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Industrial Groupings and Strategic FDI: Theory and Evidence

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  • Bruce A. Blonigen
  • Christopher J. Ellis
  • Dietrich Fausten

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.

Suggested Citation

  • Bruce A. Blonigen & Christopher J. Ellis & Dietrich Fausten, 2000. "Industrial Groupings and Strategic FDI: Theory and Evidence," NBER Working Papers 8046, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:8046
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    Cited by:

    1. Koki Arai, 2004. "An Airline Merger in Japan: A Case Study Revealing Principles of Japanese Merger Control," Journal of Industry, Competition and Trade, Springer, vol. 4(3), pages 207-222, September.
    2. Bruce A. Blonigen & Rossitza B. Wooster, 2003. "CEO Turnover and Foreign Market Participation," University of Oregon Economics Department Working Papers 2003-24, University of Oregon Economics Department, revised 01 Mar 2003.

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    More about this item

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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