determinants of different modes of fdi: firm-level evidence from japanese fdi into the united states
TRANSCRIPT
7/30/2019 Determinants of Different Modes of FDI: Firm-Level Evidence from Japanese FDI into the United States
http://slidepdf.com/reader/full/determinants-of-different-modes-of-fdi-firm-level-evidence-from-japanese-fdi 1/28
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Determinants o Diferent Modeso Japanese Foreign Direct Investmentin the United States
Joseph D. Alba, Donghyun Park, and Peiming WangNo. 197 | March 2010
7/30/2019 Determinants of Different Modes of FDI: Firm-Level Evidence from Japanese FDI into the United States
http://slidepdf.com/reader/full/determinants-of-different-modes-of-fdi-firm-level-evidence-from-japanese-fdi 2/28
7/30/2019 Determinants of Different Modes of FDI: Firm-Level Evidence from Japanese FDI into the United States
http://slidepdf.com/reader/full/determinants-of-different-modes-of-fdi-firm-level-evidence-from-japanese-fdi 3/28
ADB Economics Working Paper Series No. 197
Determinants o Dierent Modes
o Japanese Foreign Direct Investment
in the United States
Joseph D. Alba, Donghyun Park, and Peiming Wang
March 2010
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7/30/2019 Determinants of Different Modes of FDI: Firm-Level Evidence from Japanese FDI into the United States
http://slidepdf.com/reader/full/determinants-of-different-modes-of-fdi-firm-level-evidence-from-japanese-fdi 4/28
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7/30/2019 Determinants of Different Modes of FDI: Firm-Level Evidence from Japanese FDI into the United States
http://slidepdf.com/reader/full/determinants-of-different-modes-of-fdi-firm-level-evidence-from-japanese-fdi 5/28
Contents
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7/30/2019 Determinants of Different Modes of FDI: Firm-Level Evidence from Japanese FDI into the United States
http://slidepdf.com/reader/full/determinants-of-different-modes-of-fdi-firm-level-evidence-from-japanese-fdi 6/28
7/30/2019 Determinants of Different Modes of FDI: Firm-Level Evidence from Japanese FDI into the United States
http://slidepdf.com/reader/full/determinants-of-different-modes-of-fdi-firm-level-evidence-from-japanese-fdi 7/28
Abstract
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7/30/2019 Determinants of Different Modes of FDI: Firm-Level Evidence from Japanese FDI into the United States
http://slidepdf.com/reader/full/determinants-of-different-modes-of-fdi-firm-level-evidence-from-japanese-fdi 8/28
7/30/2019 Determinants of Different Modes of FDI: Firm-Level Evidence from Japanese FDI into the United States
http://slidepdf.com/reader/full/determinants-of-different-modes-of-fdi-firm-level-evidence-from-japanese-fdi 9/28
I. Introduction
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1 Caves (1971) and Graham and Krugman (1995) review theories o FDI based on industrial organization motives.2 Gibson (1995) examines the efect o bank health on domestic investment in Japan.
7/30/2019 Determinants of Different Modes of FDI: Firm-Level Evidence from Japanese FDI into the United States
http://slidepdf.com/reader/full/determinants-of-different-modes-of-fdi-firm-level-evidence-from-japanese-fdi 10/28
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7/30/2019 Determinants of Different Modes of FDI: Firm-Level Evidence from Japanese FDI into the United States
http://slidepdf.com/reader/full/determinants-of-different-modes-of-fdi-firm-level-evidence-from-japanese-fdi 11/28
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7/30/2019 Determinants of Different Modes of FDI: Firm-Level Evidence from Japanese FDI into the United States
http://slidepdf.com/reader/full/determinants-of-different-modes-of-fdi-firm-level-evidence-from-japanese-fdi 12/28
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4 The importance o rm size in FDI is explained in Caves (1971) and in Horst (1972). Both authors note that rmsize is important in both horizontal FDI and vertical FDI.
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7/30/2019 Determinants of Different Modes of FDI: Firm-Level Evidence from Japanese FDI into the United States
http://slidepdf.com/reader/full/determinants-of-different-modes-of-fdi-firm-level-evidence-from-japanese-fdi 14/28
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5 Noguchi (1993) and Gao (2001) discuss the origins and implications o the use o zai’tech by Japanese rms.
