The Determinants of Foreign Investment Size: The Role of Parent Firm and National Distance

34 Pages Posted: 22 Oct 2011

See all articles by Nan Zhou

Nan Zhou

University of Pennsylvania - The Wharton School

Jiawen Yang

George Washington University - School of Business

Date Written: October 20, 2011

Abstract

Investment size has been overlooked by scholars who study foreign direct investment (FDI). This overlook hinders our understanding of globalization, because the study of investment size will shed light on how firms of different sizes develop and participate in the current trend of globalization, and on how entry barriers influence the pattern of FDI. To fill in the gap in the literature, we develop an economic model of foreign investment size. From this model, we predict the determinants of foreign investment size: it is positively related to parent firm size, while it follows an inverted U-shape relationship with national distances. Moreover, parent firm size and national distance also interact with each other to influence investment size. Our empirical analysis of Japanese FDI data from 1985 to 2003 supports our arguments.

Keywords: foreign direct investment, firm investment size, liability of foreignness

JEL Classification: F21, F23

Suggested Citation

Zhou, Nan and Yang, Jiawen, The Determinants of Foreign Investment Size: The Role of Parent Firm and National Distance (October 20, 2011). Available at SSRN: https://ssrn.com/abstract=1946957 or http://dx.doi.org/10.2139/ssrn.1946957

Nan Zhou

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Jiawen Yang (Contact Author)

George Washington University - School of Business ( email )

Washington, DC 20052
United States
202-994-8709 (Phone)
202-994-7422 (Fax)

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