The determinants of foreign direct investment: An analysis of US manufacturing industries

Abstract

Abstract This study explores the determinants of foreign direct investment by analyzing the variation across US manufacturing industries in the extent of outward foreign direct investment. Three types of industry characteristics are hypothesized to explain this variation. Empirical support is found for four sources of ownership‐specific advantages favoring foreign direct investment, new technology created through research and development, marketing abilities, organizational techniques and capital cost advantages. Support is found for the role of production scale economies in favoring centralization and hindering foreign direct investment, but results suggest only a weak role for transport costs in favoring decentralization and foreign direct investment. Producer concentration, perhaps reflecting oligopolistic competition, is positively related to foreign direct investment.