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7/30/2019 Determinants of Different Modes of FDI: Firm-Level Evidence from Japanese FDI into the United States
http://slidepdf.com/reader/full/determinants-of-different-modes-of-fdi-firm-level-evidence-from-japanese-fdi 15/28
IV. Model Specifcation and Empirical Results
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A. Probability o a Japanese Firm Undertaking FDI in the US
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7/30/2019 Determinants of Different Modes of FDI: Firm-Level Evidence from Japanese FDI into the United States
http://slidepdf.com/reader/full/determinants-of-different-modes-of-fdi-firm-level-evidence-from-japanese-fdi 16/28
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Table 1: Logistic Regression or Probability o Japanese Firms Undertaking FDI in the US
Determinants
in π
Coecient
β1
t-stat P -value
aa1 -0.435 -3.160 0.002
aa2 -0.404 -1.580 0.113aa3 -0.677 -4.410 0.000a1 -0.535 -2.730 0.006a2 -0.630 -2.120 0.034lrw 0.432 2.930 0.003Rp 6.267 2.610 0.009ls 0.942 23.240 0.000ic2 -1.359 -5.490 0.000ic3 0.130 1.170 0.243ic4 -0.090 -0.560 0.577ic5 -3.300 -5.340 0.000ic6 -1.152 -2.540 0.011ic7 -0.194 -0.830 0.404ic8 -3.559 -5.840 0.000ic9 -1.179 -1.980 0.047
constant -10.679 -10.430 0.000
Note: Number o observations = 5298; log likelihood = -1510.01; likelihood ratio test statistic is 832.87, which has a χ2-distributionwith 16 degrees o reedom. dr1 and dr2 reer to single and multiple downgrades o the rm’s main bank.dlrw, drp, and dls reer to a one-standard deviation change in the rm’s relative wealth, prot, and rm size, respectively.ic stands or industry code.
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7/30/2019 Determinants of Different Modes of FDI: Firm-Level Evidence from Japanese FDI into the United States
http://slidepdf.com/reader/full/determinants-of-different-modes-of-fdi-firm-level-evidence-from-japanese-fdi 17/28
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Table 2: Parameter Estimates, t-statistics, and P-values o the Zero-truncated Poisson
Regression or the Conditional Rate o FDI or Japanese Firms Undertaking FDI in the USFDI
Determinants
Coecient β2 t-stat P-value
dr1 -0.243 -2.110 0.035
dr2 -0.861 -3.010 0.030
dlrw 0.237 1.790 0.073
drp 3.501 0.890 0.372dls 0.584 1.330 0.183ic2 -0.649 -2.010 0.045ic3 -0.585 -5.120 0.000ic4 0.215 1.840 0.066ic5 0.142 0.270 0.791ic6 -14.462 -0.020 0.983ic7 0.276 1.580 0.114ic8 -14.422 -0.020 0.988ic9 -0.319 -0.480 0.631
constant 0.355 4.260 0.000
Notes: Number o observations = 627; log likelihood = -769.46; likelihood ratio test statistic is 175.35, which has a χ2-distributionwith 13 degrees o reedom. dr1 and dr2 reer to single and multiple downgrades o the rm’s main bank.dlrw, drp, and dls reer to a one-standard deviation change in the rm’s relative wealth, prot, and rm size, respectively.ic stands or industry code.
B. Eects o FDI Determinant on Choice o FDI Mode
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7/30/2019 Determinants of Different Modes of FDI: Firm-Level Evidence from Japanese FDI into the United States
http://slidepdf.com/reader/full/determinants-of-different-modes-of-fdi-firm-level-evidence-from-japanese-fdi 18/28
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7/30/2019 Determinants of Different Modes of FDI: Firm-Level Evidence from Japanese FDI into the United States
http://slidepdf.com/reader/full/determinants-of-different-modes-of-fdi-firm-level-evidence-from-japanese-fdi 19/28
Table 3: Odds Ratios or Comparisons among Pairs o FDI Modes
FDI Determinants (xk,3)
dr1 dr2 dlrw drp dls
Comparisonδ
1 1Std=.350 Std=.011 Std=.097
M&A|Oβ k,M|O
-0.214 -0.266 -0.274 25.486 2.418
Exp(β k,M|O ×δ)
0.913 0.942 0.909 1.324 1.265
P-value 0.285 0.472 0.271 0.003 0.004
NP|Oβ k,N|O
-0.462 -0.287 -0.060 12.101 0.005
Exp(β k,N|O ×δ)0.630 0.750 0.979 1.142 1.001
P-value 0.090 0.524 0.848 0.247 0.996
JV|Oβ k,J|O
0.175 -0.554 0.066 17.410 0.981
Exp(β k,J|O ×δ)1.191 0.575 1.024 1.211 1.100
P-value 0.419 0.241 0.816 0.056 0.327
M&A|NPβk,M|N
0.248 0.021 -0.215 13.385 2.412
Exp(β k,M|N ×δ)1.281 1.022 0.928 1.159 1.265
P-value 0.402 0.967 0.526 0.239 0.046
M&A|JVβ k,M|J
-0.389 0.288 -0.341 8.076 1.436
Exp(β k,M|J ×δ)0.678 1.334 0.888 1.093 1.150
P-value 0.114 0.588 0.275 0.397 0.179
JV|NPβk,J|N
0.637 -0.267 0.126 5.308 0.976
Exp(β k,J|N ×δ)
1.890 0.766 1.045 1.060 1.100
P-value 0.040 0.653 0.732 0.658 0.463
M&A = merger and acquisition, NP = new plant, JV = joint venture, and O = other FDI.Note: dr1 and dr2 reer to single and multiple downgrades o the rm’s main bank. dlrw, drp, and dls reer to a one-standard
deviation change in the rm’s relative wealth, prot, and rm size, respectively. The combinations o M&A/O, NP/O,and JV/O are estimated using a multinomial logistic regression. These results are then used to calculate the pair-wisecomparisons o M&A/NP, M&A/JV, and JV/NP holding O constant. The parameter estimates o the other six pair-wisecomparisons mirror those o the corresponding pairs with the same P-values. For instance, β1,NP|M&A = – β1,M&A|NP =–0.248, and the P-value is also 0.402.
