|Title:||United States foreign direct investment abroad by selected country/geographic region and by sector in dollars for 1999 to 2009|
|Source:||Indian Journal of Economics and Business|
Start of full article - but without data
U. S. Foreign Direct Investment Abroad: 1999-2009
(Historical Cost Basis, Billions of Dollars)
2009 Total Mining Manu- Whole- Informa- facturing sale tion
All Countries XXXX.X XXX.X XXX.X XXX.X XXX.X Canada XXX.X XX.X XX.X XX.X X.X Europe XXXX.X XX.X XXX.X XXX.X XXX.X Latin America XXX.X XX.X XX.X XX.X XX.X Africa XX.X XX.X X.X X.X X.X Middle East XX.X X.X XX.X X.X X.X Asia XXX.X XX.X XXX.X XX.X XX.X China XX.X X.X XX.X X.X X.X India XX.X X.X X.X X.X X.X
1999 Total Mining Manu- Whole- Informa- facturing sale tion
All Countries XXXX.X XX.X XXX.X XX.X XX.X Canada XXX.X XX.X XX.X X.X X.X Europe XXX.X XX.X XXX.X XX.X XX.X Latin America XXX.X XX.X XX.X XX.X X.X Africa XX.X X.X X.X X.X n.a. Middle East XX.X X.X X.X X.X n.a. Asia XXX.X XX.X XX.X XX.X X.X China X.X X.X X.X X.X X.X India X.X -X.X X.X X.X X.X
2009 Finance Services HC Others
All Countries XXX.X XX.X XXXX.X XXX.X Canada XX.X X.X XX.X XX.X Europe XXX.X XX.X XXX.X XXX.X Latin America XXX.X X.X XXX.X XX.X Africa X.X X.X X.X X.X Middle East X.X X.X XX.X X.X Asia XXX.X XX.X XX.X XX.X China X.X X.X X.X XX.X India X.X X.X X.X X.X
1999 Finance Services HC Others
All Countries XXX.X XX.X * XXX.X Canada XX.X X.X * XX.X Europe XX.X XX.X * XXX.X Latin America XX.X X.X * XX.X Africa n.a. X.X * X.X Middle East n.a. X.X * X.X Asia XX.X X.X * XX.X China X.X X.X * X.X India X.X X.X * X.X
n.a. indicates not available. HC denotes nonbank holding companies.
* means that the data is included in the Other category. Other
comprises all categories not listed in the table including
This paper estimates a model of outward foreign direct investment (FDI) that includes endogenous knowledge variables based on U.S. manufacturing, finance, and service.
The headquarter R&D activity of multinational companies (MNCs) quite naturally turns out to be a key variable determining outward FDI. Interestingly, the results illustrate that host-country R&D activities have a negative correlation with U.S.
outward FDI. Skill differentials play a significant role in the manufacturing and service sectors but with different signs of the estimated coefficients. The results show structural differences among the industrial sectors and highlight the role played by policy target variables thereby revealing interesting policy implications.
Keywords: Dynamic Panel Model, empirical analysis, FDI outflows, knowledge capital, R&D, wage differentials, skill differentials, United States.
US foreign direct investment (FDI) increased dramatically over the last decade, growing from $X,XXX billion in 1999 to $X,XXX billion in 2009, a net increase of XXX% (see Table X). In comparison, between 1999 and 2009, aggregate U.S. exports expanded by XX% from $XXX billion to $X,XXX billion. (X) Dramatic changes occurred in the regional distribution of U.S. outward FDI as well (see Table X). In 2009, Europe received XX% of U.S. outward FDI followed by Latin America and the Asian-Pacific region with XX% and XX%, respectively. During the same period (2009), Africa (X.X%) and the Middle East (X.X%) received the smallest shares of U.S. FDI outflows. Within the Asian-Pacific countries Australia (X.XX%), Japan (X.XX%), Singapore (X.XX%), Hong Kong (X.XX%), and China (X.XX%), received the largest shares respectively.
Growth rates of outward FDI varied substantially as well among the regions (see Table X). For example, U.S. outward FDI to the Asian-Pacific region grew at an annual rate of XX.XX% between 1999 and 2009; with China and India exhibiting annual rates of XX.XX% and XX.XX% respectively. In contrast, FDI to the more developed Asian-Pacific economies of Australia (XX.XX%), Hong Kong (XX.XX%), Japan (X.XX%), and New Zealand (X%) grew more slowly. While the growth of FDI to the whole of Africa (XX.XX%) and the Middle East (XX.XX%) has risen overtime, the absolute magnitudes are still minute relative to other regions. Furthermore, U.S. outward FDI to India and China grew by XXX% and XXX% respectively between 1999 and 2009 period, a dramatic increase; in Dollar terms, it grew by $XX.X billion and $XX billion respectively over the same period. Ongoing market-oriented liberalizations, particularly with respect to FDI policies, as well as domestic economic growth and macroeconomic stability in the latter two countries may account for the exceptional growth of U. S. FDI to the latter countries. In addition, both countries, who are members of the World Trade Organization (India since 1995, and China since 2001), had liberalized FDI policies to meet the membership requirements.
