, and others. The four modes of FDI are distinct from each other, and each has its own unique advantages and disadvantages. While a large and growing empirical literature examines the determinants of FDI, very few studies examine the determinants of the different modes. The central objective of this paper is to empirically analyze the extent to which the determinants of FDI such as firm size influence the choice of one mode of FDI over another. Our analysis follows a stylized two-stage investment process. First, we look at the probability of whether a Japanese firm is willing to undertake FDI in the United States. Second, which is the innovation of this paper and its main original contribution to the FDI literature, we analyze which of the four modes of FDI will be chosen by firms that are willing to undertake FDI.

Keywords: FDI, merger and acquisition, joint venture, new plant, relative access to bank credit, relative wealth, hurdle regression model, multinomial logit model

JEL Classification: F21, F23

Suggested Citation

Alba, Joseph Dennis A. and Park, Donghyun and Wang, Peiming, Determinants of Different Modes of Japanese Foreign Direct Investment in the United States (March 2010). Asian Development Bank Economics Working Paper No. 197, Available at SSRN: https://ssrn.com/abstract=1619162 or http://dx.doi.org/10.2139/ssrn.1619162

Joseph Dennis A. Alba (Contact Author)

Nanyang Technological University ( email )

School of Social Sciences
48 Nanyang Avenue
Singapore, 639818
Singapore

Donghyun Park

Asian Development Bank - Economic Research ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

Peiming Wang

Auckland University of Technology - Department of Finance ( email )

AUT City Campus
Private Bag 92006
Auckland, 1142
New Zealand

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