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7/30/2019 Determinants of Different Modes of FDI: Firm-Level Evidence from Japanese FDI into the United States
http://slidepdf.com/reader/full/determinants-of-different-modes-of-fdi-firm-level-evidence-from-japanese-fdi 20/28
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7/30/2019 Determinants of Different Modes of FDI: Firm-Level Evidence from Japanese FDI into the United States
http://slidepdf.com/reader/full/determinants-of-different-modes-of-fdi-firm-level-evidence-from-japanese-fdi 21/28
Figure 1: Plot o Odds Ratios between Pairs o FDI Modes
dr1
0/1
dr20/1
dlrwStd Coe
drpStd Coe
dlsStd Coe
Logit Coecient Scale Relative to Category others
-.55 -.45 -.34 -.24 -.13 -.03 .08 .19 .29
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NP
NP
M&A
O
O
O
O
O
JV
Factor Change Scale Relative to Category others
NP
NP
NP
JV
JV
JV
JV
M&A
M&A
M&A
M&A
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7/30/2019 Determinants of Different Modes of FDI: Firm-Level Evidence from Japanese FDI into the United States
http://slidepdf.com/reader/full/determinants-of-different-modes-of-fdi-firm-level-evidence-from-japanese-fdi 22/28
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Figure 2: Relationship between Changes in FDI Determinants and Changes in Probabilitieso Undertaking FDI Modes
DR1-0/1
DR2-0/1
DLRW-STD
DRP-std
DLFS-std
Change in Predicted Probability or y
-.06 -.04 -.03 -.01 0 .02 .03 .05 .06
O
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O
O
O
NP
NP
NP
M&A JV
M&A
M&A
M&A
M&A
JV
JV
JV
JVNP
NP
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bank’s credit rating; DLRW-std reers to one standard deviation increase in relative wealth; DRP-std reers to one standarddeviation increase in protability; DLFS-std reers to one standard deviation increase in rm size.
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7/30/2019 Determinants of Different Modes of FDI: Firm-Level Evidence from Japanese FDI into the United States
http://slidepdf.com/reader/full/determinants-of-different-modes-of-fdi-firm-level-evidence-from-japanese-fdi 23/28
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Figure 3: Plot o Odds Ratios between Pairs o FDI Modes, Subsample o Firms in the Top
30% o Bonds-to-Liabilities Ratios
DR1
0/1
DR20/1
DLRWStd Coe
DRPStd Coe
DLFSStd Coe
Logit Coecient Scale Relative to Category others
-1.53 -1.25 -.96 -.68 -.39 -.11 .18 .46 .75
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O
O
O
O
O
Factor Change Scale Relative to Category others
NP
M&A
JV
NP
M&A
JVNP
M&A
JV
NP
M&A
JV
NPM&A
JV
M&A = mergers and acquisitions, NP = new plant, JV = joint venture, O = other FDI.Note: dr1 reers to one downgrade o the main bank’s credit rating; dr2 reers to multiple downgrades o the main bank’s credit
rating; dlrw reers to a one standard deviation increase in relative wealth; drp reers to a one standard deviation increase inprotability; dls reers to a one standard deviation increase in rm size.
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7/30/2019 Determinants of Different Modes of FDI: Firm-Level Evidence from Japanese FDI into the United States
http://slidepdf.com/reader/full/determinants-of-different-modes-of-fdi-firm-level-evidence-from-japanese-fdi 24/28
Figure 4: Relationship between Changes in FDI Determinants and Changes in Probabilities
o Undertaking FDI Modes, Subsample o Firms in the Top 30% o Bonds-to-Liabilities
Ratios
DR1-0/1
DR2-0/1
DLRW-std
DRP-std
DLFS-std
Change in Predicted Probability or y
-.06 -.05 -.03 -.02 0 .01 .03 .04 .06
O
O
O
O
O NP
M&A JV
NP
M&A JV
NP
M&A
JV
NP
M&A
JV
NP
M&AJV
M&A = mergers and acquisitions, NP = new plant, JV = joint venture, O = other FDI.Note: DR1-0/1 reers to one downgrade o the main bank’s credit rating; DR2-0/1 reers to multiple downgrades o the main
bank’s credit rating; DLRW-std reers to one standard deviation increase in relative wealth; DRP-std reers to one standarddeviation increase in protability; DLFS-std reers to one standard deviation increase in rm size.