The growth in U.S. outbound FDI creates policy dilemmas for both the source and recipient countries. For example, the literature describes both social benefits and costs associated with the rapid expansion of outbound FDI. MNCs engage in FDI activities at strategic location to consolidate long-term and short-term economic benefits. They can benefit from improved efficiency through the exploitation of economies of scale and lower input costs; from market access in locations where the size of the market, the rate of growth of the market, the proximity of the market to other markets are important; and from improved access to essential resources. Furthermore, outward FDI can provide enhanced global networking, and global vision. Nevertheless, outward FDI may divert new investment from the source country to host countries thereby reducing the potential for future domestic growth and employment opportunities. There are also fears expressed by some (Cowling and Tomlinson, 2000) that increased overseas production may result in the abandonment of a source country's input supply chain, leading to a "hollowing-out" of domestic industries. (X)
FDI's impact on a recipient depends on the country's capacity to assimilate the outside investment into the country's economic, social, judicial, and cultural infrastructure. Inflows of FDI have the potential to raise the demand for labor, facilitate the transfer of advanced technology, and stimulate economic growth. However, bottlenecks caused by inadequate human capital and infrastructure, regulatory, and cultural barriers can reduce these potential benefits. Detrimental employment and growth effects can also occur if foreign investment crowds out local firms resulting in job losses, and reductions in domestic investment.
Concerns about the balance between the benefits and costs of FDI have intensified interest in identifying the factors inducing outbound FDI and feasible policy options that might be used to maximize global benefits. Our study focuses on U.S. outward FDI in the context of a formal FDI function. The reduced-form equation of Barrell and Pain (1996) specifies FDI as a function of demand and factor prices. Our study extends their seminal contribution by (a) considering the impacts of endogenous technology and skill differentials on outward FDI, and (b) estimating the outward FDI model for more sectors. The inclusion of knowledge-based variables in the outward FDI function incorporates the ideas advanced by Dunning (1988), Grossman and Helpman (1991), and Krugman (1995). We show that a) headquarter R & D activities and agglomeration are robust and key to U.S. outward FDI, b) host R & D activities are negatively correlated with U.S. outward FDI, c) the correlation of relative skill endowments with outbound FDI vary sector, (c) wage differentials are correlated with MNCs location decisions, but the result is not robust to changes in model specification, and (d) some MNC location decisions vary by sector. Our findings confirm some commonly held views on the motivations for US outward FDI; nevertheless, they also yield some surprising new insights and subtle policy implications.
II. RELATED STUDIES
An early study by Mundell (1957) determined that FDI tended to flow from countries with relative capital abundance to countries with relative capital scarcity. He concluded that factor endowments determine the pattern of FDI flows. Subsequently, Behrman (1972) expanded Mundell's model by adding more explanatory variables. According to Behrman, resource endowments, efficiency in resource usage, profitability of markets, and strategic location of the recipient country determine the flow of FDI. More recent studies, such as Dunning (1988), Grossman and Helpman (1991), Krugman (1995), Markusen (1995), and Venables (1996) augment the factor-endowments model with variables related to imperfect competition and the benefits of agglomeration. These studies emphasize the role of knowledge-based, firm-specific assets .in outward FDI flows. To Dunning, a combination of location and firm-specific ownership advantages determine the amount of foreign investment undertaken by MNCs. Location advantage comprises factor endowments and the ease of market access in the recipient country. Firm-specific ownership (monopolistic) advantages include such internally exploitable factors as trademarks, patents, and managerial skills that give MNCs a competitive advantage over firms in the recipient country.
Other studies recognize several additional factors influencing FDI. For instance, Feentra and Hanson (1997) suggest that low labor costs determine FDI. In contrast, Fung, et al. (2000) and Mody, et al. (1998) found no relationship between the two. Janicki and Wunnava (2004) show that trade openness, country risk, labor costs, and market size influence FDI. The impact of trade openness was also investigated by Katayama et al. (2005) and Park (2003) who show a negative relationship. Pantelidis and Kyrkilis (2003) suggest that market size (measured by real GDP) is one of the most important determinants of outward FDI for countries in the European Union; Mody and Krinsha (1998) exhibit a statistically significant relationship between market size and Japanese outward FDI while Kimino et al. failed to confirm this relation.
The studies by Love (2003), Love and Lage-Hidalgo (2000), and Barrell and Pain (1996) focus exclusively on U. S. outward FDI. Love found little support for the technology-sourcing hypothesis. Love and Lage-Hidalgo concluded that market size and relative factor costs determine U. S. investment in Mexico. Barrell and Pain found demand, labor cost, cost of capital, and exchange rates to be the primary determinants of U. S. outward FDI. While past attempts to elucidate the determinants of outward FDI have produced important insights, as noted in the discussion above, much ambiguity still remains. This paper attempts to clarify some of these issues by building on the work of Barrell and Pain (1996). Specifically, we use the conceptual framework advanced by Dunning (1988), Grossman and Helpman (1991), and Krugman (1995) to incorporate endogenous technology and skill differentials into a Barrell-Pain-type model.
III. FDI WITH ENDOGENOUS TECHNOLOGY
Our starting point is a multinational firm (MNC) that undertakes foreign direct investment in order to maximize the present value of its net worth. The firm faces downward sloping demand functions in both the home and recipient countries. Production occurs in both the home and recipient countries as expressed in equations (X) and (X).
[Y.sub.X] = [AK.sup.[beta]] [([S.sub.X][L.sub.X]).sup.X-[beta]] (X)
[Y.sub.X] = [AN.sup.[beta]] [([S.sub.X][L.sub.X]).sup.X-[beta]] (X)
where Y, A, K, S and L represent output (income), factor productivity, capital, skill endowments, and labor respectively. N is capital financed by FDI for use in the recipient country; it is equivalent to the stock of FDI in the recipient country. The subscripts X and X denote the production and input values in the source and recipient countries, respectively. The factor productivity variable A is determined endogenously by knowledge-based assets created by the MNC as well as by knowledge accessed in host countries through its subsidiaries. What Dunning (1988), Grossman and Helpman (1991), Krugman (1995), Markusen (1995), and Venables (1996) refer to as firm-specific, knowledge-based assets can be applied to additional MNC affiliates with negligible additional costs. Patents, trademarks, superior technology, and organizational systems are examples of knowledge-based assets.