Firm- and Country-Level Trade-offs and Contingencies in the Evaluation of Foreign Investment: The Semiconductor Industry, 1994–2002

TLDR

The study investigates how firm- and country-level factors jointly influence semiconductor firms’ international plant location decisions between 1994 and 2002. Results indicate that advanced‑technology firms favor technologically sophisticated but politically stable host countries, whereas less advanced firms are willing to trade off political risk for technological gains, and firms balance own versus other‑firm experience in evaluating foreign investment opportunities.

Abstract

This paper examines the joint impact of firm- and country-level factors on the international plant location decisions of semiconductor firms from 1994–2002. We find that these factors interact to influence the location decisions of firms investing abroad in a given host country. Firms with more advanced technological capabilities are more likely to make investments in countries with greater technological sophistication but not in politically hazardous countries where they face greater expropriation hazards. Firms with less-advanced technology are more willing to accept a trade-off between country-level political hazards and technological sophistication. Firms also trade off own- versus other-firm experience as sources of critical knowledge regarding the foreign investment environment.