Figure 5: Plot o Odds Ratios between Pairs o FDI Modes, Subsample o Firms in the
Bottom 70% o Bonds-to-Liabilities Ratios
DR10/1
DR20/1
DLRWStd Coe
DRPStd Coe
DLFSStd Coe
Logit Coecient Scale Relative to Category others
-.99 -.79 -.59 -.4 -.2 0 .19 .39 .59
.37 .45 .55 .67 .82 1 1.21 1.48 1.8
O
O
O
Factor Change Scale Relative to Category others
O
O
NP
M&A
JV
NPM&A
NP
M&A
NP
M&A
JVM&A
JV
NP
JV
JV
M&A = mergers and acquisitions, NP = new plant, JV = joint venture, O = other FDI.Note: dr1 reers to one downgrade o the main bank’s credit rating; dr2 reers to multiple downgrades o the main bank’s credit
rating; dlrw reers to a one standard deviation increase in relative wealth; drp reers to a one standard deviation increase inprotability; dls reers to a one standard deviation increase in rm size.
_$'%(FRQRPLFV:RUNLQJ3DSHU6HULHV1R
7/30/2019 Determinants of Different Modes of FDI: Firm-Level Evidence from Japanese FDI into the United States
http://slidepdf.com/reader/full/determinants-of-different-modes-of-fdi-firm-level-evidence-from-japanese-fdi 25/28
Figure 6: Relationship between FDI Determinants and Changes in Probabilities o FDI
Modes, Subsample o Firms in the Bottom 70% o Bonds-to-Liabilities Ratios
DR1-0/1
DR2-0/1
DLRW-std
DRP-std
DLFS-std
Change in Predicted Probability or y
-.12 -.09 -.06 -.03 0 .03 .06 .09 .12
O
O
O
O
O
NP
M&A
JV
NP
M&AJV
NPM&A
JVNP
M&A
JV
NP
M&A
JV
M&A = mergers and acquisitions, NP = new plant, JV = joint venture, O = other FDI.Note: DR1-0/1 reers to one downgrade o the main bank’s credit rating; DR2-0/1 reers to multiple downgrades o the main
bank’s credit rating; DLRW-std reers to one standard deviation increase in relative wealth; DRP-std reers to one standarddeviation increase in protability; DLFS-std reers to one standard deviation increase in rm size.
V. Concluding Observations
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7/30/2019 Determinants of Different Modes of FDI: Firm-Level Evidence from Japanese FDI into the United States
http://slidepdf.com/reader/full/determinants-of-different-modes-of-fdi-firm-level-evidence-from-japanese-fdi 26/28
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7/30/2019 Determinants of Different Modes of FDI: Firm-Level Evidence from Japanese FDI into the United States
http://slidepdf.com/reader/full/determinants-of-different-modes-of-fdi-firm-level-evidence-from-japanese-fdi 27/28
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7/30/2019 Determinants of Different Modes of FDI: Firm-Level Evidence from Japanese FDI into the United States
http://slidepdf.com/reader/full/determinants-of-different-modes-of-fdi-firm-level-evidence-from-japanese-fdi 28/28
About the Paper
Joseph D. Alba, Donghyun Park, and Peiming Wang use rm-level evidence rom Japaneseoreign direct investment (FDI) into the United States to investigate the determinants o diferent modes o FDI. More specically, the empirical analysis examines the extent towhich the determinants o FDI such as rm size inuence the choice o one mode o FDIover another. The our major modes o FDI are merger & acquisition, joint venture, new plantand other modes.
About the Asian Development Bank
ADB’s vision is an Asia and Pacic region ree o poverty. Its mission is to help its developingmember countries substantially reduce poverty and improve the quality o lie o theirpeople. Despite the region’s many successes, it remains home to two-thirds o the world’spoor: 1.8 billion people who live on less than $2 a day, with 903 million struggling onless than $1.25 a day. ADB is committed to reducing poverty through inclusive economicgrowth, environmentally sustainable growth, and regional integration.
Based in Manila, ADB is owned by 67 members, including 48 rom the region. Its maininstruments or helping its developing member countries are policy dialogue, loans, equityinvestments, guarantees, grants, and technical assistance.
Asian Development Bank 6 ADB Avenue, Mandaluyong City1550 Metro Manila, Philippineswww.adb.org/economicsISSN: 1655-5252Publication Stock No. Printed in the Philippines